Sales Tax on Internet Sales

The Supreme Court has backed state sales tax on Internet sales. New Mexico had imposed its gross receipts tax on Dell Computer’s Internet sales in the state, even though Dell had no physical presence in the state other than a third-party service tech under contract. State courts found for the state, and the Supreme Court refused to hear the case. Sales taxes on Web sales face more challenges, but the tax should not be ignored. [Dell Marketing LP v. Taxation and Revenue Dept. of the State of New Mexico, No. 26,843, N.M. Ct. App. 2008]

Christmas Tax Tips

Tax tips: Gifts to employees and company parties


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.

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).

Get your books in order for the end of the year. Consider hiring a freelance bookkeeper if you don't already have one.

Health Savings Account Fact Sheet

As the cost of health care coverage continues to rise, Health Savings Accounts provide access to affordable health care coverage for small business owners, employees, and the self employed.

• A Health Savings Account (HSA) is a tax preferred account owned by an individual used to pay for current and future medical expenses, including deductibles, co-payments and other forms of cost-sharing.

• HSAs are funded by tax deductible contributions. Both employees and employers may contribute to the employees’ HSA, which is different from other tax-preferred health care coverage which limits contributions to only one party.

• HSAs are available to individuals covered by HSA-eligible health plans, like high deductible plans and other consumer-directed health plans.

• HSAs are portable, meaning that the individual has ownership of the resources in the HSA. An individual is not dependent on a particular employer, should the individual change jobs or become unemployed. Instead, the HSA travels with the individual.

• Individuals with HSAs have flexibility to use their HSA account funds to pay for current medical expenses or save the money in the account to pay for future medical expenses.

• Today’s health-care environment often presents high or unexpected bills. HSAs matched with the individuals HSA-eligible insurance provide security against high or unexpected bills.

• Since the HSA is owned by the individual, the individual has control over the account. This lets the individual make all decisions about the account; including how much to put in the account, whether to save the account for future expenses or for current medical expenses, which medical expenses to pay with the account, and which company will hold the account.

• For small business owners, HSAs avoid the administrative time and costs, since employees self-administer their HSA.

• Small business owners can determine how much they want to contribute to their employees’ accounts and are able to choose the frequency with which they make such contributions. No minimum contributions are required.

For more information on HSAs, visitwww.hsa.gov

Accounting for "Forgiven Debt"

With the current economic conditions and the growing uncertainty over the financial markets more and more companys may end up in the situation of having to account for 'forgiven' debt.

When your company’s debt is forgiven, you include the forgiven amount in gross income for tax purposes. The exception is cancellation of a debt to the extent that the payment would have been a deduction.

For example: You use a consulting firm from which you obtain service on credit. You are having trouble paying your account, but are neither bankrupt nor insolvent, so the consulting firm forgives part of your invoice. How do you book the cancellation?

The solution depends on your method of accounting:

· If you use the accrual basis, you include cancellation of the debt as income because, under the accrual method, expenses are recognized when incurred, not when paid.

· If you use a cash basis, you do not include the debt cancellation in income because payment for the services would have been a deductible business expense.

These hard times make for some complicated accounting issues. Get the help you need - hire an independent bookkeeper. They can make sense of these issues for you.

A Monthly Financial Review

In order to determine the profitability of your business each month you should look at your income statement, also known as a profit and loss statement. If you are keeping your books with a software program such as QuickBooks, once your data is entered you can just go to the report function and the software will automatically create the report for you.

You should review the report to see where your expenses were and if any of them were out of the ordinary. You will also see how profitable a month you had.

By taking a look at the statements each month you can keep expenses in check and not be surprised at the end of the year.

If you do not have time to enter the data yourself, you should consider hiring a freelance bookkeeper/accountant so that you are able to track where you are at financially all year long.

Benefits of Using Software

Many people start out thinking they can just keep track of their income and expenses with their check book and a receipt box. Which you can do, but your accountant is not going to be very happy at tax time.

There are also those that use spreadsheets and templates to organize income and expenses into different categories. When that is done, they still need to generate financial statements which will involve yet another spreadsheet.

The simplest way to handle your business finances is to purchase a financial software program such as QuickBooks to organize all of your income expenses. You will only need to enter the data once and be able to generate professional, comprehensive financial reports.

Most programs also have the advantage of merging with your CPA's tax software for seamless and painless tax preparation.

Visit Keep It Simple Accounting for discounts on your QuickBooks product purchase and to schedule a Software Implementation and Training session.

Outsourcing Your Accounting

Let's face it. Times are tough right now. Money is tight everywhere. Do you really need to have someone sitting at a desk 5 days a week doing your bookkeeping? Or could it be handled in a couple of hours per week?

It's pretty hard to find someone to work a couple hours a week as a traditional employee. The solution is to outsource it to an independent contractor. This way you also avoid the cost of employee benefits and workers compensation premiums.

If you are currently doing your own bookkeeping, stop and think whether it is the best use of your time. Would your hours be better spent bringing in new customers and business? Outsourcing your bookkeeping could be a way to become more profitable.