The law was originally passed in 2007 and ever since that time our entire payroll clients have been using E-Verify to check the new employees.  We provide this service to them at no charge because it is not that difficult to do and does not require very much time.  The most important document is the I-9 and it is up to our clients to make sure that it is completed and the photo identification is actually the person that they are looking at. The other requirement that we have is that it is legible. This is critical in the spelling of their names. E-Verify matches the name you type in with what the Social Security Administration has on file. If there is no match then you will not receive compliance from E-Verify.  That is not to say that the way you typed in the name is wrong just it did not match SSA’s records.

The critics bring the problem of the accuracy of E-Verify and how employees will be harmed because of the inaccuracy. Our comment to that is that maybe this is a method of helping eliminating the errors, we really do not know.  What we do know is that if an employer uses E-Verify reduces or eliminates the punishment that the State of Arizona can impose.  This is why we have kept using E-Verify from when the law was first passed and will continue to use it.  Remember that if there is a problem it is not up to the employer to fix the problem it is up to the employee.

As mentioned at the beginning this is not to discuss the merits of the law but how employers can use E-Verify to help conform to the law avoiding in possible sanctions from the State of Arizona.  Those of you who do not live in Arizona it is our understanding that eight other states have enacted similar laws and that thirteen states filed briefs supporting Arizona.

Another benefit is that we can help you while you are logged in.  We have the capability to “shadow” you.  In other words we can see your screen as you are looking at it and we can see what you are doing. Say you’re working on your data and you come to a transaction where you are unsure how to proceed. All you have to do is call us and we can see what you are doing and advise you on how to enter the transaction. We only do this when asked and you will know when we transfer over because of your screen’s reaction.

Keep in mind that you have full control of your data.  It belongs to you and we are only hosting it to allow you the benefits as mentioned above.

We know that security is a major issue and our system is set up in such a way that you will only have access to your data, and you will not be able to see other clients nor will they be able to see you. Our system is backed up every day and we have the redundancy (multiple elements) in the system so you do not have to worry about losing any of your data.  We also have the anti-virus to protect all of the files. In essence, you will be working off the same server that we do, so you should know that we trust the system.

To access our system, you will use Windows’ “Remote desktop” to log on.  The system is running 24/7 with only occasional down time for upgrades and maintenance. These times are usually on Sunday and will be announced if possible so that you will know ahead of time.  If you have access to the Internet, you have access to your accounting data. It is that easy.

If you would like more information, please contact us and we will answer any questions that you might have.

I found his blog interesting, but it primarily concerns itself with the big accounting firms and large companies that use the type of software he describes. The one program he mentioned is Excel and he is absolutely correct that you will not have a chance without those skills. I must admit, however, that it would be nice if Microsoft talked to accountants before their updates so they can understand what works best for us instead of thinking that they know best.

dasmah Accounting only works with small companies and is primarily concerned with either QuickBooks or Peachtree. We have used ProSeries and Drake for our tax software. We currently only use Drake because of cost considerations to our clients. Small companies cannot afford to spend thousands of dollars for accounting services, so we specialize in the small companies and help them in keeping their accounting cost down while still maintaining accurate accounting information.

While “to-be accountants” are in school earning their degrees, the students should also be taught basic accounting software alongside the principles of accounting, plus the all-important topic, ethics. College doesn’t seem to be the hands-on learning place for accountants about what they will be doing day-to-day. Instead, it focuses mainly on theory and the art of accounting. Although these topics are important, it is also important to gain practical knowledge. Today’s job market makes it nearly impossible for graduates to come out of college and get a job in the field of accounting if they don’t know how to use the software programs any given company uses.

Another factor that I will mention, although it is not about software, is the ability to work from your home. All of the dasmah employees work from their home. We all log into our servers that are under very tight security and we intend to keep it that way. My point is that not everyone can work from their home. They cannot separate themselves from all of the interruptions, especially if children, pets, or other family distractions are present. The very first thing that I watch is how well a new employee adopts to this environment. I am not criticizing those who cannot adapt, but, I am saying that it takes certain skills to work in the home-based environment.

Those of you who own shares of a S-Corporation need to be aware that even though House Bill H.R. 4213 failed. This bill would have made all profit from a S-Corporation subject to self-employment tax. Expert sources indicate that eventually some similar bill will be passed by Congress, so we will try to keep you posted.

The adoption credit increased by $1,000 starting in 2010, and the maximum dollar limit will be phased out after December 31, 2010. Health insurance for your children to age 26 can be insured on your policy starting in January 2011. Enrollment will depend on the policy anniversary date.

Those that have a 529 plan or are interested in starting one the ARRA (American Recovery and Reinvestment Act of 2009) allows computer/computer software expenses as long as they are associated with the student’s education. Tuition credit can be as high as $4,000, but there are restrictions on costs above $2,000.

Last year many of you received a refundable credit of either $400 or $800 (some might have received less because of the earned income level). That credit is available for 2010. Mortgage forgiveness is available if you can qualify (cancellation-of-debt income). Due to a high rate of fraud, returns are being checked more carefully by the IRS and you must have a 1099-C. If you are trying to qualify for purchasing a home credit, then be sure that you have a signed copy of the HUD-1 Settlement Statement. There are other qualifying restrictions, so have all of your information ready when you meet with your accountant or with us.

We’ve just highlighted some items for you to consider without going into any great detail but if you want more information, please contact us.

Again have a great Holiday Season – Paul Spears, Rachel Larsen, and Sharon Price

It doesn’t matter if you make thousands or hundreds of dollars a year, a budget is the first step to making your money work for you instead of letting it control you and this always has a domino effect in falling short of your goals. 

Give yourself a challenge that for one month you will write down how much you bring in and keep track of every penny you spend.  I promise that you will be amazed and a little surprised by how much those small expenditures add up. 

I have some clients that are very visual people and have actually set up envelopes that have cash in them ear marked for groceries, utilities, entertainment, gas etc. and when the envelope is empty that’s it for the month and they make due.  Then there are other’s that love a good spreadsheet where they can graph their progress, or just even sitting down with a pencil and paper works too. The important thing is that you get on that road to financial freedom by starting a budget today.   

Budgeting and tracking your expenses gives you a strong sense of where your money goes and can help you reach your financial goals not to mention the positive effects this can have on your family relationships.  So sit down this weekend and really do it

Rachel Larsen

As a small business owner you may hire people as independent contractors, or as employees.  There are rules that will help you determine how to classify the people you hire.  This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.

Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.

1.  The IRS uses  three characteristics to determine the relationship between businesses and workers:

• Behavioral Control covers facts the show whether the business has a right to direct or control how the work is done through instructions, training or other means.
• Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the workers’ job.
• Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

1. I you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers and most likely employees.
2. If you can direct or control only the result of the work done – and not the means and methods of accomplishing the result – then your workers are probably independent contractors.
3. Employers who misclassify workers as independent contractors can end up with substantial tax bills.  Additionally the can face penalties for failing to pay employment taxes and for failing to file required tax forms.
4. Workers can avoid higher tax bills and lost benefits if they know their proper status.
5. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding with the IRS.
6. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link.  Additional resources include IRS Publication 15-A, Employee’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976 Do You Qualify for Relief under Section 5307? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676.

1)       Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home.

2)      Visiting clients or customers.

3)      Going to a business meeting away from your regular workplace.

4)      Getting from your home to a temporary workplace when you have one or more regular places of work.  These temporary workplaces can be either within the area of your tax home or outside that area.

Commuting to and from work is not business mileage.

You have a choice of either using the standard mileage or actual expense to determine your business auto deduction.  The standard mileage method takes the number of miles times the amount the IRS allows per mile.  For 2009, it was $.55/mile.  This can change during the year, so you will have to wait until the end of the year to get the rate.  If you are using the standard mileage method, you will still need to report the total miles driven and both the personal and commuting mileage.

The other method is actual expense, in other words, what you paid for gas, tires, insurance, repair and insurance.  You can also take depreciation.   To use this method, you determine the percentage of the total mileage that the business mileage represents (business mileage/total mileage = usage percentage). Add all of your expenses together and multiply that total by the percentage of usage and this becomes your deduction.  Again, records are critical.  Keep your receipts for all of the expenses and, of course, the mileage. 

Most tax preparers and tax software will calculate the deduction using both methods, if you supply the information, taking the larger of the two for the completion of the return.  Even though I have made it sound very easy, there are other conditions that may or not apply to you.  For example, there are certain conditions when standard mileage is not allowed.  Please talk to your tax preparer about using auto expenses as a deduction and explain to them the situation in detail about your usage.

We would still like to hear from you if you know of a quick and efficient method of collecting the mileage.

Client: How do I get a deduction for the mileage that I drive?
dasmah: How many miles did you drive for “business” purposes?
Client: Oh, about 5,000.
dasmah: Do you have a written record that can support that number?
Client: No, but that is pretty close to what I drove.
dasmah: How many total miles did you drive the car over the entire year?
Client: Oh gosh, I really do not know, maybe 12,000, but it is really hard to tell because I bought a different car in August.

If the above conversation sounds somewhat familiar, you are headed for a train wreck come audit time. If you want to claim mileage as a business expense, you have to take care of the details, i.e., mileage records.

Typically this blog is about providing you information, but this time I need your help. I am not into gadgets, cell phones that can do almost anything for you, or any other such devices. I am not completely in the dark ages. I do use a cell phone to call people. So is there anyone out there that has a solution for people who have lost the capability of writing mileage down when they start and again when they finish driving for business purposes that is simple and convenient?  I am not trying to be flippant here; I am serious. Is there some external device that can be activated separate from the odometer that could track the mileage? Maybe there is an “app” out there that could simplify things? The key to claiming mileage is the written record. So if you know of something, let us know, or maybe a system that works for you that you are willing to share.
I will wait and see you come up with and then answer the rest of the questions.
We need your help on this one!!

Paul Spears

You convert a spare room in your house to an “office” and during the week from 8:00 to 5:00 you use it for business.  At night other family members may use the computer to google information for a report or check their Facebook profiles.  Or perhaps a family uses the computer to keep track of home checking or does home banking over the weekend.  This would eliminate it from being a home office. “A specific portion, of the taxpayer’s home must be used solely for the purpose of carrying on a trade or business in order to satisfy the exclusive test.” (emphasis added)

Please be very careful when making this claim.  It will get the attention of the IRS because they are well aware of the deduction being abused. If you do qualify, keep track of your mortgage interest, real estate tax, property insurance, utilities and maintenance and repair.  These will be added to the expense based on the square footage of the area compared to the total square footage of the home.  You will also need to know the value of the structure, which is not necessarily what you paid for it. In most situations, when you buy a house, you buy a structure and the property (i.e., land) it is built on.  You need to know the value of the structure alone.  The structure value will be depreciated over time which is added to the expense of the home office.  The reason for this is that according to the IRS, land is not depreciable.  In other words, it does not decrease in value.

Our advice is to talk to your tax preparer or tax consultant to get all of the details before making this claim. There are some exceptions to the rules, but not very many. On a personal note, I have a home office which is used almost exclusively for business, but it is used on occasion for family interest.  I have never claimed a home office.  I am not saying this to elevate myself above those that do, but only to let you know how seriously I do take this topic. Also our tax clients that make this claim know how much detail we go into on questioning them on this deduction.

For further questions or any new questions, you know where to find us.

Paul Spears

Let’s try to simplify things a little bit by just answering some questions that we are frequently asked:

1)    I work in a large metro area and travel from client to client.   Are my meals a deduction?–  No, this would not pass the directly related test.

2)    Same question is number 1, but I have an employee with me.–  If you make this a habit, I would say no.  How many business meetings do you need a week, especially over lunch?  dasmah Accounting does have lunch business meetings, but they only happen about once every couple of months and I can honestly say the main conversation is business.

3)    What if I take one of my existing clients out for lunch?–  Yes, this would be covered. The meal is to help maintain the business relationship that you have with the client and thus your expectation of additional income in the future.

I think that the best advice is just use common sense and not try to skate around an issue that could cause you more grief if you were ever audited.  Think like an auditor.  If the person being audited tried to cheat on this, it raises red flags to the auditor on how many other items might be subject to fraud.

We have some other tax subjects that we have been asked about: home office expense, non-cash contributions, and mileage.  We will try to get to these in the coming weeks.  If you have a question, please send it to us and we will get you an answer, even if it is not the one you want to hear.