Cantrell CPA Services, LLC

Louisiana Act 389 and the Sale of Secondhand Goods - A Firestorm Erupts Online

On July 1, 2011, Louisiana Governor Bobby Jindal signed into law Act 389 which brought forward a large number of new regulations dealing with the sale of secondhand goods.  The effective date for Act 389 was August 15, 2011.  But, there has been a great deal of confusion surrounding this law which has made dealing with the numerous specific requirements within the law even more difficult for many small businesses in the state.  In this post, I am going to try to peel back the layers of the onion and look at what requirements are actually present in the law and which ones were simply urban legend that popped up online.  I also want to offer some explanation of some serious issues that will have to be dealt with by small business owners in trying to comply with the law.  The law was difficult enough to understand without the addition of some misleading information from the internet.

Act 389 places a number of reporting and operational requirements on "secondhand dealers".  A secondhand dealer is simply any business that buys, sells, or trades any type of used or junk property.  There is no exemption for businesses who only deal with secondhand goods as a small part of their overall business.  Take Gamestop for instance.  They sell new video game consoles and games.  But, they also will repurchase games, game consoles, and iPod products and then recondition those units and resell them to their customers.  My kids love taking old games they are tired of playing to Gamestop and getting credit towards the purchase of new games.  Under this system, Gamestop would be considered a secondhand dealer. 

There are some exceptions provided in the law.  The law does not apply to nonprofit entities, operations owned by state or local governments, used car operations, auto junk yard dealers, dealers at gun and knife and other hobby shows, or yard sales/garage sales as long as they are held at personal residences.  So you Church's thrift store and Goodwill won't have to worry about where their donations came from.

Well now that we know who this law applies to - what are the requirements?  First, a dealer must gather the following information from any seller of used or junk property:

• Name and address of seller
• Date and place of purchase from seller
• The distinctive number from the seller's driver's license, passport, military ID, or other identification issued by a governmental agency.
• Some sort of photograph of the seller that is sufficient for law enforcement to identify the seller
• A dealer may also obtain thumbprints from the seller in lieu of a photograph
• The license plate number of the vehicle used by the seller to transport the goods to the dealer
• A full description of all goods purchased from the seller - including the weights of any bulk goods purchased
• A signed statement from the seller that they own and obtained legally and have proper title to all the goods they are selling

The dealer in these secondhand goods will be required to maintain this information in either a manual ledger or electronic format for at least three years from the date of purchase.  The information is to be made available for any law enforcement official to review at any time during the three month period.  Obtaining this information as required is extremely important.  Any dealer who fails to gather or maintain this information and produce a report required by a law enforcement officer that is researching some sort of stolen goods will be assumed to have knowingly received and resold stolen property.  That dealer will then be subject to prosecution for dealing in stolen property.

These record keeping issues may seem very substantial and worthy of a lot of debate.  However, the real intense arguments regarding this legislation centered around another section of the law.  Act 389 and the related Louisiana Revised Statute 37:1864.3 state that a secondhand dealer cannot make payment to a seller of used or junk property in the form of cash.  All payments to a seller must either be in the form of a check, some sort of electronic transfer (arguably including a store credit), or by money order.  When some people read this prohibition, they misunderstood to whom exactly the word "Seller" in the law was referring.  The law defines the "Seller" as the person selling the goods to the secondhand dealer for resale.  But, some people thought the law was saying that it would be illegal to purchase used or junk goods from a secondhand dealer using cash.  This issue actually went viral on the internet and panic ensued.  People began wondering if they would no longer be able to use cash to buy products from Goodwill or at yard sales.  The public was infuriated as a result of this misunderstanding.  This was simply a misunderstanding of the actual law.  But, misunderstanding or not, it caused a lot of chaos.

But, in reality, the law only prohibits a dealer from purchasing secondhand goods with cash.  It in no way impacts how the dealer resells those goods to the general public.

Another prohibition in this law that may impact the lives of some people deals with the sale of secondhand goods to minors.  It will now be illegal for a dealer to purchase any secondhand goods from any person under the age of 18.  So, comic books, video games, or reconditioned iPods cannot be sold directly to a dealer by the minor.  Going forward, a parent or some adult will need to make the sale for the minor and allow themselves to be the individual that is formally recorded and documented as the seller.  That may be a hassle for kids trying to sell games at Gamestop.  From now on, they will just have to take mom or dad along.

Another point under this law that may be more difficult for many small businesses is the prohibition of purchasing goods from a seller that is known to have been convicted of a burglary or theft.  It may be hard for many dealers to know for sure that they are making purchases from allowable sellers.  It would really be ridiculous for dealers to run background checks on every seller to make sure they aren't a known thief. 

Also, this law could impact ebay or Craigslist dealers that resell goods that they purchase from any number of various sources.  Many dealers troll around garage sales and through the Quick Quarter for used goods that they can then turn around and resell.  These dealers will apparently be prohibited from making cash purchases for these goods.  They will also apparently need to obtain the above noted documentation on each individual from which they purchase their items.  This would make this sort of business almost impossible to operate in the State of Louisiana.  Flea market sellers would have the same problem.  They often find their goods for resale by traveling around with the Saturday morning yard sale crowd.  I don't know how they will be able to purchase from yard sales when they are subject to these rules and regulations.  According to the law, a yard sale is not a secondhand dealer.  But, there is nothing in the law that says a yard sale is exempted from the definition of a seller to a secondhand dealer.  This is definitely one area that needs to be addressed in the future regarding this law. 

Well good luck to all you dealers in "one man's junk".  I hope you can all find a way to easily comply with these regulations and find great success in the future.

Nonprofit Organization Fundraising Ideas - Podcast Episode 9

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In Episode 9 of my podcast, I have prepared a few ideas for efficient fundraising for nonprofit organizations.  Here in the middle of bad economic times, it has gotten really tough for nonprofits out there trying to find dollars to keep their missions alive and thriving.  It is very important for nonprofit organizations to direct as much effort and as many resources as they can to raising money.  But, in times such as now, the key is creativity.  New, fresh ideas are needed.  Old grant sources may be drying up in the future.  So organizations need to begin brainstorming ways to generate money from new and different sources.  I hope this podcast will assist you in beginning that process.  Please feel free at any time to contact me by email with any thoughts - chip@cantrellcpa.net .  Have a great day!

 

 

Danger! Payroll Tax Trust Funds

There are times when we receive correspondence from the IRS with little nit-picky issues that are easy to resolve and are fairly inconsequential. But, even with these letters many taxpayers get lumps in their throats and butterflies in their stomachs.

Then there are times when those letters from the IRS bring tidings of really serious issues that, if they are left unanswered, can break both a business and business owner. One such issue that is always a threat is unpaid payroll taxes.

Businesses are required to withhold and pay both employer and employee Form 941 payroll taxes to the IRS. Unpaid payroll taxes can result in a business having its bank accounts seized or its accounts receivable from customers frozen. But if there are any payroll taxes unpaid that represent taxes withheld from employees, these taxes are not only a threat to the business, but a threat to the business owner.

Unpaid withholding taxes are also know affectionately by the IRS at "Trust Funds". The special thing about trust funds is that the IRS can collect those taxes not only from the business but also from the individual that is deemed to be a "responsible person" who has negligently used withheld taxes to fund the operations of a business. As far as the IRS is concerned not having enough money to pay employees and taxes both isn't a valid excuse. They just assume if you don't have enough cash to pay both, you should simply pay the employees less to ensure that you have enough cash for the payroll taxes.

But, who is considered a responsible person? IRS Form 4180 is the tool the IRS uses to identify the individual that is subject to personal liability for unpaid 941 taxes. This form is a simple interview form that lists a set of responsibilities and functions that are indicative of control over the decision to not pay the taxes due.

These functions include:

1. The ability to set the financial policies for a business.
2. The ability to direct and authorize the payment of bills.
3. The authorization to open and close bank accounts for the business.
4. The capacity to guarantee or co-sign loans.
5. The authorization to sign checks.
6. The responsibility for authorizing payroll.
7. The responsibility for making federal tax deposits.
8. The responsibility to prepare, review, and sign payroll tax reports.
9. The authorization to hire and fire employees.

The IRS makes its determination of responsibility based upon the overall picture painted concerning an individual and not simply because one or more of the above is answered yes. However, the more yes answers you get, the more likely you are the responsible person.

In addition to identifying the responsible person, the IRS must also determine that the individual operated in that capacity during the time period where the payroll taxes were unpaid. For instance, if a business hires a new CEO or CFO and it is found that payroll taxes were unpaid for periods prior to their hire, these new managers are not liable. The old managers are considered the responsible parties.

After this determination is made, then its the individual's bank accounts and wages that become the targets.

So what can be done to avoid this trauma? The first step is to identify the total payroll taxes due by period and break them down between trust funds and employer taxes. Next, begin paying out the oldest taxes first. But, be sure to identify on the face of the payment checks the tax periods that each covers and the fact that those payments are to be directed to pay trust funds first. A taxpayer has the absolute right to designate payments to cover trust funds first. But, if this designation isn't made, the IRS will be sure and apply the balance to the employer portion.

In addition, it is very important to keep track of all the outstanding periods and update the balances due for each as payments are made. Finally, whenever you receive a notice from the IRS, don't ignore the notice. You would be amazed at how much time you can buy simply through communication. The IRS will respect the fact that you are trying to resolve the issue and will delay collections as long as you are making steady attempts at communicating with them and dealing with the outstanding taxes. But, the best way to get yourself in trouble quick is to just ignore the bad news and try to live like there isn't a problem.

Good luck! And remember, a good plan for dealing with any crisis is always better than just watching the IRS take your stuff after you've lived a nice life in denial.

Making PayPal a Part of Your Business - Podcast Episode 8

In today's podcast episode I discuss how a small business owner can use PayPal to help generate income and to help speed up collections.  I provide an explanation of what PayPal is and how it operates.  I give some ideas on how it can be used by small businesses to sell and collect online.  I also offer some ideas on how PayPal can be used by businesses to collect from sales that were not made on the internet, including some descriptions of the virtual credit card terminal offered by PayPal.

PayPal can be a great tool for small businesses to get the cash they need faster.  It is a very safe and respected resource available and should at least be considered.  This episode offers some understanding of the process so a small business owner can make an informed decision of whether or not PayPal is the right tool for them.

Thanks for listening and have a great Christmas!

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Update on the Renewal of the Bush Tax Cuts

The renewal of the Bush Tax Cuts have been pushed into the last days of the 111th Congress.  The consensus has been that all the tax cuts will be extended for a temporary period of time - 2 to 3 years.  In fact, the Republicans in the Senate have guaranteed as much with their filibuster threats.  However, the House today dealt a serious blow to any hope of this issue being settled before January of next year.  Today in the face of Senate threats and promises of compromise, the House passed only a partial extension of the tax cuts.  This will either end in the House bill stalling in the Senate or another bill being forced through negotiators that will reconcile the current bill with a Senate version.  However, all tax bills must originate in the House so the Senate cannot start from scratch with a separate bill.  This could make it almost impossible to complete the process this month.

As a result of today's vote, we are almost guaranteed to have the withholding tables increased effective January 1st of next year on every employee.  So now is the time to inform your employees of the impending increase in withholdings and plan for the situation for your own families.  This increase in withholdings will result in at least $100 less per month in every paycheck.  On average, this will result in about $400 per family per month until an agreement is reached.  With the Republican majority in the House in the next Congress, we can expect nothing short of a temporary extension of all the tax cuts.  This will probably pass the Senate, and the President has hinted that he would accept this.  But, for Americans - time is money.  Hang in there taxpayers!

What's New With QuickBooks 2011 - Podcast Episode 7

In this episode of the podcast, I review a few of the changes to QuickBooks 2011.  It is just a fact of life that most small business owners are either using QuickBooks now or will be soon.  But, it is a hard decision as to whether there is a need to upgrade the software from year-to-year.  By looking over these changes you can decide if it's worthwhile for you.  Also, in my years of QuickBooks consulting, there are a few questions that you get from every client.  I have addressed a couple of these.  

I would love to hear from any of you that are using QuickBooks and have some specific questions or problems that you would like answered.  I would like to put these together along with some suggestions on dealing with them in a future blog post.  So, please email your questions or problems to me at Chip@CantrellCPA.net.  I would love to help and maybe spread the info to anyone else with the same problems.

I hope you enjoy this episode and thanks for listening.

 

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The HIRE Act Payroll Tax Credit - It's Not Too Late to Claim Your Credit for 2010

On March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) Act was enacted.  This legislation provided for two payroll tax credits related to the employer portion of the social security tax for qualified new employees hired between February 3, 2010, and January 1, 2011.  As we come to the close of the fourth quarter of 2010, now is the time to make sure that you have claimed the credit on all qualifying employees on your quarterly payroll tax returns (Form 941's) for the year.  It's not too late to claim the credit for the entire year.  In this post, I will provide details on the credits in the HIRE Act and how you can claim those credits.  

There are two credits in the ACT.  The first credit is a payroll tax credit on the employer portion of the social security tax (6.2% of the first $106,800 of wages for 2010) on wages for certain qualifying employees hired after February 3, 2010, and before January 1, 2011.  The second credit is available for employers who retain these qualifying employees for a continuous 52 week period.

The first credit is known as the payroll tax exemption and here are the details:

• Credit for the full employer portion of social security taxes on the qualifying employees.
• A qualifying employee:
  • Was unemployed or employed for 40 hours or less during the 60 day period prior to hiring.
  • Was not replacing another employee unless the other employee left employment voluntarily (quit) or was terminated for reasonable cause.
  • Includes employees straight out of school with no prior work experience or otherwise meeting the unemployment requirement above.
  • Does not include the hiring of family members or owners of a small business.  
  • Be careful with bringing contract labor type employees on payroll for this credit.  This will define those types of employees as always employees subject to withholding and payroll taxes from now on.  You can't just hire them for the credit and then reclassify them later as contract labor.
• Employees must sign a Form W-11 (http://www.irs.gov/pub/irs-pdf/fw11.pdf )prior to the date that the credit is claimed.  However, there is no requirement that a Form W-11 be signed prior to the date of qualifying wages.  Therefore, you can get your W-11's signed now and claim the credit for the past quarters after the signatures are obtained.
• The credit is claimed on the quarterly Form 941.  If you receive late Form W-11's you can file amended Form 941-X's ( http://www.irs.gov/pub/irs-pdf/f941x.pdf ) to claim the credit for those prior quarters.
• A Box 12 code has been added to report the qualifying wages for the HIRE Act employees on the 2010 Form W-2.  So you need to take care of this before the end of the year so you can have all the paperwork done for the 4th quarter and year-end tax payroll tax reports.

The second credit is know as the Business Credit for Retention of Certain Newly Hired Individuals:

• Claimed for the same HIRE act employees as the payroll tax exemption.
• The credit is calculated as the lesser of $1,000 or 6.2% of the wages paid by the employer to these employees.
• Credit can only be claimed after the employees noted above have been retained for a continuous 52 week period from the date of hire.
• The wages of these employees for the second 26 weeks of their employment must be at least 80% of their wages from their first 26 weeks of employment.
• The earliest date to claim the credit will be 2011 (at least 52 weeks from the beginning date of February 3, 2010).
• The credit is claimed on the employers 2011 income tax return.
• This credit is in addition to the payroll tax exemption above.  You get the first credit for hiring them and the second for retention.  It isn't an "either-or" situation.

So contact your payroll tax preparers and make sure that steps will be taken to get all the necessary information for these credits by year-end.  The first step is to identify the qualifying employees and then get their signatures on the Form W-11's.  Then you can amend those prior quarters and get your refunds now.  Good luck!

Update on the AMT

In my last post, I discussed the impact on taxpayers for 2010 if Congress failed to alter the income level at which the Alternative Minimum Tax would apply.  No action on this issue was taken up by Congress prior to the election; so we have been waiting patiently to see what happens now that November 2nd has come and gone.  It is estimated that 2.1 million taxpayers could be impacted (always negatively) by the AMT unless the income thresholds were increased.

Well, we finally have some good news.  In a letter signed by both Democratic and Republican lawmakers addressed to the IRS, Congress is promising to once again approve a one-year correction to the AMT to avoid the potential tax carnage it could cause.  The AMT is sort of like the evil alter-ego of the regular tax code.  Just when you think you've paid all you should, out jumps the dreaded AMT to add a little more.  

The whole problem with these thresholds is that the original legislation didn't have any sort of cost of living adjustment.  But, rather than put some form of permanent cost of living adjustment going forward, Congress just pushes it down the road one year at a time.  So, we will be having this same discussion a year from now I'm sure.

2010 Tax Changes - A Heads-Up Before Year-End

As we come racing towards the end of 2010, it's time for all of us to do a little tax planning before New Years Day.  To help with that, I have put together a quick list of some of the tax changes for 2010 and a peak at some of the changes that come into effect in 2011.  With a month and a half left in the year, we have some time to take care of any loose ends for tax purposes so here we go:

• The American Opportunity Credit - This credit replaces the Hope credit from prior years.  It provides up to a $2,500 per student per year credit for all four years of college.  The nice thing about this credit versus what we've seen in the past is that is includes the cost of books and not just tuition.  If the credit exceeds your income tax liability for 2010, then 40% it will be refundable anyway.
• 401(k) Contribution Limits - The maximum employee contribution to a 401(k) plan for 2010 is $16,500.  However, employees that are age 50 or older can contribute an additional $5,500 for a total for them of $22,000.
• Alternative Minimum Tax - The exemption level for alternative minimum tax drops to $45,000 for a married couple and $33,750 for single filers for 2010.  Relief from the lower AMT limits was passed for 2009 but hasn't been addressed yet by Congress.  Hopefully, this will be taken care of in the lame duck session.  But, if it isn't addressed, many taxpayers are going to find themselves victims of AMT.  In general, there are certain tax benefits that are allowed under the regular tax calculation that are not allowed or are reduced in the AMT tax calculation.  Also, you income, if AMT applies is taxed at 26% for income up to $175,000 and 28% for income over $175,000.  AMT doesn't use the standard graduated rate schedules with rates from 10% up to 35%.  When tax is calculated for AMT purposes, it is compared to the regular tax calculation and you pay the higher amount. 
• Sales Tax on Vehicles - For 2010, sales tax on the purchase of a vehicle can no longer be taken in addition to the standard deduction if a taxpayer does not itemize.  For 2009, a taxpayer could deduct the sales tax attributable to the first $49,500 of the cost of a vehicle even if they did not itemize.  However, the one year tax relief disappears this year.
• The Estate Tax ("Death Tax") - The estate tax is completely repealed for 2010.  However, if a person happens to live an extra month or two into 2011, the tax will revert to 50% for estate values over $1 million dollars.  
• Increased Depreciation for Equipment Purchases - The Small Business Jobs and Credit Act of 2010 provided for bonus depreciation of 50% of the cost of qualified small business equipment and other fixed assets purchased and put into service in 2010.  Taxpayers who purchase equipment in a few specific categories may also be allowed to actually deduct the full cost of the equipment up to $500,000.  These types of equipment may qualify:
  •  
    • Construction
    • Manufacturing
    • Medical
    • Agriculture
    • Office and Technology Equipment
    • Trucks
    • Trailers
    • Printing Presses
    • Corporate Aircraft
• Residential Energy Tax Credits - For 2010 there is a 30% tax credit for the cost of certain qualifying energy efficient home improvements.  The credit is capped at $1,500 combined for 2009 and 2010.  http://www.energystar.gov/index.cfm?c=tax_credits.tx_index provides a great list of the property allowable in each category.  For 2011, the credit reverts to 10% and the cap is reduced to $500.

This is a quick taste of some of the most important changes.  Now is a great time to get in touch with your tax preparer and see if this will impact you and what information you need to be getting together before year end.  Good luck this tax season!

Meeting With a Tax Preparer - Podcast Episode 6

Annually many taxpayers gather up all their receipts, tax forms, and questions and haul them to the tax preparer to turn them into State and Federal tax returns.  However, there is often a lot of confusion on how to best accumulate this information to make the process as smooth as possible.  Also, the more efficient the process, the cheaper the preparation fees.  In this episode I give some suggestions on how to accumulate and provide the information in a way that will make it faster and easier for the preparer.  

I provide some ideas on how to organize your tax forms.  I prepare explanations on what self-employment tax is and how it is calculated.  I explain the methods and required documentation for deducting vehicle expenses for a small business.  I give some ideas on information that should accompany your tax forms that you can provide for the preparer instead of pay them to get it themselves.  I also try to explain the different ways tax preparers bill for their services and what you can do to lower your fees.

Just like Christmas is just around the corner, tax season is lurking just beyond there.  So what better time than now to start thinking about making it the easiest one of your life.  Thanks to all and good luck!

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