Small Business Compliance

Running for Office? Consult A #TaxPro First! 1

The latest in the “There are no ‘quick questions'” files. A client calls to ask if he needs to provide a 1099 to his campaign manager. He ran a political campaign and paid her “out of his personal funds.” Now, on the surface it looks like the answer to that question would be “no” because individuals are not required to issue 1099s. Businesses, however, are and this political campaign had an EIN and its own bank account. The candidate’s “personal funds” were actually contributions he made to his campaign. So now the answer is “yes.” Easy, right? Well, if the personal funds had been paid back they could have been considered loans and we’re back to “no.” And a good #taxpro will also work to keep you in compliance in general so more due diligence was required. Four or more hours down the rabbit hole later I found the following potential filing requirements:

  • IRS Form 8871 (required for tax exempt status if the gross income for the campaign reached over $25K)
  • IRS Form 8872 (required if you are running for a federal office OR if you are not reporting your state/local campaign income and expenses to your state authorities)
  • Form 1120-POL (may be required for certain types of non-exempt campaign income that exceeds $100)
  • Form 990-N, 990-EZ, or 990 (tax return for tax exempt organizations all with different filing thresholds and requirements and which are just slightly different if your tax exempt organization is a political organization)

Lucky for me and my client, his campaign was fairly small and many of the forms that might have needed to be filed didn’t need to be filed (just the 1099 and the 8871). I did give him and his campaign treasurer a heads up on the applicable thresholds and filing requirements and told them that if things “started to get big or gain a lot of momentum” to be sure to contact me so we can stay up to date with all of the requirements and necessary bookkeeping.

Your campaign may be small and you may think it’s not a big deal, but the tax consequences can be hefty for non-compliance. Better safe than sorry! Consult your #taxpro and stay safe.

I order everything for my #smallbusiness online so I don’t have to pay #salestax!

I had to turn down an engagement once because of a statement like this. I could tell the client had no interest in becoming or remaining tax compliant.

It is true that when you order online from a business that doesn’t have “nexus” in your state you are not charged sales tax on your purchases. Small business owners need to be aware, however, that different states define nexus differently and many states are expanding their definitions of nexus to increase state sales tax revenue. Take a look at your purchase confirmation or receipt next time you order online from a big retailer, if the retailer has nexus in your state, you are charged sales tax no matter what.

“That’s why I order everything from” And that, taxpayers, is where #usetax (or sometimes #compensatingtax) comes into play. State departments of taxation and revenue are not unaware of this type of tax avoidance and neither are state legislatures. Most states have some form of use or compensation tax filing requirement designed to ensure that the state gets at least some portion of revenue from purchases made with companies operating outside the state (and the state sales tax requirement). Here in New Mexico we file and pay our use tax with our gross receipts tax returns. This tax applies to online purchases (depending on the state it can even apply to purchases of used items from places like craigslist or e-bay) not subject to regular sales tax. For example, if I purchase my office supplies from amazon instead of from a local supplier or an online supplier with local nexus, I have to report the amount purchased and pay the state #usetax of a little over 5%. Same thing with furniture. Same thing with reference materials or artwork or a new phone system. Some states may even have a #usetax requirement for services. Now, this does save me a little bit of money because the state #usetax is a couple of percent less than the #salestax I would be charged if I went to a store and bought the items. But states are cracking down on the failure to report this tax.

Don’t get caught unaware! Check your state and municipal requirements and definitely consult your #taxpro if you have been buying online to avoid #salestax.

Yes, you do have to 1099 your landlord!

There’s a question on most business tax returns that says “Are you required to issue 1099s this year?” and a follow up question that says “Did you do it?” If you do your own taxes and are simply checking the box that says “No—not required” or telling your #taxpro that you didn’t have a filing requirement you are opening yourself up to some really stiff penalties and something called backup withholding. On January 1, 2016 the penalty for not filing 1099s is $100 per item not filed. The deadline for filing was moved up this year to January 31st. So if you need to file some 1099s, you need to do it (or find help) quickly. The penalty goes up if you wait to file or fix errors until after August 1 of the tax year.  If you have a lot of contractor employees that can add up quickly, but here we’re talking about landlords (and a couple of other surprises).

In general, if you are in business, it is a good idea to ask anyone with whom you do business to complete a Form W9 (if it isn’t a huge corporation, for example, Staples—you don’t have to 1099 Staples). This includes your contract IT person and/or the person or company that maintains your website, your landlord, and your lawyer (one of the exceptions to the corporation rule). Even if your lawyer is organized as an S- or C- corporation you still must issue a 1099 if you paid them over $600 in the tax year. If you are a farmer or in another business that uses veterinary services, you must also issue a 1099 to your veterinarian, even if s/he is incorporated!

In theory, you should not get push back for asking for the W9, but in practice it doesn’t always work that way. It is important to understand that if your contractor does not provide you with a taxpayer ID number (either EIN or SSN) and tell you how the business is organized you are responsible for backup withholding at a rate of 28%! Don’t let this happen to you. Ask the right questions, give your #taxpro or your tax software accurate answers, and file your returns on time!