New Mileage Rates from IRS

Hope you are all keeping track of your miles driven for business. The IRS is in a generous mood.

"Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008."

Check the IRS website.

Got a Home Office? How deductible is it?

If you set up your business’s office inside your home, how will you go about deducting the costs of that office?

Since not all of your home expenses are for the business, then some sort of allotment must be made in order to accurately reflect business expenses. A certifiable “home office” that is used “exclusively and regularly as your principal place of business” or “for the storage of inventory or product samples” can be a tough goal to reach. You can check irs.gov/smallbiz and Publication 587 at http://www.irs.gov/publications/p587/ar02.html#d0e239 for further guidance.

Basically, if you can reach the standard, then you calculate the percentage of the home office/storage area to your total house square footage. This percentage is then applied to the various expenses of running your house that would normally be considered by the IRS as personal.

For example, if your home’s total living space (excluding the garage) is 1980 square feet, and, if you have a 12’x15’ “home office” (180sq ft) plus the attached closet of 3’x8’ (24sq ft) that equals a total of 204sq ft for your Home Office. This makes your business percentage 204/1980 or 10.3%. Therefore, 10.3% of household expenses may be business related—i.e., electricity, natural gas, water, sewage, rent or mortgage interest, home repairs, homeowners insurance, real estate taxes, etc.

Now, how can this be tied to your “envelopes of expenses?” Easy: label your envelope “Home Office.” On the outside record your calculation for percentage of office use. Inside put your utility bills after you pay them, your receipts for paid whole house-type repairs/maintenance, your notice of real estate taxes due (after you pay), your bill for your homeowners insurance (after you pay), your annual notice of mortgage interest paid, you get the idea.

If your “Home Office” is actually in a separate building or shed or you completely convert an unattached garage, but your utilities, etc are all inclusive, then you still need to calculate percentage of use. The best part of “shed working” is that there is a much lower standard for calling it your office (see the IRS web site). This is a good thing.

Some seemingly home-office-type items exist. These items may be totally or partially deductible on a different percentage from that allotted to your home-bound office. These items will require some special attention and their own envelopes.

Phone: You cannot, under any circumstances, consider the first land line into your home as a business expense—even if you never had a land line before. The IRS simply will not stand for it and they have never lost a Tax Court case on this issue. However, any long distance charges incurred for business purposes are business expenses. As are any special features you might have for strictly business purposes.

I have caller ID, call forwarding and remote call forwarding as the only special features. I signed up for them because of my business. I consider them business expenses along with their respective taxes each month.

Additionally, a second line to your home-office-shed or into the house for fax or internet connection or as a phone in your home office can be fully deductible.

Cell: If you carry a cell phone that you got for business use, or if you converted your personal cell to business use and you quit text-ing your bff, the associated costs are business expenses. If each month’s cell phone bill itemizes calls, you should mark any that are not business related even if your plan-cost is all-inclusive. Do this each month when the bill arrives. It will be much easier to do the closer to the event you do it. Besides the IRS loves “contemporaneous” records.

Internet/wireless services: If you can honestly say you incur these expenses for your business, then they are deductible.

Cable TV service: Well, this sort of depends on what kind of business you are in. If you are a part time, semi-pro actor/actress who feels that viewing the excellent performances on TCM, HBO, etc., enhances your craft, you could deduct the charges for those, but not the basic cable service. I know a farmer who uses his cable service to access a commodities forecasting “channel,” this “channel” is deductible as ordinary and necessary to his business.

We have been talking about these items being deductible, but where? Since you are a sole-proprietor on the cash basis, deductions go on the Schedule C.

Now, this is a topic that has gone to Tax Court innumerable times. So, I'd be glad to try to answer any questions you have about home office deductions!

[Photo by CC Chapman on Flickr, used under Creative Commons License.]

This article is part of the Small Biz 100, a series of 100 practical hands-on posts for small business people and solo entrepreneurs, whether in a small town, the big city, or in between. If you have questions you'd like us to address in this series, leave a comment or send us an email at becky@smallbizsurvival.com. This is a community project!

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When NOT to be a Sole Proprietorship: Forming an LLC or S Corp

Sole proprietorship is the simplest form of business, but it also has some disadvantages. So for this installment of the Small Biz 100, I'll talk about some of the situations where you don't want to be a sole proprietorship and what types of business you might want to form.
Note: All of this discussion is specific to small businesses in the USA.
Note 2: More info on when TO be a sole proprietorship is in the Checklists for starting your first business post.

When not to be a sole proprietorship

If any of these factors apply, then it's time to look at other forms of business:

Ownership - if you want to bring in a partner
Liability - if you have the type of business where you are more likely to be the target of a lawsuit
Taxes - if you are going to do so well financially that taxes are going to be an issue
Investment - if you want to be able to bring in other people in an ownership position
Selling - if you want to sell the business and make it easy to transfer to new owners

Other business structures

If any of those qualifiers applied, or you have other reasons, you can start your business with a different form. If you've already started your business, you can convert to another form at any time.

Above sole proprietorships, the two most reasonable forms are LLC or S Corp. These two share some benefits:

• Both offer some liability protection for owners (if the company is sued, you are not personally liable, usually).
• Both types can have multiple owners.
• Neither type requires a separate tax return.
• Both allow income to pass through to owners before taxation.
  

What does that "pass through" business mean? It means that the LLC or S Corp doesn't file its own tax return and pay taxes. Instead, the income is passed through the company to the owners. Then the owners declare this income on their own tax returns. Of course, no matter what form of business you create, you are responsible for paying taxes on the income of the business. Sorry! No getting around it. You may be able to reduce your overall tax burden by allowing the new business to hire you as an employee. But if you are getting to that point, you have also gotten a tax advisor, right?

The requirements to form both an LLC and an S Corp are fairly similar.

• Both are treated as separate entities and require a new Employer Identification Number (EIN).
• Both require a written agreement to determine how they will operate.
• Both require filings to create them.
  
• Both require ongoing paperwork, such as official meetings and documentation. (The LLC takes less of this, if you ask me.)
  

LLC - Limited Liability Company
LLC's are regulated by the states, and the rules vary. This means there is not one single guide for creating an LLC. I could tell you all about how I formed mine in Oklahoma, but it wouldn't help you create one in Indiana. The general guideline is to check with your Secretary of State. They usually regulate these filings. You can also check in with your local Small Business Development Center, and they can give you the local scoop.

A few general rules apply nationwide. The owners of an LLC are called members, and the first filing is usually called Articles of Organization. You'll also need to create the governing document, usually called an Operating Agreement. All the members have to agree to those operating rules. Some states allow one person to form an LLC on their own, and some states require a minimum of two people to start up.

LLC's can be more flexible in terms of how they are taxed. An LLC can elect to be taxed like a sole proprietorship (probably best for one person LLC's), a corporation, or a partnership. This is another place where you want to invest in some professional advice, to be sure you select the proper form.


S Corp - Subchapter S Corporation
Because the S Corp is regulated by the federal government, the tax rules do not vary from state to state. So if you plan to do business with locations in several states, go with the S Corp.

Corporations are still created in your individual state, usually with a filing at the Secretary of State's office. Once you've formed the corporation in your state, you need to let the IRS know that you want it to be a Subchapter S Corp, by filing a form 8832 with the IRS. And you need to do that quickly, within 75 days.


General Partnerships and why I don't like them
Few people choose to go into a general partnership anymore. Every partner is responsible for every debt and decision of every other partner. That unlimited liability is enough to scare most people away, especially since more attractive options like LLCs and S Corps can cover partners.

But sometimes people end up in a general partnership by accident. Just like the default form of a single person business is the sole proprietorship, the default form of a multiple person business is a general partnership. If you go into business with a friend, without putting any arrangements on paper, you just formed a general partnership. The good news? You can re-form as an LLC or S Corp at any time.

This article is part of the Small Biz 100, a series of 100 practical hands-on posts for small business people and solo entrepreneurs, whether in a small town, the big city, or in between. If you have questions you'd like us to address in this series, leave a comment or send us an email at becky@smallbizsurvival.com. This is a community project!

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Can you be self employed AND on Social Security?

A reader arrived at Small Biz Survival with this search query:
"I want to start a home business, but I'm on Social Security. Can I still be self employed?"

This sounds like a good addition to the Small Biz 100 and tax question for Maesz! Here's the answer:
-----
Yes... but

If she is not "full retirement age," too much net self-employment income may trigger some recapture of her Social Security benefits.

How much is too much? It is different each calendar year due to indexing. On the Social Security website (and page 2) there is a good discussion of this issue--complete with examples.

If she has reached "full retirement age," she can earn as much as she wants without any adjustment of her Social Security benefits.

HOWEVER, she is in any instance, responsible for self-employment tax and income tax on her earnings from self-employment.
-----

Thank you, Maesz!

If you have a small business question, leave us a comment.

This article is part of the Small Biz 100, a series of 100 practical hands-on posts for small business people and solo entrepreneurs, whether in a small town, the big city, or in between. If you have questions you'd like us to address in this series, leave a comment or send us an email at becky@smallbizsurvival.com. This is a community project!

Get the whole series by subscribing to Small Biz Survival. New here? Take the Guided Tour.

Working with independent contractors without getting into trouble with the IRS

In our massively connected professional networks, handing work off to friends and associates is pretty common. But it also triggers some tax issues in the US.

When you pay someone to write an article, to be your virtual assistant, to redesign your site, to work with you on a project for your client, basically anytime you give work to someone else, the IRS views them either as an employee or a contractor (or as a statutory employee or statutory non-employee. Those are pretty uncommon, and we'll talk about them at the very end.)

What difference does it make?
I'm sure you've watched big companies converting positions from employees to independent contractors because it's cheaper. Independent contractors have to pay their own self-employment taxes and don't receive any of the usual costly employment benefits.

As a small business owner or solopreneur, you might assume that anyone you work with is also independent, but a person can be your employee even if they live far away and work only part time with you. Unfortunately, if you think someone is a contractor, but the IRS decides they are your employee, you'll get socked for a huge tax bill. So it matters.

What makes an employee vs. what makes a contractor?
The basic difference is control. For an employee, you have the right to control the details of how the services are performed. On independent contractors you control only the results, not the means and methods. Usually, when we pass work off to another entrepreneur, we give them complete control over methods. Just beware of taking too much control. For more info on this, check with the IRS.

What types of relationships get questioned most often?
The more work you do with an individual, the more likely that the IRS will take a look at the classification. So if you are working on assignments every day with same person, that's a signal.

If you are the other person's only client, or just one of a few, that's another signal.

If the other person used to be your employee, that's a big signal!

OK, so if you've got some signals, what do you do?
First, you want some documentation. Get at least a few of the following:

• Get a copy of their business card, ad, business website, etc. and file them. I've even used LinkedIn and JumpUp profiles to show independent status.
  
• Ask for copies of their invoices to other people. (Let them mark out the amounts, if they want.)
  
• Ask for a copy of their IRS Schedule C. (Once again, no amounts needed.)
  
• Get a copy of their LLC filing or business license, if they have them.

Second, prepare a contract explaining the independent relationship, outlining who owns the rights to the work product, etc., and get it signed. I'm no lawyer, so I'm going to point you to some online samples. Check the one at the Business Owner's Toolkit and the one from Inc.com.

Keep this documentation for 5 years after you last do business with them. Really.

The goal is to show that the contractor really is in business and working for more than just one client (you). That should keep you out of trouble on this topic.

If I didn't answer yes on any of the signals, am I in the clear?
Probably so. But I'm tellin' you it won't hurt to actually document it anyway.

What about employees?
We'll be going into detail on how to deal with employees and payroll in another article. Oh, and tax forms like 1099's. Sounds like another good article for our tax expert Maesz.



Statutory Employees and Statutory Non-employees

As promised, here's a little bit more about statutory employees. This only applies in a few very specific cases. I'll give you a general rundown here. If this sounds like it may include your business, then you can read the full details from the IRS.

• Food and laundry delivery drivers
• Life insurance sales agents
• Home craft assemblers
• Traveling salespeople

Home craft assemblers caught my attention. With the current trend towards hand made items, it's possible some of you are working a craft business with independent assemblers out there. You'll need to examine this issue closely!

Statutory non-employees include direct sellers and real estate agents. Once again, if this might apply to your organization, get the scoop from the IRS.

This article is part of the Small Biz 100, a series of 100 practical hands-on posts for small business people and solo entrepreneurs, whether in a small town, the big city, or in between. If you have questions you'd like us to address in this series, leave a comment or send us an email at becky@smallbizsurvival.com. This is a community project!

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Checklists for starting your first business

"I just got my first paying side gig! Now what? Am I a business? What do I have to file? How does all this work?"

If you are active in the world of social and creative media, you may find yourself with an unexpected offer to accept advertising, do some consulting work, or speak for pay. If you don't have a business of your own, or are new to starting businesses, you're probably at a loss for some of the details of what you need to do. So let's work them out, keeping everything as simple as possible.

How do I 'become' a business?
You set up a structure. If the business is just you, or will be just you for a while before expanding, then a sole proprietorship is probably best. There's nothing you need to do in advance, nothing special to file until tax time, and you can now deduct many new expenses. You can always change structures later, in case you grow. In the USA, a sole proprietorship just means you add two new pages to your annual tax return. That would be a Schedule C to show your income and expenses, and a Schedule SE to figure your self-employment tax.

You also need to establish your start date. This can be the point when you actively started trying to get clients, or the point when you agreed to your first paid gig if it was a total surprise. From that point forward, any expense that qualifies is deductible.

Some small business situations call for a different business structure, and that's explained in When NOT to be a sole proprietorship.

What qualifies as deductible? Any reasonable and necessary expenses related to your business. So any money spent to connect with clients or potential clients, to do your work, or to get necessary equipment to run the business. For example, you can deduct:

• web hosting, web design, domain names, etc.
  
• the business percent of your cell phone, including data plan
• part or all of your home internet service, based on how much you use it for business
• business cards or any other business promo items
  
• computer equipment
• software used in the business
  
• paper, ink cartridges, and office supplies
  
• ipod, etc. (if it's related to your line of business, like podcasting)
• camera, etc. (once again, if it's reasonable)
• contract labor or subcontractors
  
• professional fees, like legal or accounting
  
• meals and entertainment with clients if you discuss business before, during or after
• conference registrations
  
• mileage driven for business
  
• tolls and parking fees for business trips
  
• other business travel expenses, including motel and airfare
  

Miles are deducted on a flat rate, currently 50.5 cents per mile. That flat rate includes fuel and vehicle repairs, so you don't need to track those separately. (No need to save gas receipts!) Each January 1, record your current odometer reading, so you can figure your total miles driven. Mileage as a whole is a complex topic. Commuting isn't covered, but driving to a meeting with a collaborator or to a client's site is. You might want to read more info on mileage expenses.

The whole point is that you probably have enough qualifying expenses to offset your income, so you won't owe any self employment tax.

Records
Make a business folder, accordion file, box, what have you, for receipts and records.
Receipts:

• original receipts are best
• note the business purpose right on the receipt
• on meals and entertainment, note who was with you
  
• if you are missing some receipts, go online, and print out replacements from the vendor or your credit card
• track expenses by category on a spreadsheet

For a bit more about expense tracking, read Simplified accounting for side businesses.

Calendar
Your calendar is an important business record. It helps support where you were and when and who with, and that's important to establishing what is deductible. So keep it complete, and be sure to print out a copy at the end of the month and put it with your other records.

• note client meetings and meals
• note all business travel, including miles driven
  

Banking As a sole proprietor, there is no requirement that you have a separate bank account. It's much better from a record-keeping perspective, but not required. The bank account will still use your social security number, but you can put your business name on it.

Licenses Now, don't tell anyone I told you this, but it's pretty unlikely that you need to file any business licenses if you are just consulting, speaking, writing, podcasting, etc. If you aren't selling any taxable services and aren't having walk-in business traffic, you might not even be required to file anything. Some jurisdictions may require a general business license or DBA (doing business as) filing. Ask around with others in your area, because this varies significantly from place to place.

Contracts
When you work on your own, you'll find yourself signing frequent contracts. Most times, you'll have to start with what the client provides, but don't sign blindly. Now is a good time to line up a legal adviser who can quickly read and respond to any contracts you receive. If you'll be providing contracts for your clients to sign, ask some other independent pros in your field for a copy of theirs. That will be the best starting point.

Insurance
Any business includes some liability. I recommend you read Insurance and the Home Based Business for an introduction.

What else?
That should get you started. It's inevitable that you'll have questions! Feel free to post them here, and Maesz (who contributed a bunch to this article) and I will put together some follow up articles on the next most important topics.

[Updated] Comments and follow ups are now online at Next questions from starting your first business.


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Income Tax Filing Season Scams

As filing season starts, cyber scammers are trying new tactics to steal personal financial information from taxpayers.

One type of e-mail message tells folks that their returns will be audited. The sender purports to be IRS and directs recipients to click on links that give senders access to their computers and their personal data. If you receive one of these phony notices, don't fall for it. Forward the solicitation to phishing@irs.gov and then delete the message.

Phone scammers are hard at work as well, saying that they need your bank account information to directly deposit the upcoming tax rebate.

Don't be fooled. The IRS never contacts taxpayers via an unsolicited phone-call or email.

Top 3 Year-end Accounting Tasks

Before you let the new year carry you away, take care of three important year-end accounting tasks.

1. Run your year-end reports on paper.

There are four important types of reports to document your important business info for the year. Put them on paper to protect against changes in software systems, lost data, or other vagaries of modern technology. Store them off site.
Run them for January 1 through December 31. Some are really long, so you may want to run them month by month to break it up.
I'll also list the report names in QuickBooks, although I'm sure any software has its own equivalent.

• Your basic financial position: Profit and Loss, and Balance Sheet
  
• Totals for tax filings: Income Tax Summary
  
• Detail of every transaction: Transaction Detail by Account
  
• Important payroll tax totals: Employee Earnings Summary

The payroll tax totals protect you in case an employee ever questions withholding, perhaps even years after the fact.

2. Submit your required tax forms

In the USA, you'll have three basic forms to tend to before January 31:

• W2: one form for each employee, and one form W3 as a summary of all employees
  
• 940: year end payroll report
• 1099-Misc: one form for each independent contractor you paid over $600, and one form 1096 as a summary of all 1099's.
  

Each of these applies only if you have paid employees or independent contractors.

Be sure to check with a tax professional, like our own Maesz, for more specifics on tax filings.

3. Do an annual backup

And store it off-site. Consider taking advantage of one of the many great online backup services. A good list is at Storage for Nothing, Backup for Free. Carbonite is too new for the list, but gets good reviews. If you prefer to keep your backups off the internet, Comodo offers free backup software.


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Last Minute 2007 Tax Hints

(1) Use your bank credit card to pay year end deductible expenses; 
for transactions with a bank credit card, you take the deduction
in the year that the item was charged, even if you pay the bill next year.


(2) Remember the rules for substantiating charitable contributions
as you do your year-end giving.

Starting this year, donors are required to document ANY cash donations
they make to churches or other charities, no matter how small.  

That means having a canceled check, a bank record or receipt with
the group's name and donation amount. A log isn't enough. 

If you made your donations via payroll deduction, a pay stub or W-2 form
listing donated amounts anda pledge card with the charity's name are OK.

IRS Announces 2008 Standard Mileage Rates

The IRS mileage rate is going up 2¢, to 50½¢ for 2008.

Parking fees and tolls are deductible also, but fuel and repair costs are not
as these items are reflected in the standard mileage rate.

Want to Get FREE Tax Tips?

The IRS will send you free tax tips. All you need to do is list your email address with them on the IRS website.

Since these tips come straight from the IRS, you know there will be nothing even remotely questionable about them.

And you can truly "unsubscribe" -- they will take you off the list, unlike some sites.

Give it a try. Tax time is fast approaching. Who knows, you might find a jewel that is perfect for your small business. And you didn't even know it was there.

Small Biz Startup TV Ep. 3 - Borrowing and Recordkeeping

Networking with many new media folks, I realized that lots of people are starting businesses. Since helping people start a business is the full time job of my co-author "OkieJ" Jeanne Cole, we decided to present a live internet TV miniseries on small business startup issues.


Problem with the player? Watch it at Operator 11.

Becky McCray and Jeanne Cole live from the Small Business Development Center in Alva, taking your small biz startup questions live in the chat room or by video. Today, Jeanne talks about how to get financing, and Becky discusses basic record keeping. We also talk about what a Small Business Development Center can do for you, and where to find one. Lots of great questions from the chat room, including business structures, pricing your services, and taxes on online businesses.

Want free confidential small business counseling before or after the show? Sign up with us at http://urltea.com/1god

One more episode to follow on Oct. 29.

Links:

Annual Credit Report
Improve your credit
Advice for the Startup Entrepreneur
SBA - Small Business Development Center locator
SBA - downloads on finance and recordkeeping



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IRS Rules for Employment Tax Items

Here's a link to IRS rules concerning employment tax issues and items.

The IRS site is actually a treasure trove of useful information all broken down into fairly small blocks. Check it out.

From the IRS -- Car and Truck Expense Deduction Reminders

If you use a car or truck in your business in the US, the IRS has rules (of course). Here's some highlights:

Deductible Car and Truck Expenses

What qualifies?

• Traveling from one work location to another within the taxpayer’s tax home area. (Generally, the tax home is the entire city or general area where the taxpayer’s main place of business is located, regardless of where he or she resides.)
• Visiting customers.
• Attending a business meeting away from the regular workplace.
• Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside taxpayer’s tax home area.)

It is important to note that costs related to travel between a taxpayer’s home and regular place of work are commuting expenses and are not deductible.

Taxpayers can choose to use either the standard mileage rate or actual expenses to compute their allowable business deduction. They may want to figure the deduction using both methods to see which provides a larger deduction.

Standard Mileage Rate Method

The standard mileage rate may be used to figure the deductible costs of a vehicle that is owned or leased. If a taxpayer wishes to use the standard mileage rate for a leased vehicle, it must be used for the entire lease period. In other words, a taxpayer must use the standard mileage rate for the first year a vehicle is available for business use in order to use the standard mileage rate in subsequent years.

The standard mileage rate is adjusted annually by the IRS to reflect changes in the cost of operating a vehicle. In some situations it is adjusted during the year. The 2006 standard mileage rate of 44.5 cents per mile, as well as rates for previous periods, can be found at the IRS site.

The standard mileage rate is used in place of actual expenses. Taxpayers who choose the standard mileage rate may not deduct actual expenses, such as depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance or vehicle registration fees. Business-related parking fees and tolls may be deducted in addition to the standard mileage rate. Fees for parking at a taxpayer’s main place of business or tolls related to commuting to and from that main place of business are personal expenses which are not deductible.

The standard mileage rate cannot be used if the taxpayer:

• Uses the car for hire (such as a taxi).
• Uses five or more cars at the same time (as in fleet operations).
• Claims depreciation or a section 179 deduction (Publication 463, Chapter 4).
• Is a rural mail carrier who receives a qualified reimbursement (Publication 463, Chapter 4).

Actual Expenses Method

Actual car or truck expenses include:

• Depreciation
• Lease payments
• Registration fees
• Licenses
• Gas
• Insurance
• Repairs
• Oil
• Garage rent
• Tires
• Tolls
• Parking fees

Recordkeeping

It is important to keep complete records to substantiate items reported on a tax return. In the case of car and truck expenses, the types of records required depend on whether the taxpayer claims the standard mileage rate or actual expenses.

To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destination and business purpose.

For actual expenses, a mileage log helps establish business use percentage. Taxpayers should also retain receipts, invoices and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes they need to show the original cost of the vehicle and any improvements as well as the date it was placed in service.

FS-2006-26, October 2006


small biz rural entrepreneurship IRS taxes

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IRS Announces 2007 Standard Mileage Rates

IR-2006-168, Nov. 1, 2006

WASHINGTON — The Internal Revenue Service today issued the 2007 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2007, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 48.5 cents per mile for business miles driven;
• 20 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service to a charitable organization.

The new rate for business miles compares to a rate of 44.5 cents per mile for 2006. The new rate for medical and moving purposes compares to 18 cents in 2006. The primary reasons for the higher rates were higher prices for vehicles and fuel during the year ending in October.

The standard mileage rates for business, medical and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. Runzheimer International, an independent contractor, conducted the study for the IRS.

The mileage rate for charitable miles is set by statute.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously. Revenue Procedure 2006-49 contains additional information on these standard mileage rates.

small biz rural entrepreneurship

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Using EFTPS – Two Tips to Avoid Mistakes

More advice from the IRS on EFTPS for those of you with employees--

While using EFTPS is simple, secure and convenient, there are common mistakes that can cause delays and result in late posting of payments, which may lead to penalties. Avoid these mistakes by remembering the following tips:

• Using your legal company name can help avoid rejected entries and payments and save time. An incorrect name or abbreviation can cause the service to reject the payment.
• Plan ahead. Payments must be scheduled at least one day in advance of the settlement date, no later than 8 p.m. ET. EFTPS allows users to schedule payments any time of the day, any day of the week, from any location.

For more information on using EFTPS, visit www.simplifyeftps.org.


small biz rural entrepreneurship IRS HR

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Verify Social Security Numbers Online

The Social Security Number Verification Service (SSNVS) allows you to match the name and Social Security number of employees you hire with Social Security’s records. Go to http://www.socialsecurity.gov/bso/bsowelcome.htm to use SSNVS.

You have two options for using SSNVS:

1. You can directly key up to 10 names/Social Security numbers at atime onto Social Security’s website with immediate results, or
2. You can upload a file with up to 250,000 Names/Social Security numbers with next business day results.

It is important to remember that SSNVS cannot be used to prescreen employees before they are hired.

For more information go to http://www.socialsecurity.gov/employer/ssnv.htm.

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EFTPS e-mail scam

For those of you who use the EFTPS, this is apparently becoming more of a problem so be aware!

If you don't even know what the EFTPS is, you can probably skip this.

.........
IR-2006-116, July 19, 2006

WASHINGTON — The Internal Revenue Service is warning taxpayers to be on the lookout for a new e-mail scam that uses the Treasury Department's Electronic Federal Tax Payment System (EFTPS) as a hook to lure individuals into disclosing their personal information.

The system, which is used by more than six million taxpayers, allows businesses and individuals to pay all their federal taxes online.

The new e-mail scam, fraught with grammatical errors and typos, looks like a page from IRS.gov and claims to be from the "IRS Antifraud Comission" (sic), a fictitious group. The e-mail claims someone has enrolled the taxpayer's credit card in EFTPS and has tried to pay taxes with it. The e-mail also says there have been fraud attempts involving the taxpayer's bank account. The e-mail claims money was lost and "remaining founds" (sic) are blocked. Recipients are asked to click on a link that will help them recover their funds, but the subsequent site asks for personal information that the thieves could use to steal the taxpayer’s identity.

“The IRS does not send out unsolicited e-mails asking for personal information,” said IRS Commissioner Mark W. Everson. “Don’t be taken in by these criminals.”

Additionally, the IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

This latest e-mail scam is the first one known to reference EFTPS.

The IRS has seen a recent increase in these scams. Since November, 104 different scams have been identified, with 22 of those coming in June, the most since 40 were identified in March during the height of the filing season.

Many of these schemes originate outside the United States. To date, investigations by the Treasury Inspector General for Tax Administration have identified sites hosting more than two dozen IRS-related phishing scams. These scam Web sites have been located in many different countries, including Argentina, Aruba, Australia, Austria, Canada, Chile, China, England, Germany, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Poland, Singapore and Slovakia, as well as the United States.

Other scams claim to come from the IRS, tell recipients that they are due a federal tax refund, and direct them to a Web site that appears to be a genuine IRS site. The bogus sites contain forms or interactive Web pages similar to IRS forms or Web pages but which have been modified to request detailed personal and financial information from the e-mail recipients.

Tricking consumers into disclosing their personal and financial information, such as secret access data or credit card or bank account numbers, is fraudulent activity which can result in identity theft. Such schemes perpetrated through the Internet are called “phishing” for information.

The information fraudulently obtained is then used to steal the taxpayer’s identity and financial assets. Typically, identity thieves use someone’s personal data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name and even file fraudulent tax returns.

When the IRS learns of new schemes involving use of the IRS name or logo, it issues consumer alerts warning taxpayers about the schemes.

The IRS also has established an electronic mailbox for taxpayers to send information about suspicious e-mails they receive which claim to come from the IRS. Taxpayers should send the information to: phishing@irs.gov.

More than 8,000 bogus emails have been forwarded to the IRS, with nearly 1,300 forwarded in June alone.

The IRS’s mail box allows taxpayers to send copies of possibly fraudulent e-mails involving misuse of the IRS name and logo to the IRS for investigation. Instructions on how to properly submit one of these communications to the IRS may be found on this Web site. Enter the term "phishing" in the search box in the upper right hand corner. Then open the article titled “How to Protect Yourself from Suspicious E-Mails” and scroll through it until you find the instructions. Following these instructions helps ensure that the bogus e-mails relayed by taxpayers retain critical elements found in the original e-mail. The IRS can use the information, URLs and links in the bogus e-mails to trace the hosting Web sites and alert authorities to help shut down these fraudulent sites.

However, due to the volume the mailbox receives, the IRS cannot acknowledge receipt or reply to taxpayers who submit their bogus e-mails. The phishing@irs.gov mailbox is only for suspicious e-mails and not for general taxpayer contact or inquiries.

For information on preventing or handling the aftermath of identity theft, visit the Federal Trade Commission’s consumer and OnGuardOnLine Web sites. Click on "Topics" to find the identity theft and phishing areas on OnGuardOnLine.

For information on identity theft prevention and victim assistance in relation to tax administration, visit the IRS Identity Theft Web page which can be found on this Web site. Enter the term "identity theft" in the search box in the upper right hand corner.

For schemes other than phishing, please report the fraudulent misuse of the IRS name, logo, forms or other IRS property by calling the Treasury Inspector General for Tax Administration’s toll-free hotline at 1-800-366-4484.

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Straight from the horse's mouth !

All of this comes straight from the Internal Revenue Service. In fact, I blatantly cut and pasted the pertinent part of the IRS Bulletin.

Please read carefully and take heed. Pay particular attention to the steps and precautions the IRS is trying to put into place.



Simple Steps Can Prevent Tax Scams as Private Debt Collection Begins


IR-2006-132, Aug. 23, 2006

WASHINGTON -- As the Internal Revenue Service begins its private debt collection initiative, the tax agency reminds taxpayers there are several simple steps that can provide protection against scam artists.

Scamsters try a variety of tricks to impersonate the IRS in hopes of tricking taxpayers into divulging personal or financial information or even conning people out of cash. Scam artists try to impersonate the IRS in person, by phone, by e-mail and over the Internet.

Currently, the IRS is beginning its private debt collection effort, where a small segment of taxpayers who owe back taxes will be contacted by private sector debt collectors. There are several key elements of this program that will alert taxpayers they are part of this program and help other taxpayers from being scammed by impersonators:

* Taxpayer notification. All taxpayers who will be part of the private debt collection effort will know they are in the program before they are contacted by a private collection agency. If you haven’t previously heard that you’re in the program, be wary of any bill collectors saying they are working on behalf of the IRS.

* IRS letter. All participants selected for the program will get a letter from the IRS, telling them they’ve been selected for the private debt collection program. The name of the company will be included in the letter.

* Collection agency letter. All participants will subsequently receive a second letter, this one from the collection agency, informing the taxpayer they will be contacted soon regarding back taxes.

* Money collected. When paying a collection agency on behalf of the IRS, remember that the check will be made out to the U.S. Treasury – not to an individual or firm. The collection agency will provide the appropriate IRS coupon and mailing address for the payment. The collection agencies will never ask for cash or checks written to individuals.

* Contact the IRS. If in doubt, check IRS.gov or call the IRS at 800-829-1040 for more information.

“Don’t be fooled by scam artists claiming to be from the IRS,” said Kevin M. Brown, IRS Commissioner of the Small Business / Self-Employed Division. “People selected for the private collection program will be notified in advance from the IRS. There are clear processes in place for this program, so don’t fall victim to fraudsters who are constantly looking for new ways to trick people.”



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New IRS Collection Practices

Heads up! If you owe back taxes to the federal government, the next call asking you to pay may come from a private debt collector.

Within two weeks, the I.R.S. will turn over data on 12,500 taxpayers who owe back taxes, to three collection agencies.

The move represents the first step in a plan to outsource the collection of smaller tax debts to private companies over time. Although I.R.S. officials acknowledge that this will be much more expensive than doing it internally.

Critics point not only to the higher cost but also to what they say is a greater potential for abuse. With private companies in the mix, they say, debtors could more easily be tricked into paying money to scam artists using spoof Web sites or other schemes. So, beware!

However, in an attempt to guard against fraud, the collection agencies will contact taxpayers only by telephone or mail — not the Internet — and will instruct them to send all payments directly to the United States Treasury, not the private collection agency.

There is objection to the privatization program citing that it is more expensive than internal collection. Privatizing government services is often promoted as a way to cut costs. But the government would probably net $1.1 billion from private debt collectors over 10 years, compared with the $87 billion that could be reaped if the agency hired more revenue officers.

Taxpayer rights are at risk with privatization, Nina B. Olson, the I.R.S. taxpayer advocate, warned Congress earlier this year. “Because private collectors will operate under rules of profit maximization rather than the I.R.S.’s customer-service based policy,” she warned, the private collectors may have less incentive to safeguard taxpayer rights.

Al Cleland, a retired I.R.S. tax collector in Minnesota, says “We always told people to get current on their taxes first, so they would not have more penalties added, and then work on paying off their back taxes. A private collection agency has no incentive to tell taxpayers that, so people will pay more penalties.”

The only bright spot in all this is that the program is not to be used for collections from small business owners, whose cases will not be sent to the private agencies. But, be aware that if you file your small business on a Schedule C, you may not fall under this exception.

So, either get current on your taxes or, at least, be very careful if you get contacted to pay up.

Remember, only write your checks to the United States Treasury and send your tax payments to an address for your state listed in the instructions to your Form 1040 or found on the official web site—irs.gov.



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