Business & Finance Blog

Taxing a cash (or cash equivalent) bonus

You are required to treat any cash bonus as wages and to apply FITW, FICA, FUTA, and state and local payroll taxes. If you give the bonus separately from regular wages, or with regular wages but identified as separate, the supplemental withholding rate-25% for 2008-can be used. [26 CFR 31.3402(g)-1]

A discretionary bonus is a lump sum that the employer decides when to give and how much to give. It cannot be required by a contract, agreement or promise nor be part of a pattern that leads employees to expect it. To qualify as discretionary, the bonus must be a complete surprise to the employee. An exception is holiday bonuses that, even if given each year (leading employees to expect them), can be treated as discretionary. A discretionary bonus for hourly employees does not affect their overtime pay rate. [29 CFR 778.211]

A nondiscretionary bonus is one required under a contract, agreement or promise, express or implied-e.g., for higher or faster production, as an inducement to take a job or stay with the company-or a bonus that employees have come to expect (except for holiday bonuses). A nondiscretionary bonus given to hourly employees must be added to gross pay for the week in which it is earned and included when computing any overtime for the week. [29 CFR 7788.209]

Example: Pat earns $11/hr. One week she works 43 hours and earns a $30 prorated production bonus.

Pat’s normal pay: $473 for the week ($11 x 43 hrs) + $30 bonus = $503 straight-time pay.

Pat’s overtime pay: $503 earned for the week (including the nondiscretionary bonus)/43 hours worked = $11.70 regular rate of pay x 50% premium rate = $5.85 x 3 hours’ overtime = $17.55 premium pay.

Pat’s gross pay: $503 straight-time pay + $17.55 premium pay = $520.55 gross pay for the week.

Source: AIPB.ORG

Nontaxable gifts. Fruit baskets, hams, turkeys, wine, flowers and occasional entertainment tickets, such as to a show or sports event, generally are nontaxable as de minimis fringe benefits.

Taxable gifts. Gift certificates (“cash in kind”) are wages subject to FIT, FITW, FICA, and FUTA—even for a de minimis item. For example, a gift certificate for a turkey is taxable even though the gift of a turkey is not. Cash gifts of any amount are wages subject to all taxes and withholding. [26 CFR 1.132-6(e); TAM 200437030]

Parties and picnics. The cost of occasional parties is nontaxable to employees and their families as a de minimis fringe—if they are infrequent and for the purpose of promoting employee health, goodwill, contentment, or efficiency. Examples: occasional holiday celebrations, cocktail parties and company picnics. Such parties are fully deductible to the business (they are not subject to the 50% limit on business meals). [IRC §132]

A credit application is a great way to avoid granting credit to bad risks–but only if it asks the right questions and all the blanks are filled in. The application is given during “the honeymoon period,” the most friendly period, so this is the best time to ask important, revealing questions. Credit is based on trust, but trust is more reliable when you get the right answers on a well-designed credit application.

Make sure your credit application asks:

• The legal form of the prospect’s business. Are you dealing with a corporation, partnership or individual? If it is a corporation, it’s crucial to know the correct legal name-down to the last comma and period. (See below for details.) Check with the state to determine the correct corporate name and to see if the corporation is “in good standing”-that its corporate charter is still on the state’s active files.

If it is a partnership or sole proprietorship, get each owner’s home address and SSN (if the customer goes out of business, you need to find the owners quickly to ask for payment), whether each owner previously owned another firm and, if so, what happened to it. You may want to ask if the firm is adequately capitalized, rather than depending only on credit reports.

• Who at the customer’s firm has authority to sign contracts, place orders and sign checks? This may or may not be the same person. Knowing who can sign checks allows you to telephone the right person for payment right away.

• Two creditors currently extending the greatest credit and permission to contact them to confirm that payments are being made according to terms. Much more effective than just asking for “credit references” (which allows the prospect to be very selective). Make sure that your application includes a statement giving you the right to contact the references.

• The date on which the prospect’s business began. Unfortunately, few applications ask this. Because a large percentage of businesses fail in the first few years, the firm’s age is important. How quickly would you extend $100,000 in credit to a firm that opened last month? Professor Bruce Kirchoff, New Jersey Institute of Technology, reports that about 18% of all new firms fail during the first 8 years, 26% survive only because of a change in ownership and 28% voluntarily go out of business without losses to creditors.

• “Was this firm previously part of another company?” This wording is important. A “yes” should prompt an investigation into why the separation occurred. Sometimes, profitable companies spin off an unprofitable division in a way that prohibits the parent from being called for payment.

• “Is a written purchase order required?” If it is, your firm can comply from the outset rather than arguing with the customer later.

• A statement making the person signing the application liable for lying. For example: “I warrant that the foregoing information is true and correct, and realize it will be relied upon in the granting of future credit.” If the application is signed personally and turns out to be materially (seriously and substantially) false, you may be able to pursue the signer personally even if the credit your firm granted was to a corporation.

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A TRW Business Credit Services and Credit Research Foundation study found the following indicators of which customers or prospects are likeliest to pay:

· The most powerful predictor of payment performance is payment record (current and past).

· Credit ratings based on financial strength have no bearing on future payment performance.

· Revenue is not a good indication of good payment performance.

· The greater the firm’s net worth (total assets less liabilities) and time in business, the likelier it is to pay. Building real net worth takes years.

· Most businesses fail in the early years, so the longer a firm is in business, the more confident you can be of receiving timely payments.

· The higher the percentage of accounts a customer has paid within 90 days, the greater the likelihood you will receive prompt payment.

· A predictor of future poor payment is the number of accounts past due 90 or more days.

Source AIPG.ORG

People who are awaiting an economic stimulus payment or who have yet to file can avoid common errors that may delay their payment. They also can use the IRS Web site to answer most common questions.

The Internal Revenue Service, which is still issuing economic stimulus payments, has been studying trends and common issues in filing errors and questions posed by people calling its customer service telephone lines.

The most common question posed to the IRS is from people wondering when they will receive their stimulus payment. The question can be answered easily by going to IRS.gov and using the “Where’s My Economic Stimulus Payment?” Web tool.

Here’s how to avoid common mistakes:

• File only one tax return - People should file only one 2007 tax return. It takes the IRS up to 12 weeks to process paper returns and issue the stimulus payments. However, some people are filing more than one tax return in an effort to receive a stimulus payment, which could further delay their stimulus payment. The IRS is concerned there will be more multiple filings as the October 15 deadline approaches for filing a return in 2008.
• List qualifying income - Some people are listing their monthly income instead of annual income.  People must list their annual amount of qualifying income to be eligible for the minimum payment of $300 ($600 married filing jointly.) The qualifying income required by law is at least $3,000 in benefits from Social Security, Veterans Affairs and Railroad Retirement, earned income and/or combat pay.
• Review Your Tax Liability - Some people who have either small amounts of tax liability or no tax liability are getting smaller stimulus payments than they expected or none at all. Generally, the law provided for a maximum stimulus payment of $600 ($1,200 for married couples) or an amount equal to a taxpayer’s tax liability, whichever was less. Tax liability is the net amount of federal income taxes paid after deductions and credits. If people had no tax liability but had at least $3,000 of “qualifying income” from specific sources, they would be eligible for $300 ($600 for married couples.) There also is a $300 payment for each qualifying child.
• Amended return - Generally, people cannot file an amended return solely to get an economic stimulus payment unless they are a retiree, veteran or have other  “qualifying income.” While amended returns will be processed to correct the income, deductions and income tax as appropriate, the economic stimulus payment amount will not be adjusted based on an amended return. If people do not receive a payment this year, they can claim it when they file their tax return in 2009.
• Use Most Current Address - People must use their most current address in order to receive a timely payment. People who change addresses after filing should complete Form 8822 and a change of address card with the U.S. Postal Service. If the postal service is unable to deliver the payment, it is returned to the IRS.

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Contributions to flexible savings accounts (FSAs) face the “use it or lose it” rule: Balances not spent by the deadline are forfeited by the employee. Balances used to reimburse qualified medical expenses are tax free.

Traditionally, FSA balances had to be spent by the end of the plan year (usually December 31) to avoid forfeiture. In 2005, the IRS allowed employers to extend the deadline 2½ months (usually March 15), at their option.

Employers should alert employees to the deadline for their plan. Employees also should be aware that eligible expenses are broader than many realize. A doctor’s prescription or recommendation is not required for an expenditure to be eligible. Medical expenses that can be reimbursed from an FSA include:

· nonprescription drugs

· elective noncosmetic surgery

· dental checkups and surgery

· corrective eye surgery

· flu shots

· programs and aids to stop smoking

· weight-loss programs

· co-pays, deductibles, and co-insurance payments

· prescription eyeglasses and sunglasses

Source: AIPB.ORG

Is your auto worth less than the loan balance you have to repay on it?  If so, you are “upside down” in the world of the auto trade.  And that’s not a good place to be.

Unfortunately, that situation has become more common as consumers sought longer-term loans in order to get their monthly payments down to an affordable level.  Loans of up to seven years-that’s 84 months.-are now being offered to some buyers.

The average length of a new car loan from an auto finance company was 63.1 months in April 2008, up from 53.8 months in April 2000, according to the Federal Reserve’s report on consumer credit.

To stay upright, try to limit an auto loan to the number of years you plan to own the vehicle.

I just got back from the grocery store.  My goodness, Downy Softner is 9 bucks now.  Here are some tips on how to save money on groceries.

1. Use coupons
2. Buy in bulk (Costco)
3. Cut back on eating out
4. Plan ahead, cook ahead and freeze
5. Bring lunch to work
6. Buy cheaper or knock-off brand.

Times are tough lately and you are for sure not saving at the gas pumps.  To make it, it’s important to find ways to cut back on money.  Here are 5 ways to cut your auto insurance bill.

1. Increase your deductible - While this may save you money per month, you need to make sure that you have the money for the deductible should you have an accident.
2. Drive safely - Taking extra precautions while driving, staying under the speed limit and avoiding sudden stops and starts can help save on gas. Most insurance companies give discounts if you are accident-free for X amount of years.
3. See if you qualify for discounts - You may qualify for discounts by purchasing home and business insurance policies from within the same company.  Additionally, there are also discounts if you drive low miles, have multiple vehicles or your kids get good grades in school.
4. Reduce Coverage - Consider reducing your coverage if you are driving an older vehicle.  According to the Insurance Information Institute, it may not be cost effective to carry comp and collision on cars worth less than 10 times the amount you would pay for that portion of your coverage.  Try keeping the coverage, but raising your deductible.
5. Shop for a new provider - It’s always good to shop around every couple years.  In today’s world, there is usually a competitor out there that may give you a better deal.  Never hurts to look!

If you have lost your job or are needing to find alternative means of making money, freelancing could be the answer.  You must of course have a talent.  Whether you are a virtual assistant, bookkeeper, web designer, legal secretary, writer, translator, marketer, sales, marketing, programmer or researcher it is possible to find work from your home.

How does it work?  First off, you need to do some research on which freelance site is for you.  Some require you to pay fees while others are free.  Three popular sites are elance.com (fee), ifreelance.com (fee) and odesk.com (free).  The basis of every site is the same.  You have your employers or buyers who post their projects for you, the freelancer or provider to bid on.  The buyer posts the project with their terms, budget and project description.  The provider then creates a proposal and places a bid.  At closing, the buyer then reviews all the proposals to make an informed decision on which provider would make the best choice for completing the project.

How to get started? Choose a freelance site and register.  Each site varies as to their fees and is usually on a per category basis i.e. web design and finance.  If you are on a budget, choose the best category that you would like to bid in.  If you can spare 10-40 bucks a month, then register in multiple categories.

Now create a profile or bio about you or your company.  Make it professional, check your spelling and detail your entire work and experience history.  Good to be thorough so the buyer knows who they are hiring.  Be sure to include your education, certifications and things that could set you apart from your competition. In today’s world, everyone wants to work from home and most are forced to find ways to make money from home.  Make your profile stand out and you will be a success. Now post your profile for the world to see.

ifreelance, you can start bidding immediately.

Elance, you need to take an admissions test before you can bid.  They want to be sure you know how their system works before taking part in it.  Tests are available to raise your skill level in your profile which is nice, however they are not necessary to start finding work.  You can test your skill level on phone etiquette, Windows XP, Excel, Word and so much more.

oDesk, their profile section is much more extensive than the rest and you will be required to take and pass tests.  Your grades from your tests shows up in your profile as well.  oDesk uses the same testing system as Elance.

These are the basics to get you started in freelancing.  Good luck.