• Do withhold FICA on part-timers, including retirees. Even if someone who works for you part-time also has a full-time job where they have had 100% of their FICA withheld for the year, you must withhold the full amount of FICA from their pay. These individuals can obtain a refund of any overpaid FICA on their 1040. Similarly, if a retiree receiving Social Security benefits works for you, say, one day a week, you must withhold FICA.

• Don’t assume former employees who return part-time are ICs. If they do the same job they did before they left, especially in the same tax year, they are employees, not independent contractors.

• Do not base worker status on length of service. A worker who fits the definition of “employee” is an employee and all employment taxes apply—even if he or she works for you only for a few hours on only one day, is still an employee.

• Do not assume you must give benefits to part-timers, or summer help or those hired for holidays. Nor are you required to include temps and part-timers in health, pension and other benefits. But to exclude them, have a written plan stating which benefits are not available to these workers.

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To avoid major penalties, audit your own practices to ensure FLSA compliance, advises Shawn Smith, Next Level Consulting LLC, Harrison, NY. She cites four common problems:

1. Worker classification. You cannot avoid overtime pay simply by paying employees a salary and classifying them “exempt.” To avoid misclassification, know what jobs are exempt (regardless of whether they are salaried or paid by the hour), then review job descriptions and how each job is actually performed.

2. Docking pay. An exempt worker docked for a partial-day’s absence may lose his/her exempt status, costing you retroactive overtime pay, unless the docking is connected to an FMLA-related leave.

3. Voluntary or unauthorized work. Nonexempt employees must be paid for time worked, voluntary or not. Even if your policy requires that a manager approve paid overtime, your firm must still pay at least 1½ x the employee’s hourly rate for each hour worked over 40 hours in the workweek.

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Payment card industry compliance is confusing for many ecommerce merchants. But it potentially affects every merchant that accepts credit card payments. Failure to understand the PCI compliance standards could result in higher merchant account fees and fines from the credit card issuers.

Merchants oftentimes have similar general questions on PCI compliance. We posed some of them to Tim Erlin, principal product manager for nCircle, a security consulting and compliance firm that offers PCI-related services, among other compliance services. Those questions, and his answers, are below.

What is PCI?

Erlin: “PCI generally refers to the Payment Card Industry Data Security Standard, or the PCI DSS. This standard was developed by the PCI Security Standards Council, which is a consortium of the major credit card brands (Visa, Mastercard, American Express, and Discover). It represents the combination of two previous separate programs: the Visa Cardholder Information Security Program (CISP) and MasterCard’s Site Data Protection program (SDP). The goal of the PCI DSS is to specify a common standard for protecting cardholder data from compromise.”

How does PCI compliance affect my ecommerce business?

Erlin: “If you accept credit cards as a form of payment, you are required to be compliant with the PCI DSS. In most cases, smaller merchants can achieve compliance by using compliant shopping carts and payment gateway services. If, however, you choose to collect and store credit card data as part of your business, you’ll need to carefully consider the requirements of the PCI DSS.”

“Larger volume merchants (more than 20,000 credit card transactions annually) will need to complete some specific validation requirements to demonstrate compliance with the PCI DSS. The requirements range from filling out a self-assessment questionnaire to an onsite audit from a qualified auditor. You can find out more details about merchant levels here.”

Where can I learn more about PCI?

Erlin: “The PCI Security Standards Council is the authoritative source for information. You can find their website at http://www.pcisecuritystandards.org. You can also look to the card brands themselves for additional information.”

My annual sales are very small. Do I still have to comply with PCI?

Erlin: “Every merchant that accepts credit cards must comply with PCI, but smaller merchants often achieve compliance by using compliant services. If you don’t store, transmit or process any credit card data, then your systems are out of scope for PCI DSS compliance.”

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In addition to your responsibilities at year-end, you have to deal with the usual last-minute crises.

By Dec. 1, 2008

• Remind employees that if there has been a change in their filing status (marriage or divorce) or number of dependents (birth, adoption, child turning 21), that they may want to file a new W-4 for 2009.
• See that employee paycheck names/SSNs match those on their SS card and/or W-4.
• The Special Accounting Rule. Your firm may elect to treat taxable noncash fringes (i.e., personal use of company cars) provided any time in November-December 2008 as paid in 2009. (If you make this election for tax year 2008, you must notify affected employees no later than Jan. 31, 2009.)

Before Dec. 31, 2008

• Do not apply the EITC to wages paid after this date unless you have a new W-5. Paychecks dated 2009 are 2009 wages, even if earned in 2008.
• Check each employee’s SS withheld. If anyone exceeded the 2008 limit of $6,324.00, make adjustments/refunds before making the final payroll tax deposit for tax year 2008. Leave enough time to make adjustments and make refunds.
• If you use a payroll service, consider asking for an adjustment run before you close out 2008 and run your W-2s. Verify and correct:
  • relocation expense reimbursements;
  • manual or voided paychecks that have not been put in the system;
  • personal use of company vehicles;
  • company-paid educational assistance; and
  • other taxable items paid via accounts payable.
• Check each employee’s Social Security withheld. If anyone exceeded the 2008 limit of $6,324.00, make adjustments/refunds before making the final payroll tax deposit for tax year 2008. Leave enough time to make adjustments and make refunds.

Source: AIPB.ORG

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

There is now tax relief for struggling homeowners. If your mortgage debt is partly or entirely forgiven during 2007, 2008 or 2009 you may be able to claim special tax relief by filling out Form 982 and attaching it to your federal income tax return for that year.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from tax up to $2 million of debt forgiven on your principal residence. The limit is $1 million for a married person filing a separate return.

Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. The debt must have been used to buy, build or substantially improve your principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

If your debt is reduced or eliminated you will receive a year-end statement (Form 1099-C) from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for your home (Box 7).

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit the IRS Web site at IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. This publication and Form 982 can be downloaded from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments (PDF)
• Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (PDF)

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1.      Withhold FICA on part-timers (and retirees). Even if someone who works for you part-time also has a full-time job where they have had 100% of their FICA withheld for the year, you must withhold the full amount of FICA from their pay. These individuals can obtain a refund of any overpaid FICA on their 1040. Similarly, if a retiree receiving Social Security benefits works for you, say, one day a week, you must withhold FICA.

2.      Former employees who return as “independent contractors” are probably employees.  If they do the same job they did before they left, especially in the same tax year, they are employees. IRS target: Individuals who receive a W-2 and 1099 from the same employer for the same year.

3.      Length of employment does not determine worker status. Even employees who work for only part of one day are still employees, and all employment taxes apply.

4.      Giving part-timers benefits is optional. Generally, you do not have to pay part-time or summer help for holidays and need not include temps and part-timers in health, pension and other benefits. But to exclude them, have a written plan stating which benefits are not available to these workers.

5.   Defining “part-time” v. “full-time” employees.  Federal law requires that you pay the overtime rate for each hour worked over 40 hours in the workweek, and governs the number of hours that children can work. But company policy determines whether you will pay overtime after 30 or 35 hours or any other number of hours fewer than 40.

Important:  It’s also a good idea to see if your state may have special laws.

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1. Apply all withholding taxes to vacation pay.

2. You can accrue paid vacation differently by the job, because it is a matter of company policy, not federal law. For example, give managers two days’ paid vacation for each month worked, a clerk one or no days. Or, base paid vacation on salary, years worked or a mix of standards. But the policy should be in writing, made known to employees and applied consistently.

3. You need not include paid vacation days in overtime calculations. For example, if an employee works 40 hours, Monday-Thursday and takes a paid vacation day on Friday, you need not include the paid Friday hours when determining whether the employee is entitled to overtime pay.

4. If vacation pay is included in a normal paycheck, withhold for the entire check over a longer period. For example, if you pay weekly and include one week’s paid vacation, withhold for a two-week period.

5. You must pay earned or accrued vacation if the employee quits. Have a written policy that clearly states who is or is not entitled to accrued vacation pay at termination.

Reminder: Employees may be entitled to unused vacation pay under ERISA (covers early retirement) if there is a written policy or a pattern or practice of paying unused accrued vacation to such employees.

Important: These are the rules under federal law. Where appropriate, also check your state laws.

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Here is what AIPB.org’s most successful freelancers advise, based on their experience:

1. Get that first client. To get your first client, consider accepting any fee you can get. Give your rate, but compromise. For instance, say your rate is $30 an hour and your prospect offers $15. Take it and say: “I’ll do it for $15 an hour but if you like my work, I want $20 (or $25 or $30) after 30 days.”

You can ask for a limited raise any time. Most prospects jump at this offer, planning to drop you in 30 days. But if you do quality work-correct, complete, on time-they will never let you go. Good bookkeepers are always in short supply.

2. Make sales calls pay off. Here’s how to turn prospects into clients:

a. Present a businesslike appearance. For men, a conservative suit or blue blazer. For women, a business suit.

b. Be practical: Don’t knock on doors of firms too small to afford a bookkeeper.

c. Be firm, but not pushy. Ask, “Are you the owner or manager?” When you find one, say: “Hi, I’m Ann Jones. I have a bookkeeping service in the area and wanted to introduce myself. Do you do your own bookkeeping?” If they have a service, be positive: “Great, I’m sure they do a fine job.” (Never try to steal satisfied accounts.) If a prospect is unhappy, ask what’s wrong. if they keep their own books, ask which tasks they do. Then explain what you do.

d. Keep the door open: Set a second appointment to explain more precisely what services you provide and what they cost. Leave a list of your services on stationery with your letterhead.

e. On second visits, act as though you have the job. Bring a sample of work the prospect was interested in: a budgeting tool, sample invoice, etc. Leave something that shows the quality of your work. Best: Bring a disk to demonstrate your work on the prospect’s PC or your laptop. Talk as though you have the job–e.g., “When should I pick up your work?”

3. Get referrals. Send an introductory letter to CPAs. Better: Make dates and introduce yourself. CPAs who meet you are much more likely to refer. Caution: Watch for clients who are too small or are “problems.” Another strategy: Visit newly opened businesses (their names are at your local licensing office). Best: referrals. Do a great job at a fair rate and you can expect a lot of business.

4. Bill for top dollar. Here’s how to make sure you charge the highest rate you can get:

a. Base fees on local CPA rates. Peg your top rate to CPAs’ lowest rates (for client write-up work). This approach works regardless of your locale.

b. Vary your rate by the job. This may mean charging as little as $15-$25/hour for some bookkeeping work. Before you quote a job, analyze a new client. How well do they understand what you are doing? Do they have a ledger? Is their work set up? Are their records kept well and only a few weeks or a month behind-or disorganized and 2 years behind?

c. Be prepared to back up your fees. If prospects question your rates, have handy names of clients and CPAs as references, and make sure to explain how much you will save them on their CPA costs.

d. Get to know local CPA firms. Work closely with them because most of your jobs may come from their referrals. Tactic: When you start with a new client, arrange to meet with the client and client’s CPA. This will impress both of them and add another CPA to your list of potential referrers.

e. Triple-check your work. Quality pays. Check as many times as you need to (plus a few extra times) to make sure things balance and that you have support for all balances. Do a mini-audit before you submit work.
5. When to bill by the job v. by the hour. Avoid a flat fee until you work for a client for a few months. The less experienced you are, the greater the margin of error. Open-ended commitments lead to too many hours for too little money. Find out: How long will it take you to get the client’s information? How neat and up to date are its books? How neat does the client expect your work to be?

When new clients insist on a set fee, agree on a trial basis (two or three months). Then re-evaluate. Estimate on the high side: It’s easier to reduce a fee than to raise it. To “lock in” prospects, accept the fee they paid their last bookkeeper.

If they question your fees, explain: “These are the kinds of businesses I work for, and my usual fees.” Point out any differences: “I do everything for them and I don’t know if you will want me to do all that for you. For instance, I have a distributor and a store that both have a part-time bookkeeper; you have none.”

A letter of agreement helps in flat-fee arrangements. Exception: mom and pop firms. They are intimidated by “contracts.” If the prospect is very small, have a low-key, friendly, but thorough discussion to explain what you will and will not do.

It takes time to learn when to give extra service, and when you are being used. Until you are sure, give extra. If clients need you to answer the phone, offer to. If they normally drop off and pick up work, offer to do it if they are too busy.

When you know clients are taking advantage, don’t give an inch-let them know right away that you have rules. “I really don’t work that way-let me show you how I do it.” If this doesn’t help, let them go.

You must pay 1.5 times an employee’s regular pay rate for each hour worked over 40 in the workweek (any 168 consecutive hours). Employers can structure the workweek (e.g., starting Sunday at 9 a.m. for 10 hours a day, 4 days a week). Employees cannot waive overtime. You need not count for overtime purposes paid nonwork hours (vacation, holidays, sick days, jury duty, etc.). You may give time off in lieu of overtime only in the same workweek. Hospitals have exceptions under the 8/80 rule. Always check state laws.

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