Coolrunning

Employee Cell Phones

2011-09-16T10:52:00.000-07:00

Do you provide your employees with cell phones or pay their cell phone bills? Well then you will be interested in this news, as this week the Internal Revenue Service (IRS) issued guidance on how a business should be treating employer-provided cell phones. As you know, providing something of value to an employee is going to be taxable to the employee and deductible by the business. The exception to this situation is when a business provides an employee with a tax-free fringe benefit. How does a benefit get to be “tax-free” is summarized as follows: Congress says so. Congress hasn’t said cell phones are a tax-free fringe benefit so they are taxable to the employee at the fair market value of the employer gift or payments.

But, now, with the new guidance from the IRS, the situation is a little better. For instance, the cell phone you gave to your employee may be exempt from tax for the employee if you gave it to the employee for “noncompensatory business reasons”. An example of this would be if you gave your employee the cell phone so they could talk to clients when they are away from the office. The IRS guidance specifically says that if the cell phone is provided to promote employee morale or goodwill then it is not provided for noncompensatory business reasons and the value of the phone is taxable income to the employee.

If you can get over the “noncompensatory business reasons” for giving the employee a cell phone then the IRS will treat the employee’s use of the cell phone as related to the employer’s business and thus as a working condition tax-free fringe benefit. That means that the payment of the cell phone bill is also not subject to tax to the employee. And one more benefit of clearing this hurdle, is that the IRS will treat any personal use of such a cell phone as a de minimis fringe benefit, excludible from the employee’s income.

This guidance is effective as of December 31, 2009 and thereafter. (Notice 2011-72)

Don't be a Sitting Duck!

2011-07-11T14:20:00.000-07:00

I've had four clients call me in the past month because the IRS was asking them for information so that they could "finish processing" my client's most recent tax return. The request for additional information came from the IRS via e-mail.

This is a scam and you should not respond to it in any manner. The return URL looks good, the e-mail has the IRS logo and you could be fooled by the message to respond with some personal information. If you do respond, you will, unfortunately, be assisting someone to hack into your accounts.

How can you tell that this is a scam? The way you tell is this: the IRS does NOT communicate with taxpayers via e-mail. Never, no way! So if you get a message from the IRS via e-mail, please do not respond to it.

I truly hope that this information saves you some headaches.

Jerry

California Sales Tax Rate will Go Down July 1

2011-06-29T16:35:00.000-07:00

Effective July 1, 2011 the California sales and use tax rate will decrease by 1%. The "temporary" 1% increase implemented in April 2009 expires on June 30, 2011.

District taxes are still applicable so the rates will vary from place to place as a result. Check your local rates to be sure you are collecting the correct amount of sales tax.

As mentioned in this blog earlier this month, the proposed California budget does include revenue from the additional sales tax to be collected from online retailers such as Amazon.com and others who currently don't collect sales taxes from their California customers.

So remember to reprogram your cash register for July 1st!

IRS Announces increase in Business Mileage Rate

2011-06-23T13:51:00.000-07:00

Today the Internal Revenue Service (IRS) announced today that effective July 1, 2011 the standard mileage rate for business driving will go up to 55.5¢ per mile through the rest of the year. The IRS announces the standard mileage rate for use on next year's tax returns towards the end of the calendar year; it changes the rate during the year only in case of pressure from Congress and in light of significantly increased gas prices at the pump. The standard mileage rate since January 1, 2011 was 51.0¢ per mile.

This optional business standard mileage rate can be used instead of the actual operating costs and depreciation for your business vehicle. This rate is also the rate at which a business can reimburse an employee for business driving by the employee using the employee’s personal car.

In addition to the increased business mileage rate, the IRS also increased the standard medical/moving mileage rate (23.5¢). The standard charitable rate remains at 14¢.

Changes Afoot for Collecting and Paying Sales Taxes

2011-06-20T11:31:00.000-07:00

A move that should surprise no one, state governments, in some tight squeezes for money, are looking to change rules under which sales tax is collected. Currently a business will collect sales tax from customers with whom they are doing business that are located in states that they have an office or “presence”. For instance, a California business will collect sales tax from all customers who they do business with that have addresses in California. If the customer for a California business is located in, say Washington, then the California business will not collect California sales tax. Nor will it collect sales tax for Washington since the customer isn’t located in Washington. This concept comes from a Supreme Court decision many years back, before the Internet, that called such setting and collecting of this tax to be a hindrance to interstate commerce, which is against the Constitution! As I said, this is a pre-Internet ruling and did not anticipate such a robust market of “out-of-state” that customers for a local business. Enter the Internet and companies, such as Amazon.com which make sales that escape sales tax in just about every state in the union due to the location of their “stores”. For Amazon.com they actually collect sales tax in five states which leaves quite a few states that they make sales in and that they do not collect sales tax for.

Now to be sure the states do have laws on their books which require individuals and businesses who buy items out of state without sales tax to report and pay the taxes owed. The tax is now called a Use tax under these laws and the rate of tax is exactly the same as the sales tax would have been for the customer. The problem is that the states have little chance to find those who make these purchases and thus little chance to enforce these laws. The result is predictable: few people report and pay the use tax that they may owe. States look at this situation as a massive evasion of the taxes that they are legally owed and they are determined to do something about it! First they put together a coalition of large states that have been lobbying Congress to change the rules and allow them to collect sales taxes from all customers who live in their state. They have been working on this for about five years. Then specific states are going further and not waiting for the niceties of changes in current law on a national level and are trying to make changes locally.

Last week, California passed a bill as a part of its annual budget to tax online sales no matter where the business may be located by changing the definition of “nexus”. Nexus is the legal term used to define where a business is located.

How much is involved in the California effort to collect sales tax on the Internet sales that now go untaxed? One estimate used by supporters of this change say that if the law in California is passed it would result in California collecting about $200 million in additional taxes per year (about $83 million from Amazon.com alone).

What do you think about these laws and the changes to established business methods? A second question is this: do you report the non-taxed sales you make during the year to your state and pay the use tax you would owe? Leave a comment and let’s see what you think.

Getting through the summer...

2011-06-07T09:32:00.000-07:00

It's been a tough couple of years with the Great Recession and a very slow recovery. But you've gotten this far so hang on. And now the summer is here. Tempting though it might be in a tough market, I recommend that you avoid giving discounts on goods or services just to get a new sale. It is hard to recover your customers’ willingness to accept future pricing, if you undermine the basic value of your products or expertise by giving big discounts to gain new business. It might also set up pricing issues with existing customers.

What can you do to get the new customer? If you are a small firm, you can offer a caliber of personal service and responsiveness that the bigger companies can’t deliver. Remember that "customer service" thing you've read about? Now is a great time to turn that on super-drive! Determine what your specific competitive advantage is and make sure existing and prospective customers know what you offer!

Best wishes for a prosperous summer!

Jerry