Bad debt can be a major problem for any business if it isn’t handled properly. Both Bear Stearns and Lehman Brothers ended up in financial turmoil because they had to write off so much bad debt. Bad debt can take its toll on your company’s financial stability and reputation. It can even make it nearly impossible to get financed by any bank.

Many companies have gone bankrupt because of bad debt. It can stem from a company that isn’t properly run or from a bad economy. No matter where it comes from, companies need to deal with bad debt before they have to file for bankruptcy.

It’s more difficult to collect on a debt the longer you let it go. If your company has debts that are more than a year old, you can turn to a collection company, but the chances of getting the money is minimal. It’s best to hire a collection company after 60 or 90 days, before the debt becomes seriously overdue and your chances of collecting on it become impossible. No company is immune to having bad debts or customers who have to file for bankruptcy.

A history of customers who cannot pay you can keep you from getting credit from suppliers and vendors. This will hurt your business in the long run because you won’t have a product to sell. Most businesses use credit to purchase products because very little cash changes hands these days. If you can’t get credit from your suppliers, you have nothing to sell and your business will fail.

Bad debt will ultimately hurt your workers as well. Your company will not be able to afford to offer health insurance or give raises to your employees, which can potentially cause your employees to look elsewhere for an employer who can offer them these things. When you lose your employees, it’s nearly impossible to recover from that, especially if they have worked for you for many years. It will cost more in the long run to hire and train new employees.

Keeping track of debt and not letting it get out of hand will keep your business running smoothly. Don’t let it turn into something you can’t control. If you begin to see issues with customers, you can take care of it right away, before it becomes a problem. Debt is a part of business, but bad debt doesn’t have to be.

Contact an accounting professional for help in dealing with bad debt.

Daniel Stoica Accounting Professional

Today’s post is by Michael Rozbruch, Founder and CEO of Tax Resolution Services, Co. (@TaxResolution)- This is an update to the post since the IRS extended the deadline.

The second (and likely the last) IRS amnesty program for Foreign Bank Account Report (FBAR) violators has been extended to September 9, 2011 (from August 31, 2011) due to Hurricane Irene. Compliance with FBAR regulations is a serious matter and not to be taken lightly. The strict requirements of the Foreign Bank Account Report (FBAR) must be adhered to by Americans with offshore accounts since foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. If you have undeclared funds in foreign bank accounts, this is an opportunity for you to minimize severe tax penalties and/or chances of criminal prosecution.

The 2009 Offshore Voluntary Disclosure Program resulted in more than 14,700 Americans with secret offshore accounts coming forward and taking the IRS up on their offer of tax amnesty for voluntary disclosure. In doing so, they avoided criminal prosecution if they paid FBAR back taxes, interest and reduced civil penalties. According to the IRS, the 2009 FBAR amnesty program generated “billions of dollars” in new revenue from back taxes. With global banks under more pressure than ever to disclose U.S. accounts, those people with their accounts offshore are strongly encouraged to report and settle taxes due before the 2011 amnesty deadline expires.

All offshore reporting activity is being managed through the IRS’s Criminal Investigation Division (CID). The Foreign Bank Account Reporting (FBAR) penalties for not filing and meeting the amnesty guidelines are severe:
• FBAR penalties can exceed 100% of the value of the asset, plus tax penalties and interest.
• If CID makes a referral to the U.S. Department of Justice for felony indictment, the criminal sanctions can be as much as up to 5 years in prison.

Navigating the complex waters of offshore account reporting can be overwhelming. Mistakes are very costly if taxpayers don’t know how to report correctly. FBAR compliance is a serious matter, and global banks are getting more pressure than ever to disclose U.S. accounts, so this is the time to get these matters settled – but I strongly suggest that you do this with help from experts. You can’t afford to not take advantage of the second amnesty program offered by the IRS. Having expert tax professionals on your side when reporting offshore bank accounts is a small investment that can make a big difference financially, emotionally and legally.

To learn more, follow these resources:

• FBAR and Offshore Account Disclosure

• FBAR Amnesty & The Offshore Voluntary Disclosure Initiative (OVDI)on Cafe Tax

• Offshore Tax Settlements on Tax Resolution University

About the author: Michael Rozbruch is a recognized tax expert and the Founder and CEO of Tax Resolution Services, Co. To learn more visit, www.taxresolution.com

Many taxpayers may not be thinking about their taxes this time of year, but the summer is the best time to start planning for next year. If you keep your financial statements and other important documents organized and safe, it will make your tax preparations that much easier, and, if you receive a letter from the IRS, you would stress over trying to find the right paperwork.

The IRS has a few helpful hints regarding record keeping.

1. The IRS won’t require you to keep your records in any certain order, but you should keep all documents that could affect your taxes. You should keep them in a safe place, and keep them together.

2. Taxpayers should keep the following records for the last three tax years:

• Bills
• Credit card and miscellaneous receipts
• Invoices
• Mileage logs
• Cancelled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return

Taxpayers should keep records that relate to their property for at least 3 years after they sell the property. Some examples are:

• A home purchase or home improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records

3. For small business owners, keep all of your employment tax records for no less than 4 years after they are due or paid. These documents would be:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Cancelled checks, cash register tape receipts, credit card slips and invoices
• Expense documents: Cancelled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and cancelled checks

Look at IRS Publication 552, Record Keeping for Individuals, Publication 583, Starting a Business and Keeping Records, or Publication 463, Travel, Entertainment, Gift and Car Expenses. You can find these publications at irs.gov or by calling 800-829-3676.

Daniel Stoica Accounting Professional

The IRS sends notices to millions of taxpayers every year, but there is no need to panic. There are 8 things you should know if you get a notice or letter from the IRS.

1. The last thing you want to do is panic. Most letters or notices can be dealt with very easily.
2. The IRS could send you a letter for any number of reasons. They could be from payment requests to changes on your account to requesting more information from you. The letters can also mean you need to contact them for account-specific reasons.
3. Every notice from the IRS gives instructions about what needs to be done regarding your account.
4. For correction notices, you may want to review the letter and make sure everything corresponds on your tax return.
5. You only need to reply to a correction notice if you you owe a payment, but not if everything else is correct in the notice.
6. If you disagree with a correction the IRS has made, you need to contact them right away. Doing so in writing is best, and explain why you disagree, and include any documentation that supports your claim. Tear off the bottom part of the notice and send it with your letter to them. Please wait at least 30 days to hear back from the IRS.
7. Generally, you can take care of any notices without having to call or write the IRS, but if you have any questions, you can call the number that is on the upper right corner of the notice. Have your tax return and the letter with you when you call.
8. Make sure to keep all letters and notices you receive from the IRS and keep them with the copies of your tax returns.

If you have questions or want more information about IRS notices or bills, you can look at Publication 594, The IRS Collection Process. Publication 17, Your Federal Income Tax For Individuals, offers information about penalties and interest. You can find both at irs.gov or by calling 800-829-3676. You may also want to speak to a tax professional.

Daniel Stoica Accounting Professional

When natural events such as earthquakes, hurricanes, tornadoes  and floods strike and turn into disasters, many of us open up our hearts and wallets and donate to those affected. Here are some tax tips for when you make those charitable donations.
1. Make sure the organization qualifies: In order to take the deduction, all donations must be made to qualifying charitable organizations. You can either ask the charity if they are on the IRS’s list or look at the IRS’s Publication 78, Cumulative List of Organizations at www.irs.gov.
2. You must itemize: You may only take the deduction if your charitable donation is itemized on your 1040 Form, Schedule A.
3. What you can deduct: Most of the time you can deduct cash donations and the market value of your donated property. As a rule, you can only donate clothing, household items, cars, or boats.
4. When you receive something in return: If you donate to a qualifying charity and receive merchandise, other goods or services, you may only deduct the exceeding amount of the market value of the benefit your received.
5. Record-keeping: You must keep accurate records of all contributions you make throughout the year, no matter how large or small. If you donate cash, you must keep any cancelled check, credit card statements, payroll deductions, and the written statement from the charity that includes the date and amount of the donation, plus the charity’s name.
6. Pledges and payments: You can only deduct pledges and payments that are made during the filing year. If you pledge $500 in September and only paid $200 by December 31st, you can only deduct the $200 you paid.
7. Donations made near the end of the year: You must include any credit card charges and check payments for the year you donate cash to a qualifying charity, even if you don’t pay the credit card bill or don’t debit your bank account until the following year.
8. Large donations: If you donate $250 or more, you will need a written statement from the charity. It must show the amount you donated and if the organization provided any goods or services to you for donating to them. The statement must also include a description of any non-cash items you donated and its estimated value. If you donate anything over $500, you will have to fill out an 8283 Form, Non-Cash Charitable Contributions and send it with your tax return. If you are going to claim a deduction for property that is worth more than $5,000, you will have to get the item appraised and fill out Section B on the 8283 Form and send it with your tax return.
9. Tax Exemption Revoked: About 275,000 organizations lost their tax-exempt statuses because they didn’t file their annual reports for the past 3 years, which they are required by law to do. Any donations that were made before the organization’s tax-exempt status was revoked will still qualify for a deduction. However, any organizations that are on automatic revocation that didn’t get reinstated can no longer take tax deductible donations.
To find out which organizations are on the revoked list, visit irs.gov. If you need general information about donations, you can look at IRS Publication 526, Charitable Contributions. For the value of donated property, you can look at IRS Publication 561, Determining the Value of Donated Property. You can find these publications at irs.gov or by calling 800-829-3676.

Daniel Stoica Accounting Professional

Today’s post is by Michael Rozbruch, Founder and CEO of Tax Resolution Services, Co. (@TaxResolution)

The second (and likely the last) IRS amnesty program for Foreign Bank Account Report (FBAR) violators is set to expire on August 31, 2011. Compliance with FBAR regulations is a serious matter and not to be taken lightly.  The strict requirements of the Foreign Bank Account Report (FBAR) must be adhered to by Americans with offshore accounts since foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions.  If you have undeclared funds in foreign bank accounts, this is an opportunity for you to minimize severe tax penalties and/or chances of criminal prosecution.

The 2009 Offshore Voluntary Disclosure Program resulted in more than 14,700 Americans with secret offshore accounts coming forward and taking the IRS up on their offer of tax amnesty for voluntary disclosure. In doing so, they avoided criminal prosecution if they paid FBAR back taxes, interest and reduced civil penalties. According to the IRS, the 2009 FBAR amnesty program generated “billions of dollars” in new revenue from back taxes. With global banks under more pressure than ever to disclose U.S. accounts, those people with their accounts offshore are strongly encouraged to report and settle taxes due before the 2011 amnesty deadline expires.

All offshore reporting activity is being managed through the IRS’s Criminal Investigation Division (CID). The Foreign Bank Account Reporting (FBAR) penalties for not filing and meeting the amnesty guidelines are severe:
•            FBAR penalties can exceed 100% of the value of the asset, plus tax penalties and interest.
•            If CID makes a referral to the U.S. Department of Justice for felony indictment, the criminal sanctions can be as much as up to 5 years in prison.

Navigating the complex waters of offshore account reporting can be overwhelming. Mistakes are very costly if taxpayers don’t know how to report correctly. FBAR compliance is a serious matter, and global banks are getting more pressure than ever to disclose U.S. accounts, so this is the time to get these matters settled – but I strongly suggest that you do this with help from experts.  You can’t afford to not take advantage of the second amnesty program offered by the IRS. Having expert tax professionals on your side when reporting offshore bank accounts is a small investment that can make a big difference financially, emotionally and legally.

To learn more, follow these resources:

• FBAR and Offshore Account Disclosure

• FBAR Amnesty & The Offshore Voluntary Disclosure Initiative (OVDI)on Cafe Tax

• Offshore Tax Settlements on Tax Resolution University

About the author: Michael Rozbruch is a recognized tax expert and the Founder and CEO of Tax Resolution Services, Co. To learn more visit, www.taxresolution.com

The IRS just made it a little harder for payroll departments to report tax information.

The IRS announced on its website that employers will now have to manually enter the Taxpayer Identification Number (TIN) on employees’ W-2 forms if they have Individual Taxpayer Identification Numbers (ITINs). This requirement will become part of the 2011 tax year.

No software can be used to populate TINs on W-2s, despite any override features. If employers don’t comply with this new rule, they could receive a written reprimand, a suspension, or, in the worst case, become ineligible to e-file. The IRS cited Rev. Proc. 2007-40, which gives them the right to take this action.

This was put in place in order to put a stop to taxpayer and preparer fraud. In earlier years, the IRS had used ITINs to weed out fraudsters.

An ITIN is a 9-digit number and has a range of 70-88 in the 4th and 5th digits. On April 12th of this year, that range was extended to 90-92 and 94-99 in the 4th and 5th digits. The IRS gives ITINs to taxpayers who must have a TIN but don’t have, and cannot get, a Social Security number.

This new regulation by the IRS would slow down the W-2 process. The IRS realises this will be a pain for payroll workers, but they have are doing this to help put a stop to tax fraud. They suggest that payroll departments work with their IT departments to update their software. The penalties for having non-manual TINs will be enormous.

Daniel Stoica Accounting Professional

Businesses that offer retirement plans to their employees will often encourage employee loyalty. Some smaller businesses don’t know how to set up a 401K plan for their employees. Here are some tips to help your through the process.

When you begin to set up your 401K, you will find that you will have to meet some legal requirements in order for your business and your employees to get the most tax breaks. There are 3 types of 401K plans to look at before you decide:

-Traditional 401k plan: This is the most flexible plan. You have to option of making contributions, either by percentage or matching, or both. Or, you may not wish to contribute at all. You can also decide when your employees can withdraw those contributions.

-Safe Harbor 401k: This is similar to a traditional 401K, but your employees are totally vested in your contribution when they are made. You also don’t have to make sure your higher-salaried employees don’t get more than your lower-salaried, or hourly employees. With a traditional 401K, you have to make sure that doesn’t happen.

-Simple 401k: This is closely related to a Safe Harbor 401K, but only business with less than 100 employees can benefit from this plan.

Regardless of the type of plan you implement, a written plan must be drawn up. Federal law states that certain employees are eligible and decides how much they are allowed to contribute. You, as an employer, can decide on your own how much you will contribute and how much of your employees’ contributions you’ll match, if you choose to do so at all.

Next, you will have to set up a trust fund for the 401K plan’s assets, and name a trustee of those funds. They will take care of all of the contributions and will invest the assets and distribute money from the plan.

Detailed records must be kept of all contributions, investments, earnings, losses, expenses, and distributions. There must be separate accounts for each employee who contributes their earnings and a yearly report must be filed with the government.

Once all other steps are completed, you will have to give your all of your contributing employees detailed information regarding the benefits and requirements of the plan. This information will explain the 401K and how it works, when the employee is eligible, how contributions are invested, matched and distributed, and how and when the employee may withdraw from their 401K. It also explains the employee’s rights under the Employee Retirement Income Security Act.

Where to go for additional help

Any bank, insurance company, or brokerage firm can set up a 401K trust for your business. They can also assign a trustee for you, if you wish, as well as someone who can keep records of all of your transactions. Talk to a tax professional for more detailed information about any tax implications due to starting a 401K plan in your company.

Daniel Stoica Accounting Professional

Some encouraging, and possibly surprising, news: A report that was issued by the Treasury General for Tax Administration (TIGTA) stated that the IRS is improving its customer service. This report was announced due to a follow-up audit on the IRS and their customer service practices. The report also mentioned that there were long wait times and issues with scheduling, but that the IRS received very high marks in helpful and accurate information to taxpayers.

The TIGTA posed as ordinary taxpayers and asked customer service agents some general tax questions when they called the IRS’s toll-free number, when they logged on to irs.gov, and when they went into the Taxpayer Assistance Centers (TAC). Their questions were answered to their satisfaction, with friendliness and accuracy, and with several different IRS resources. Customer service agents were asked questions related to tax laws and tax preparation from Taxpayer Assistance Centers across the country and they were met with very knowledgeable IRS staff.

Their only issue seemed to be with lengthy wait times at the centers and on the phone. The auditors often had to wait more than an hour at the Taxpayer Assistance Centers. A few times they had to wait so long that they were asked to return at another time. Part of the audit showed that some Taxpayer Assistance Centers wouldn’t allow taxpayers to schedule appointments, nor did they apply taxpayer screening guidelines or procedures.

J. Russell George, Treasury Inspector for Tax Administration said, “An important part of the IRS’s mission is to help taxpayers understand and meet their tax obligations. We urge the IRS to make improvements as we have outlined in order to improve taxpayer service.”

The TIGTA hopes that the Wage and Investment Division will help Taxpayer Assistance Center managers make better scheduling procedures that have been requested by taxpayers who need ongoing and in-depth help with complicated tax issues, and for disabled taxpayers. The also requested that the IRS update their website and their recorded messages by letting taxpayers know they will need to provide identification and social security numbers in order to receive assistance. The TIGTA is certain that this will speed up customer service.

The IRS has stated that it is working diligently to assist taxpayers more quickly and accurately to their questions. This procedure will keep taxpayers coming back to the IRS website and the Taxpayer Assistance Centers instead of going elsewhere for help.

Daniel Stoica Accounting Professional

The new school year is here and many parents will be enrolling their children in school for the first time, as kindergartners. Some taxpayers have questioned whether they can claim the dependent care credit for full-day kindergarten as well as after-school programs.

In order to qualify for the dependent care credit, you must have paid for the care of your dependent child who is under 13 years of age, and you must be employed. Married taxpayers will be considered employed if at least one spouse is working full-time and the other works either full or part-time, or is enrolled in school as a full-time student. If you are married, you will have to file a joint return in order to claim the credit.

The percentage for the credit is 35% of your eligible expenses when you have an adjusted gross income (AGI) of $15,000 or less. For every $2,000 beyond this AGI, the credit will be reduced by 1%, but cannot drop below 20% for an AGI of $43,000 or more.

You can take the credit for the first $3,000 for one child, and $6,000 for two or more children. For taxpayers whose income is more than $43,000, you can qualify for $600 for one child and $1,200 for two or more children. Qualifying expenses are defined as payments toward babysitters, day care and pre-school. According to the IRS, summer day camp may also qualify for the credit, but not overnight camp.

Some have argued that parents who have to pay tuition for full-day kindergarten should be allowed to deduct some of those costs, but a 2007 IRS regulation stated that kindergarten is education and parents cannot take a credit for tuition costs.

The same is true for half-day kindergarten. However, if a parent pays for before- or after-school programs for a child who is in half-day kindergarten, those expenses are eligible for the credit.

Taxpayers need to take these credits into consideration when they are placing their children, aged 13 or younger, in the care of others. The credits can be a real money saver.

Daniel Stoica Accounting Professional