Jillion Services

Did you know that unemployment benefits are considered taxable income and should usually be reported on your federal tax return?

If you collect unemployment, you have the option of having federal taxes withheld from each check. If you do not, you may need to make estimated tax payments during the year. Before filing your taxes, make sure you receive a form 1099-G showing the full amount of benefits you received.

For more information on how to handle reporting your unemployment compensation see IRS publications 17 and 525 at the IRS website, www.irs.gov.

Small businesses face a lot of challenges getting through the start up and growth stages of the business life cycle.  When you’re strategizing how to make the next big sale, the last thing you want to find out is that someone is stealing your hard won profits.  Fraud is not limited to large corporations and high dollar investment schemes.  In fact, small businesses are especially vulnerable to fraud because they don’t implement controls to detect, correct, and deter fraudulent behaviors.

The Association of Certified Fraud Examiners publishes a Report to the Nations on Occupational Fraud and Abuse to shed light on how fraud impacts businesses.  Here is an excerpt from the 2010 report:

Detecting Fraud in Small Businesses
Small businesses historically tend to suffer disproportionately high occupational fraud losses, according to our previous reports. The trend was not as pronounced in this study as in past years, but we still saw that 31% of all occupational frauds were committed against small businesses (the highest rate of any category) and the median loss in those
schemes was $155,000 (see page 29). One reason that small businesses are particularly good targets for occupational fraud is that they tend to have far fewer anti-fraud controls than larger organizations (see page 39).

When we look at how small businesses detect frauds, it is apparent that they catch a much lower proportion of schemes through tips or internal audits than larger organizations. According to the chart on page 20, only 33% of small business frauds are detected by a tip, and only 8% are detected by an internal audit. Additionally, a relatively large percentage
of frauds are caught by accident at small companies — nearly twice as many as at larger organizations. Many of these discrepancies are likely due to the low rates of control implementation at small businesses.

The report is a wealth of information on how fraud is committed, who commits it, and how they justify their actions.  It is a great eye opener to see what kinds of people are willing to defraud their employer and how much they get away with.  You can find the complete report here: http://www.acfe.com/rttn.aspx

As a small business owner, it’s actually pretty easy to implement controls to combat fraud.  As my Forensic Accounting professor says, “Trust but verify!”  It’s great that you trust your employees, but putting checks and balances in place to take away the temptation of theft allows you and your employees to rest easy.

Hotlines - Hotlines are the most effective detection method.  Only 15% of small businesses have hotlines in place, but companies that do use them have 59% smaller median losses than those that do not.  Why do they work?  People like to tell what they know!  Having a hotline available sends the message that you are serious about combating fraud and that you value your employees help to do so.

Segregation of Duties – 85% of all asset misappropriations involve cash schemes, such as skimming, cash theft, billing, check tampering, and payroll schemes.  Segregation of duties is easy to implement and helps to deter these types of theft.  How does it work?  You separate the steps to complete a task among more than one employee.  Having two sets of eyes looking at a task increases the chance that a fraud will be detected (or deterred) and also allows your employees to take vacations or sick days without your business falling behind because no one else knows how to perform that duty.

Monitoring – You can’t watch all of your employees all of the time, but you don’t have to. If you’re concerned about theft at the cash register, locate your register in an area of your store that is highly visible to other employees and to customers.  It’s hard to commit fraud when you’re the center of attention.  Random checks of inventory and surprise visits to remote locations can also deter fraud.

It can be difficult for a small business to recover stolen money or property, but taking a proactive approach to deter fraud from occurring means you won’t have to try.  For more information about internal controls, read this document from the SBA: www.sba.gov/sites/default/files/files/INTERNAL%20CONTROLS(3).docx

Here’s an article from the IRS:

Tax Tips for the Self-employed 

There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed.

Here are six key points the IRS would like you to know about self-employment and self- employment taxes:

1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.

2. If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You figure self-employment tax using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.

3. You file an IRS Schedule C, Profit or Loss from Business, or C-EZ, Net Profit from Business, with your Form 1040.

4. If you are self-employed you may have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.

5. You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.

6. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

For more information see the Self-employment Tax Center, IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available atwww.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

When we are planning for a big event, like getting married or starting a new career, we don’t usually think about how that will effect our bottom line.  The IRS has created a page to direct you to more information about how these events can impact you at tax time.

For example:
If you’re expecting a baby, in most cases you can claim your new addition as a dependent in the year she arrives.  Even if she arrives in December, you can still take the full dependent deduction!

Starting a new job as a contractor instead of as a regular employee?  You will need to understand the differences when tax time rolls around.  You could be responsible for paying the payroll taxes that your employer would normally be responsible for if you had been hired as a regular employee.

Check out the IRS page for more details:

Did you know that there are events in life that may have a significant tax impact?.

The IRS has an article giving tips on how to choose your tax preparer here: http://www.irs.gov/newsroom/article/0,,id=251962,00.html

You should also scrutinize preparers who offer you same day refunds.  Read the fine print, they are most likely charging you an obscene amount of interest.

If you live in Oregon, your preparer has to be certified.  Use a preparer who holds the Oregon Tax Preparer certification or is an enrolled agent, CPA, or attorney.