Category Archives: Just the tax, Ma’am.

Thoughts on all things tax related.

Yay! It’s W-2 time!

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I have had many a visit from staff members during Q1 regarding W-2 forms.  They file their personal income tax return and they don’t like the final number.  Too much due.  Too much paid in.  Status changes.  Multiple jobs.

While I can’t fill out the W-4 form for them, I make sure my folks understand the the number of deductions they claim is INVERSELY proportional to the amount of tax deducted each payroll.  For example, claiming Single-0 will result in MORE tax taken out than if you are claiming Single-2.  The instructions they provide to the company on a W-4 will dictate how their W-2 will look at the end of the year based on the government’s tax tables.

Part-time employees should be especially mindful.  Depending on the gross payroll, there could be little to no tax deducted.  Again, this is based on the tax tables in a Circular E document.  The completed W-4 and the tax tables create an estimate of what the tax liability could be, but doesn’t dictate how you will actually file the return.

At the end of the year, the part-time employee takes this W-2 and couples it with their full time job W-2, or their spouse’s on a joint return.  They could be unpleasantly surprised by the higher income number but without the additional tax paid into the account.  The W-4 form provides a way to force an additional amount out of each check to cover this gap.

Everyone (you and your staff) needs to understand that one company and it’s paycheck doesn’t know your entire financial situation.  My W-4 with ABC Company doesn’t know if I have another job at XYZ Business, a rental property, win the lottery, etc.  If you are having trouble every year, adjusting your W-4 could be a solution to help to alleviate unpleasant surprises.  Talk to your tax professional when completing your personal return this quarter for 2012.

Is that transaction really sales tax exempt?

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I have run into many folks who claim to be tax exempt.  There are two different kinds of exemption – income and sales.  The federal government does not bestow sales tax exemptions.  A business may show you their letter from the IRS stating very officially “TAX EXEMPT ORGANIZATION.”  This is issued for a variety of reasons from churches, to soup kitchens, to national charities, etc.  This letter coming from the IRS applies only to the federal income tax for the group.

For a group to be exempt from sales tax in the State of Kansas (and in other states I have worked), you must apply with the state.  A business may qualify for this status because they are a charity, or they may be a reseller of goods, they may be in a special development and the state has opted to exempt them.

Kansas has different forms issued for each of these scenarios.  You have an obligation to require the organization or business supply the proper form for their tax exempt situation.  An example is the Kansas form ST-28D for manufacturers and processors.  The purchaser also has an obligation to notify you if some sales are exempt and some are not.  In the manufacturer scenario, tools are not tax exempt however the metal they fabricate into something is exempt.

Keep this form on file.  This signed exemption form signifies the group is taking the responsibility of the sales tax exemption.  It is them literally saying, “I am buying this bread and cheese to make sandwiches.  I am going to sell them and charge my customers sales tax.”  If you must go through a sales tax audit, you have this form that shifts the responsibility of the sales tax from you to them.

On the other hand, if you complete a sale to a group and all they give you is an IRS letter…you are taking a risk that they haven’t been approved by the state in which you operate.  Even when they claim everybody in town accepts their IRS letter.  Your business could be on the hook for the sales tax of the transaction if they have not been approved.  If you have questions, talk to your CPA or even call the Department of Revenue.  They are really helpful…and not as scary as you think.

Holy cow! It’s 1099 time.

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This may sound strange, but I actually like the process of sending 1099’s to contractors each year.  Why?  It forces you to really review your vendors and who you do business with.  How much did you pay for an attorney’s services this past year?  Does a company have a new mailing address?  The list goes on.  While I find the process of auditing my vendors therapeutic, realizing your records for them are incomplete to generate your actual Form 1099’s can be a bit stressful.

I prefer to send a Form W-9 to EVERY vendor before I cut the first check.  The vendor has an incentive to then return the completed form quickly, since they would really like to get paid.  As soon as I receive the completed form, I update my QuickBooks vendor profile.  I keep the hard copy on file, or you can choose to scan them in.  These forms are for your records…no need to send them to anyone or the IRS.

At the end of the year, there is a mad dash of accountants and bookkeepers to get complete information for all their vendors.  There will always be a few holes to fill in, but if you make an internal guideline to send them out to every new vendor going forward you won’t have this on your already lengthly to-do list in Q1.