Meetings underway on payroll tax cut extension

Last December, the 4.2% social security tax rate that
workers pay on wages was extended through February 29, 2012.

Now a Congressional conference is being held to find a way
to extend the lower tax rate through the end of 2012. The sticking point is
lack of agreement between Republicans and Democrats on how to pay for the
extension, estimated to cost $100 billion.

House Democrats have expressed the hope that the conference
will be completed by the Presidents' Day recess scheduled for the week of
February 20. The legislation would extend the current 4.2% payroll tax rate
through December 31, extend unemployment insurance benefits, and prevent cuts
in reimbursements to Medicare providers.

Several legislators want to include tax extenders in the
payroll tax cut legislation. These "extenders" include such
provisions as the research and development credit for businesses, the optional
deduction for state and local sales taxes, and the $250 deduction for school
supplies purchased by teachers. Though these tax breaks appear to be
universally popular, finding a way to pay for them remains the big issue.

As you do your 2012 tax planning, keep the uncertain
legislative picture in mind.

Basis reporting expands this year

Your broker statement for 2011 reported the basis in the stocks you acquired last year. This basis reporting requirement expands this year to include mutual fund shares and stock acquired in a dividend reinvestment plan. The cost basis for these investments is included in reports that brokers send to the IRS. The IRS will compare this information with the basis you report on your tax return when you sell the investment

IRS plans random small business audits

The IRS plans to conduct random audits of 2,500 returns from 2010 filed by corporations with less than $250,000 in assets. The results will be used to update the IRS formulas for selecting returns for audit.

The IRS is also trying to improve tax compliance among sole proprietors. According to a Treasury report, sole proprietors accounted for 20% of the $345 billion tax gap calculated for 2001.

February 2012 Tax Deadlines

Don't miss these deadlines if they apply to your business:

February 15 - Brokers must provide 2011 Forms 1099-B and 1099-S to customers.

February 28 - Send Forms 1099 with Form 1096 to the IRS. If you file these forms electronically, you have until April 2 to file with the IRS.

February 29 - Send Copy A of employee W-2s for 2011, along with Form W-3, to the Social Security Administration. If you file electronically, you have until April 2 to file.

March 1 - Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.

For more information or filing assistance, contact our office.

2011 Offshore Voluntary Disclosure Program (FBAR Amnesty Program)

The Internal Revenue Service announced in a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011.

The objective of the OVDP is to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws. If you have foreign bank accounts and or assets overseas and have simply overlooked the disclosure of this you have the opportunity to correct this now.

A United States person that has a financial interest in or signature authority over foreign financial accounts must file a Report of Foreign Bank and Financial Accounts "FBAR" if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The FBAR must be received by the Department of the Treasury on or before June 30th of the year immediately following the calendar year being reported. The June 30^th filing date may not be extended.

If you have not filed FBAR's in the past then the IRS is providing the Amnesty Program until 8/31 to become compliant with tax laws.

Here are some FAQ's from the IRS regarding the 2011 Offshore Voluntary Disclosure Program:

Why should I make a voluntary disclosure? Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution. The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistleblowers, and will become more available as the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC § 6038D) become effective.

What are some of the civil penalties that might apply if I don't come in under voluntary disclosure and the IRS examines me? How do they work? A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an "FBAR"). United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

What years are included in the 2011 OVDI disclosure period? Calendar year taxpayers must include tax years 2003 through 2010 in which they have undisclosed foreign accounts and/or undisclosed foreign entities. Fiscal year taxpayers must include fiscal years ending in calendar years 2003 through 2010.

What if I cannot make a complete submission by August 31, 2011? A taxpayer may request an extension of the deadline to complete his or her submission if the taxpayer can demonstrate a good faith attempt to fully comply with FAQ 25 on or before August 31, 2011. The good faith attempt to fully comply must include the properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties.
Requests for up to a 90 day extension must include a statement of those items that are missing, the reasons why they are not included, and the steps taken to secure them. Requests for extensions must be made in writing and sent to the Austin Campus on or before August 31, 2011:

Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN: 2011 Offshore Voluntary Disclosure Initiative

Is income earned outside the US taxable on my U.S. Income Tax Return? YES, the US taxes all income earned all over the world. If you have not included income earned in foreign countries you would be required to file an amended tax return to include this income.

I have already paid tax in the foreign country, why do I have to pay tax in the US? The IRS allows for a tax credit on your tax return if you have paid foreign taxes to presumably offset the double taxation of the same income.

2011 Offshore Voluntary Disclosure Initiative

2011 Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers

Contact us immediatlely if you have questions about this program and filing your 2011 FBAR as both are time sensative. The amnesty program expires 8/31 and the 2011 FBAR is due by 6/30.

Common Business Scams

Two of the more recent and popular business scams involve getting the checking account number of your business. In one case the scammer calls a business firm claiming to represent a bank credit card company. The caller offers extremely favorable interest rates and repayment terms for new customers. The scammer claims to need some basic information to complete the firm's pre-approved credit application. Included in this basic information is the business's checking account number. After getting the account number, the scammer writes "demand drafts" on the account which will be honored by the bank if the draft has a valid checking account number on it. To help cover up the deception, the scammer often writes the drafts for small amounts that will not attract attention.

In the second scam, the scammer mails the company a check for a small amount. When the check is returned to the scammer, the information on the check will permit the scammer to learn the company's checking account number. The scammer then uses the account number to start writing demand drafts on the company's account.

Companies can help to fight these scams by thoroughly reviewing and reconciling the company's bank statement each month. If you discover any suspicious activity, call your bank immediately and then later notify it in writing. Businesses can avoid the second scam by reconciling all incoming checks with existing customer accounts and balances before cashing any check. Don't cash checks until you have identified the source.

PROTECT YOUR BUSINESS AGAINST CYBER ATTACKS

It is estimated that cyber crime costs the economy more than one trillion dollars per year. While attackers initially focused on large companies, they are increasingly targeting small and medium-sized businesses that often do not protect their systems as much as the larger companies. Automated attacks are becoming more sophisticated and frequent. Because of the volume and the technological sophistication of these attacks, any business-no matter its size-needs to be prepared with proper security measures. With the availability of "toolkits" for installing malware, cyber criminals do not even need to be well-versed in technology to penetrate a system.

Malware can be installed by sending an e-mail attachment, using a social network site, or breaking into a company's website. Once the malware is installed, the crook controls the computer. Some of the malware programs wait for the user to visit a banking or financial site and then capture the user's log-in information which is sent to the attacker. The compromised computer may also be used for its computing power, permitting the launching of additional attacks. Currently the biggest cyber risk involves bank account fraud, using legitimate account numbers. Attacks on bank accounts can be particularly harmful to small businesses. Banks typically do not extend the same protection to businesses that they do to consumers. Banks will generally provide some kind of coverage for losses connected to consumer accounts but do not provide similar protection for businesses.

Unfortunately, many small and medium-size businesses have done very little to protect themselves against cyber attacks. A poll of approximately 1,500 small businesses indicated that one-third of them did not even have basic antivirus software installed on their computers. Small businesses that had some protection tended to rely on antivirus software and basic network firewalls. Such protection may work against well-known viruses and attacks but not against the more sophisticated new attacks. A further concern is that computers increasingly operate outside of firewalls.

Companies should begin by assessing their degree of risk, taking into account the number of people who can access the network, the current level of protection, and the nature of the data being stored. Most cyber attacks come by web or e-mail, so filtering systems would be needed for those avenues of attack. When purchasing antivirus software, get the business-class version, rather than the consumer version. Businesses may want to hire the services of a computer security company. Finally, keep in mind that cyber criminals are more likely to direct their attacks at computer users than computer systems.

DON'T SABOTAGE YOUR BUSINESS WITH BAD DATA

Bad data often lead to bad business decisions. Make a detailed review of your data on a regular basis. Know who is getting paid and what they are getting paid for. You need to be confident that the data underlying your financial statements is accurate and current. Don't wait until the end of the year to find out how things have been going for the previous twelve months. You may wish to hire a consultant to make a custom report of items that are of particular significance to your business operations. Most business software can provide alerts to warn you when certain indicators are not within an acceptable range. Be sure that your bank account is reconciled on a monthly basis.

HOW TO WAKE DORMANT CUSTOMERS

If some of your customers have quietly slipped away, don't give up on them without a fight. There are some fairly simple things that you can do to try to wake up those dormant customers. First, find out why they have gone silent. There are online surveys and polls that can be specifically customized to fit your business. Ask them what you need to do better. Find out if you need to make some adjustments in the goods or services that you offer. Be prepared to react to their feedback and make adjustments where possible. Let your dormant customers know how you have responded to their feedback.

Second, you should be prepared to offer them special incentives to renew their business relationship with you. These incentives could take the form of discounts, cash, or personalized service. The incentives should involve offering your customers something that your competitors can not. It should be something unique to your business and valuable from the customer's viewpoint. Be prepared to use the new technology to get back your old customers. Use social network sites to connect with previous customers. As part of your original online survey, determine what sites your customers are using and bring them into play.

It is estimated that almost 450 million people use Facebook every day, and increasingly customers will be looking to such sites for business transactions. Use a browser app to reconnect with and maintain contact with customers. Social networking sites and browser apps can be a good way to convey the satisfaction of your current customers. If you do business online, e-mail can be an effective way of contacting and encouraging the return of former customers. Use the company website to seek out actively any customer problems and suggestions for improvement.

Many businesses become so concerned with attracting new customers that they often lose sight of the importance of trying to renew a business relationship with a former customer.

IT'S THE USER THAT MATTERS

Business people worry regularly about the security of their computer operating systems. Security would be better served by worrying about the users of the system, rather than the system itself. Today's cyber criminals are more likely to target user behavior than a technical flaw in the operating system. It is simpler for the attacker to get users to compromise their own security by opening an e-mail attachment.

Two popular scams provide good examples of this. One involves an e-mail claiming to be from the IRS which directs the recipient to open the attachment and fill out a required form. Another claims to be from the BBB and tells the recipient to open the attachment to get information about a complaint that has been filed. In both cases, opening the attachment installs malware in the recipient's operating system.

Don't Lend Money to the IRS

Will you be among the thousands of taxpayers who get a big tax refund this year? While most Americans happily
accept their tax refund checks, smart taxpayers understand that refunds actually cost them money.

Here's why:

* The government pays no interest on refunds. Kept in your hands, those dollars could have been productive. For example, you could have invested the money or used it to pay off your debt during the year. If the money had been added to a 401(k) plan, tax would have been deferred on both the investment and its earnings. Even better, your employer might have matched all or part of your investment, adding to your retirement savings. 

* Refunded cash is not available for use until actually received. Even though most taxpayers get their checks promptly, circumstances or errors can delay (or stop) a refund. 

To prevent losing money on tax refunds, consider reducing your withholding or estimated tax payments. For most taxpayers, withholding must equal either the
prior year's tax or 90% of the current year's liability. If your annual income changes little, it's relatively easy to avoid overwithholding. You should consider filing a revised Form W-4 withholding statement with your employer if you're having too much withheld. For taxpayers with fluctuating income or multiple sources of income, the problem is more complex. The IRS provides a worksheet with Form W-4, but many people find the form complicated. If you'd like assistance adjusting your withholding, contact our office.