The generosity of the American people is really quite amazing.  This past weekend, our local Rotary Club, of which I am a member, held a chicken barbecue to raise funds for the earthquake relief effort in Haiti, and we raised almost $1400.  Typical fundraising income from a BBQ like this runs about $800, but people were rounding up their purchases and asking us to donate the excess to the cause.   Other efforts in the local area have raised thousands of dollars.  It is truly heartwarming how generous we can be when we are called to action.  And now, this generosity is being rewarded by the government…

The IRS has come out with a new advisory, making the preparation of tax organizers — those forms you might use in preparing your tax information for your tax preparer — every more challenging.  Now, if you make a cash donation to an eligible organization for earthquake relief in Haiti, you can deduct this contribution on your 2009 tax return.  But be advised of these provisions:

• You must make the contribution between January 11 and March 1, 2010
• You must itemize deductions on Schedule A in order to take this deduction
• Donations made by text message are deductible (save your telephone bill!)
• Only donations made to organizations certified as 501(c)3 charitable organizations are eligible for this special tax treatment.  This means that foreign organizations, unless they have a USA branch, probably do not qualify.
• You may take the deduction on either your 2009 return, or your 2010 tax return, but not both.

It is this amazing spirit of Americans that make me proud to be a citizen of this country — and despite its many faults, we still know how to rally for a cause, and open our hearts to those in need.

Perhaps it’s the season, or a barometer of an improving economy, but I’ve received a few inquiries from clients lately on the topic of hiring employees.  There are a lot of steps to take — some might say “hoops to jump” — but as with most legal matters, it’s better not to skate on thin ice, especially when jumping through hoops.  (Please excuse my excessive metaphorization!)  I just discovered this website that provides information on each step, in an exceptionally clear manner.  So rather than reproduce what they have there, I thought I’d post a link to the website here, and you can check it out for yourself:  http://www.business.gov/business-law/employment/hiring/first-employee.html

Some people may think, well, instead of going through all that rigamarole, I’ll just pay this person as an independent contractor.  In years past, that was the tactic many potential employers took in order to avoid paying the 7.65% tax on employee wages, as well as the attendant insurance benefits.  But the IRS frowns on that, and has come up with a list of criteria that help to determine if a person should be considered an employee or a contractor.  The criteria address control and direction, with people who are controlled and directed being more on the employee end of the scale, and those who exhibit more independence being on the contractor end of the scale.  So, for instance, if you have your own tools, if you make your own hours (at least as far as the work you do for the employing entity goes), if you work for other people as well as this employer, if you have a contract to perform the work, then you might be considered an independent contractor.  If you, the employer are not sure if someone is an employee or a contractor, you can ask the IRS to make that determination for you, by filing Form SS-8, which is available here:  http://www.irs.gov/pub/irs-pdf/fss8.pdf But be forewarned, it may take several months to get a determination on a worker’s status!

Growing up, I remember my mother — who did all the finances for the family — preparing the annual tax return.  She’d have forms and receipts and journal books spread out on the table, since we had a farm and had to report income from the farm.  She was meticulous, and would check and double check her figures.  “Twice we were audited,” she once proudly told me, “and they found nothing.”

Well, Mom’s way of doing taxes, with pencil and scrap paper, has fallen by the wayside.  An IRS study shows that increasingly, people are turning to paid tax preparers to do their taxes.  They’re also using more software packages to prepare their taxes themselves.  In fact, for the  2007 and 2008 tax years, 80% of taxpayers filed their taxes using either software or a paid preparer.

What many people don’t know is that tax preparation is a field that has no prerequisites.  That’s right.  Anyone can be a tax preparer.  It’s easier to become a tax preparer than a hair stylist.  All you need to do is hang out a shingle or print up a business card.  Of course, many people who are in the business of preparing taxes do have education and certification in the field:  attorneys, certified public accountants (of which I am one) and enrolled agents.  These people are subject to professional oversight, and have to register and establish competency in their field, and submit to continuing education every year in order to remain certified.  But there’s this vast number of tax preparers who don’t fall into any of those categories, including most of the preparers at the big-box tax companies (H&R Block, and Jackson-Hewitt, for example) and whose work is completely unregulated.  The IRS doesn’t really know how many tax preparers there are, but suspects the number is somewhere between 900,000 and 1.2 million.

The IRS is about to shake things up, though, in the tax world.  (I know, I know, that’s kind of an odd image, isn’t it?)  Starting in 2011, the IRS would require all tax preparers in every state who are not attorneys, CPAs or Enrolled Agents to pass a basic competency exam, register, and take annual continuing education in tax law and ethics.  It’s already changed this year for preparers in New York State.  The previously-unregulated preparers will have to register with the state, pay a fee, and get an ID number to allow the state to track, and possibly deny registration to preparers who consistently file erroneous returns.   However, the changes that the IRS are proposing are more comprehensive, and to my mind, make much more sense.  Why not have the people charged with preparing taxes at least submit to exhibiting a basic competency in the field before you allow them to prepare taxes?

Taxes are complicated, and getting more so all the time.  Every year there are changes, and new tax rulings.  This change will create a more level playing field in the area of tax preparation.  After all, if you have someone who has an advanced degree, 16 hours of rigorous testing, 24 hours per year of continuing education, an expensive triennial registration fee, and a professional tax preparation software costing upwards of $600 competing against someone who simply bought a software program — maybe even a single return copy of TurboTax for $29.95 and files an unlimited number of returns, guess who’s going to be able to prepare your return more cheaply?

I applaud the IRS for this step, as did 98% of the people who provided public comment on this new regulation.  And with the IRS and the tax-strapped State performing more audits, it really pays to have your return prepared professionally.  Maybe not for the college student who basically has a handful of interest and a W-2 from a summer job, but for the person with perhaps a home purchase or sale, or a small side business, or rental properties, it makes sense to engage a professional.  As the saying goes, “you get what you pay for!’  How true!

OK, so you’re a small business owner, and you’ve been negligent about attending to your accounting for the past several years.  When you started out, you thought, this accounting stuff, how hard can it be, really?  As long as you had a positive bank balance in your bank account, you figured you were doing all right.  Oh, right, well, there was that loan from your brother-in-law and that line of credit you got from the bank last year… but the money is still coming in, and you’re still busy.

But do you know, really, how well your business is doing?  What are your margins?  How much do you make on different product or service lines?  Does it pay for you to hire employees?  What is your business worth right now?

For too many small businesses, much of this is a mystery, because they have no structured way to record and review the activity in their businesses.  But it doesn’t have to be like this.  Perhaps this will be the year that you begin to record your activity on a regular basis, review your activity and actually start making decision on the information that you have.  This is called management, and I hope that you begin doing more than just “running” the business — you begin to “manage” it.  Happy 2010!

I’ve spent most of this first day of the new year developing my website using WordPress.  It’s very easy to use, although the learning process is rather slow… and I still have some tweaking to do, and some more things to add to the site.  But overall, I’m pleased with the look of the site.  If you have comments, please submit them below.  And thanks!