Businesses

Important Topics:
New Payment Card Reporting Rule - NEW!
PA Decennial Filing
2010 Small Business Jobs Act
Unclaimed Property Reporting
NOL Carryback Option for Businesses - UPDATED!
Red Flags Rule
Pennsylvania Home Improvement Consumer Protection Act
Single Member LLC Tax Requirement
Pennsylvania Smoking Ban
Eligibility for Educational Improvement Tax Credit
1099 Information Returns - UPDATED!
Limitations on Deductions for Meals, Travel and Entertainment
Requirements for Business Vehicle

New Payment Card Reporting Rule
Beginning in 2011, all credit and debit card companies, as well as third-party payment processing networks (i.e. PayPal) will be required to issue a new form 1099-K to merchants with over 200 sales transactions and over $20,000 in annual sales.  The amounts reported to merchants on form 1099-K are to be reported by the merchant on a seperate line of the annual tax return (Schedule C, 1065, 1120, or 1120S).  This new reporting requirement will allow the Internal Revenue Service to better match revenues reported and aims to reduce underreporting of annual sales by businesses.

PA Decennial Filing
In 2000, Pennsylvania Business Corporation Law began requiring businesses using corporate names and marks to refile with the state every ten years during the years ending with the numeral "1" (i.e. 2001, 2011, 2021, etc.). All domestic and foreign profit and nonprofit corporations, limited liability companies, limited partnerships, limited liability partnerships, and business trusts that have not made a new or amended filing with the Corporation Bureau from January 2, 2002 through December 31, 2011 are required to file the decennial report by December 31, 2011.

To access the PA Department of State's website and list of Frequently Asked Questions regarding the Decennial Filing, please click here.

2010 Small Business Jobs Act
The recently enacted 2010 Small Business Jobs Act include a wide-ranging assortment of tax breaks and incentives for small business, paid for with various revenue raisers. Some of the tax changes include enhanced small business expensing (Sec. 179), 100% exclusion of gain from sale of qualified small business stock, extended carryback of general business credits, and many more. The Act also removed cell phones from the listed property category for all businesses.  This means that cell phones can be deducted or depreciated like other business property, without onerous recordkeeping requirements. However, personal use must still be accounted for in some manner.  For more information on the 2010 Small Business Jobs Act, please click here.

If you have any additional questions about various parts of the Act or for ways you can take advantage of the tax saving opportunities now afforded, call our office and ask to speak with one of our senior accountants.

Unclaimed Property Reporting
A few years ago, the Pennsylvania Treasury started sending letters to businesses stating that they were required to file unclaimed property tax returns by April 15^th of that year. In the mailing, it was alluded that "negative reports" were required.  The Treasury has noted on its website that negative reports are not statutorily required, but are helpful for the department in tracking annual compliance.

Some examples of unclaimed property may include uncashed payroll checks, safety deposit box contents, expired gift cards (see these FAQs for gift cards/certificates), and many other monetary or tangible items.

To learn more about the Unclaimed Property function of the Treasury and/or the amnesty program, you can visit their website by clicking here, call 1-800-379-3999, or email the department at upamnesty@patreasury.org. The Treasury has also developed a FAQ page about the program.

NOL Carryback Option for Businesses
The Worker, Homeownership, and Business Assistance Act of 2009 allowed eligible small businesses to elect to increase the Net Operating Loss (NOL) carryback period for an applicable 2008 and 2009 NOL from 2 years to 3, 4, or 5 years. Prior to the Act, an NOL could only be carried back two years and forward 20 years.  For tax years beginning in 2010 and after, the NOL carryback period returns to 2 years while the NOL carry forward remains 20 years.

 Red Flags Rule
The Federal Trade Commission (FTC) has issued regulations regarding fraud and identity theft prevention. Known as the "Red Flags Rule," the Fair and Accurate Credit Transactions (FACT) Act of 2003 requires all entities that extend credit to consumers to develop and officially adopt an "Identity Theft Prevention Program" by November 1, 2008. However, due to confusion over the regulation's definition of "creditor," this deadline has been postponed by the FTC until December 31, 2010.

According to the recently enacted "Red Flag Program Clarification Act of 2010," the term "creditor" refers to an entity "that regularly and in the ordinary course of business:

• obtains or uses consumer reports, directly or indirectly, in connection with a credit transaction,
• furnishes information to consumer reporting agencies in connection with a credit transaction, or
• advances funds to or on behalf of a person, based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of the person."

The 2010 Act specifically excludes from the definition of "creditor" any entity that "advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person." Also, the Act states that an agency having authority over an entity may require the entity to follow the Red Flags Rule if the entity "offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft." Please note, accepting credit cards as a form of payment does NOT meet the definition of "credit" as established by the FTC or the 2010 Act. Furthermore, the 2010 Act was designed to exclude most doctors, lawyers, accountants, health professionals, and many small businesses from being subjected to the Red Flags Rule requirements.

Please note, if your entity is still classified as a creditor after taking the 2010 Act into consideration, your Identity Theft Prevention Program must be written and formally adopted by your board of directors, shareholders, or partners by the December 31, 2010 compliance deadline. If you have not developed a plan already, please do so immediately.

For more information about the Red Flags Rule and compliance guidelines, please visit the official Red Flags Rule website. The FTC has provided this informational pamphlet, a Getting Red Flags Ready video and a Do-It-Yourself template for Low-Risk Businesses.  Additionally, you may also want to review this compliance model distributed by the National Rural Water Association.  This model was specifically designed for water utility providers, but can be adapted for almost any business model and industry.

If you have any questions regarding the Red Flags Rule or what they mean to you, please contact our office at (717) 336-3801.

Pennsylvania Home Improvement Consumer Protection Act
As of July 1, 2009, all contractors who perform at least $5,000 worth of home improvements per year are required to register with the state Attorney General's Office.  The application can be completed online at www.attorneygeneral.gov.  There is a $50.00 registration fee and contractors are required to renew their registration on a biennial basis.  Contractors are issued a license number, which they are required to include on all advertisements. 

The registration website listed above also contains a "Frequently Asked Questions" section that provides extensive information regarding this act and the registration process.

  

Pennsylvania Smoking Ban
On September 11, 2008, Pennsylvania law makers passed the Clean Indoor Air Act, which effectively bans smoking in public and workplace spaces, with only a very few minor exceptions.  Employers and employees alike will want to ensure they are in compliance with the new law, which not only bans smoking, but also requires “No Smoking” signs to be posted in all spaces included in the law.  For more information, please visit PA’s health website at www.health.state.pa.us.  Here you will find frequently asked questions, free downloadable “No Smoking” signs, and a Business Owner’s Clean Indoor Air Compliance Toolkit.

 

In June of 2008, Pennsylvania added an additional way for businesses to take advantage of the EITC.  Effective July 1, 2008, personal income taxes generated by pass-through business income, as reported on PA Schedules RK-1, PA-65, or PA 20-S, are now eligible to be offset by the EITC.  In order to receive this tax credit, you must first apply to the state.  There is a finite amount of funds set aside each fiscal year (July 1 – June 30) for this credit, and it is given away on a first-come, first-served basis.  If you are approved, you will receive a credit equal to 75% of your contribution.  If you agree to contribute equal amounts in two consecutive years, the credit is increased to 90% of your contribution, but you must still apply each year.  Applications are accepted all year, but credits are only awarded until the total amount set aside for the current year has been used.  Renewal applications for the 2011-2012 fiscal year were able to be submitted beginning May 1, 2011.  Initial applications were accepted starting on July 1, 2011 (July 8 for pass through credits).

Note:  The new pass-through tax credit qualification does not apply to sole proprietorships, Schedule C businesses, and single-member LLCs.  For more information on this tax credit or for help with the application process, please call our office.

1099 Information Returns - UPDATED!
Businesses (as well as non-profit organizations and governmental units) are required to file Form 1099 information returns for various payments made throughout the year. These forms are to be used to report payments to individuals and partnerships paid by you as follows:

Kind of Payment	Amounts to Report - Total for the Year
Dividends and Royalties	$  10.00 or more
Interest paid in the course of trade or business	600.00 or more
Rent	600.00 or more
Payments for services performed for a trade or business by people not treated as its employees. For example, commissions, sub-contractors, directors fees, accounting fees, etc.	600.00 or more
Distributions from retirement or profit sharing plans, SEPs, or insurance contracts	10.00 or more
Payments to Attorneys (For legal fees, the exemption from reporting payments to corporations no longer applies)	600.00 or more

Please note that as a business owner, you are responsible for filing various information returns with the Internal Revenue Service, including Form 1099s, in addition to normal income and payroll tax returns. We can assist you in the preparation of these returns. To assist in your information gathering, we have provided a 1099 information spreadsheet that you can download and complete by clicking here.

Form W-9 should be completed by all payees prior to making any payments that would require a 1099 form. Failure to file the forms and failure to provide account numbers are each subject to significant penalties per failure. For businesses located in Pennsylvania, 1099 forms are to be filed with the Internal Revenue Service Center, Austin, TX 73301.

NOTE: On the recipient’s copies, you are required to include the telephone number of a person to contact in case of questions. It is recommended that the contact phone number be included in the section with the filer’s name and address.

PLEASE NOTE:  In March 2010, the Patient Protection and Affordable Care Act changed the 1099 reporting requirements so that all payments made by persons engaged in trade or business in excess of $600 (including those in exchange for property) were reportable payments beginning after December 31, 2011.  In addition, the Small Business Jobs Act added a provision to 1099 reporting that included all taxpayers who receive rental income into the reporting requirements beginning after December 31, 2010.  On April 14, 2011, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 was signed into law and effectively REPEALED both prior 1099 reporting changes.  All 1099 reporting requirements will continue as if both prior Acts had not been enacted.

Limitations on Deductions for Meals, Travel and Entertainment
With the continued scrutiny of travel and entertainment costs by the IRS, it is important that you maintain some basic information for all travel and entertainment costs. The law specifically requires that any deduction claimed for meals and entertainment must be substantiated by records indicating the amount, time, place, and business purpose of the expenditure. Receipts are required on all expense account items over $75.

Requirements for Business Vehicle
The IRS continues to be strict in requiring proof of business use of vehicles. A taxpayer that claims a deduction for the business use of an automobile without maintaining written records can expect an IRS examination. A taxpayer should not assume that an IRS agent will compromise and allow part of a claimed business deduction based solely on the taxpayer's own statement. In all likelihood, no deduction will be allowed without substantiation of the taxpayer's statement.

Taxpayers should maintain regularly prepared written records of their vehicles' business use.

Please also be aware that personal use of a business owned vehicle creates taxable income. This should be reported as compensation subject to federal and FICA taxes on an employee’s W-2 at year end.