by Pete McAllister | Accounting News, IRS, Tax, Uncategorized
The IRS has eliminated an unpopular rule relating to how credit card and debit card payments are accounted for on tax returns, prompting relief from small business owners.
The new process, which was set to go into effect next year, would have mandated that companies explain the differences between numbers on 1099-K forms and their internal records. This rule was termed an “onerous and unnecessary extra step” by the National Federation of Independent Business (NFIB).
The NFIB explained the situation this way: “Section 6050W of the Internal Revenue Code, added by Section 3091 of the Housing and Economic Recovery Act of 2008, requires information returns (Form 1099-K) to be made regarding annual gross receipts reimbursements to settle merchant card transactions. Recently, the IRS added a Line 1a-e on business tax returns requiring business taxpayers to reconcile their actual gross receipts with the aggregate gross receipts amounts from Form 1099-K.”
The IRS announced it would not go forward with Line1a-e on business tax returns. The NFIB had protested the rule, saying that a company’s internal record of gross receipts would “rarely match” the amount payments processors report on 1099-K forms. That figure on the forms could include cash refunds, sales tax, tips, and other fees that merchants would not consider part of gross receipts, CFO magazine reported.
The IRS said in its letter to the NFIB, “There will be no reconciliation required on the 2012 form, nor do we intend to require reconciliation in future years.” The reporting of gross receipts and sales on the 2012 income tax forms will be modeled on the 2010 income tax forms.
“The many complications in our country’s tax code often put the small business owner at a disadvantage with government compliance,” NFIB CEO Dan Danner said in a statement. “For this reason, NFIB fought so hard to have this provision eliminated and we count this as a small, but important, step in the direction of simplifying the tax code overall.” Small businesses spend more than $74 per hour on meeting their tax compliance obligations, the NFIB says.
Lewis Taub, tax director at McGladrey & Pullen LLP, told CFO magazine that business groups might want to change their record keeping. Payment processes must continue to submit 1099-K forms, and a difference between the numbers on the forms and the gross receipts on the merchant’s tax returns could trigger an audit.
Full Article: http://www.accountingweb.com/topic/tax/irs-ends-tax-rule-unpopular-small-businesses
by Daniel Kittell | Accounting News, Tax, Uncategorized
Ending several weeks of uncertainty, Congress passed the Middle Class Tax Relief and Job Creation Act of 2012 shortly before adjourning for a long President’s Day weekend. President Obama is expected to sign the bill as soon as it reaches the White House.
The centerpiece of the new measure is an extension of the “payroll tax holiday” through the remainder of 2012. (It also extends unemployment benefits and adjusts physician payments under Medicare.) Absent this legislation, the holiday would have ended March 1, 2012, after a previous two-month extension.
Normally, both employees and employers must pay the OASDI (Old Age, Survivors, and Disability Income) portion of federal payroll tax at a 6.2 percent rate on wages up to the annual “wage base.” For 2012, the wage base is $110,100, up from $106,800 in 2011. Self-employed individuals must pay the OASDI tax at a 12.4 percent rate on the same wage base, but they may deduct half of their payments “above the line” on Form 1040.
First, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the usual 6.2 percent OASDI rate for employees (but not for employers) by 2 percent to an effective rate of 4.2 percent. But this tax break was created to last just one year – 2011. Self-employed individuals also benefitted from a 2 percent reduction in OASDI tax on amounts up to the 2011 wage base. The full 1.45 percent Medical Hospital Insurance (HI) portion of the federal payroll tax continued to apply to all wages for both employees and employers.
Subsequently, legislation enacted late last year – the Temporary Payroll Tax Cut Continuation Act of 2011 – extended the payroll tax holiday for two additional months through February 29, 2012. This extension included a recapture provision for employees receiving more than $18,350 in wages during the first two months of 2012 (the two-month equivalent of the $110,100 wage base). These employees were required to pay any additional amount owed on their 2012 tax returns.
Now, the new law wipes the slate clean. Under the Middle Class Tax Relief and Job Creation Act of 2012, the payroll tax holiday will continue unabated through December 31, 2012. In addition, the new legislation repeals the recapture provision included in the 2011 law. As was the case last year, high-income employees will benefit from the 2 percent reduction on wages up to the annual wage base.
Although the latest extension was hardly unexpected, the outcome remained in doubt during contentious debates within the halls of Congress. Surprisingly, gridlock over the required revenue offset was eased when both parties agreed to use transfers from the general funds of the Treasury to the Social Security fund. The new law also removed an estimated tax provision for certain large corporations that had accompanied the previous extension.
The IRS has gone on record as saying that implementing the payroll tax holiday for the entire year should not cause any major problems in its systems.
Make sure your business clients are on board.
Full Article: http://www.accountingweb.com/topic/tax/its-official-payroll-tax-holiday-extends-through-2012
