Business Blog

General observations, resources, links and commentary derived from Antonio "Tony" Arocho's law practice representing medium and small, micro, and hobby-based businesses, as well as news, events, and ideas related to the business sector.

IRS Increases Mileage Rate
July 22, 2011

The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes. The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.

IRS posts more FAQs on How Eligible Small Business can Claim the Health Care Tax Credit

October 29, 2010

The IRS has postedadditional FAQs on howeligiblesmall business canclaim the Small Business Health Care Tax Credit.

For more information on the Small Business Health Care Credit and FAQs visit IRS.gov.

October is Employee Ownership (ESOP) Month

October 2, 2010

This month is Employee Ownership (ESOP) Month. It is a celebration of the incredible spirit of employee ownership and an opportunity to educate employee owners about the tremendous benefits of employee stock ownership plans (ESOPs). http://www.esopassociation.org/resources/resources_month.asp

You might be wondering, What is an ESOP? Well, an Employee Stock Ownership Plan (ESOP) is an employee benefit plan which makes the employees of a company owners of stock in that company. An ESOP is required by law to invest primarily in the securities (stock) of the sponsoring employer. Also a unique quality of the ESOP is its ability to borrow money - a leveraged ESOP may be a tool for corporate finance. Businesses having an ESOP are owned in part or whole by their employees.

Usually an ESOP is used to provide a market for the shares of departing owners of closely held companies, motivate and reward employees, or borrow money for acquiring new assets in pretax dollars so to take advantage of available incentives. Mostly ESOPs are used as an employee benefit or contribution to the employee.

Benefits to employees in an ESOP include having a vested interest and stake in their workplace, and tax benefits. For businesses participating in an ESOP the benefits may include tax deductions. However, ESOPs cannot be used by partnerships, most professional corporations, private companies must repurchase stock of departing employees in the ESOP, and when new shares are issued the share of existing stock is diluted.

You should seek advice from an attorney and CPA if you are interested in starting an ESOP for your business.

Companies cant be subject to US lawsuits by foreigners seeking damages for human rights violations

September 29, 2010

Last week in a landmark case the U.S. Court of Appeals for the Second Circuit, a federal appeals court, ruled in the Kiobel v. Royal Dutch Petroleum Co. that companies can not be subject to U.S. lawsuits by foreigners seeking damages for human rights violations under the U.S. Alien Tort Statute (28 U.S.C.Section 1350). In its decision the court ruled that the Alien Tort Statute gives U.S. courts jurisdiction only over alleged violations of international law by individuals and not alleged violations by corporations. The decision dismisses the claims brought by a group of Nigerians that Shell aided in the torture and murder of dissidents in Nigeria during the 1990s. The full text of the court decision can be found at: (http://www.ca2.uscourts.gov/decisions/isysquery/836d860b-2d6f-4bdd-9175-6b8285fa7bfe/5/doc/06-4800-cv_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/836d860b-2d6f-4bdd-9175-6b8285fa7bfe/5/hilite/)

Circuit Judge Jose Cabranes wrote in his majority opinion that the Alien Tort Statute only allows U.S. courts to hear death and injury claims, including war crimes and crimes against humanity, by non-U.S. citizens connected to violations of international law.

In the dissenting opinion of Circuit Judge Pierre N. Leval he wrote that he agreed that the case should be dismissed but disagreed that the Alien Tort Statute applies only to individuals. He stated that the plaintiffs didnt properly claim Shell intended to cause the Nigerian government to violate human rights. Judge Leval wrote that the majority opinion deals a substantial blow to international law and its undertaking to protect fundamental human rights.

This is a case of major impact. However, this may not be the last word on the Alien Tort Statute because the decision can still be reconsidered by the full U.S. Circuit of Appeals for the 2^nd Circuit. Eventually I think this case and other similar cases will eventually reach the U.S. Supreme Court.

District of Columbia's CBE Pre-certification Orientation on October 7th!

In the District of Columbia a Certified Business Enterprises (CBE) (formerly Local, Small and Disadvantaged Business Enterprises (LSDBE) is a business certified by the D.C. Department of Small and Local Business Development.

Businesses with CBE certification receive preferred procurement and contracting opportunities from the District of Columbia. Participation in a CBE Pre-certification Orientation is a mandatory requirement to apply for the CBE program. Before submitting your first CBE application, you must attend a Pre-Certification Orientation. The orientation gives previously uncertified business representatives detailed instructions on how to complete CBE applications.

The next CBE Pre-Certification Orientation is scheduled for Thursday October 7, 20101:30 PM - 3:30 PM at One Judiciary Square Building, 441 4th Street, NW, Rm 1107 N, Washington, DC 20001.

Small Business Guide to an IRS Audit

September 16, 2010

A recently uploaded IRS online video series called "Your Guide to an IRS Audit" follows three hypothetical small business taxpayers step-by-step through the audit process. The series helps small business taxpayers better understand the IRS audit process. It outlines the types of audits conducted by the IRS and the different steps that are in involved in each type. Also it includes answers to some of common questions.

New 1099 Requirements Starting 2012 for Your Business

September 10, 2010

Did you know that starting in 2012 all businesses will be required to prepare Form 1099-MISC for all services and goods purchased from all vendors in excess of $600. The 1099 would have to be filed with the Internal Revenue Service and the person or entity you paid. Presently business are only required to file a 1099-MISC for services in excess of $600 and most corporations are exempt from receiving a 1099.

These new reporting requirements are in section 6041 of the Internal Revenue Code (the Code), which was amended by section 9006 of the recently passed health care reform legislation - Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, 124 Stat. 119 (the Act). It should be noted once again that the new reporting requirements under these amendments apply to payments made only after December 31, 2011.

This new requirement will be burdensome and costly for small businesses to compile the data and prepare the Form 1099-MISC information return. It presents an overwhelming compliance burden on the small business community. For example, as the requirements stands now it seems that any time a small business makes a purchase at an office supply store in excess of $600 it will have to send a 1099 for that purchase to the store at the end of the year.

The Treasury Department and the Internal Revenue Service will be issuing guidance and regulations on how to comply with this new requirement. As a result they have asked for comments from the public. You can find further information regarding public comment at http://www.irs.gov/pub/irs-drop/n-10-51.pdf. Your comments can help the IRS issue implements the requirements of this new law in a manner that minimizes burden on your small business.

Closing a Business Checklist from the IRS

From the IRS website (August 4, 2010)

There are typical actions that are taken when closing a business. You must file an annual return for the year you go out of business. If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes. Also attach a statement to your return showing the name of the person keeping the payroll records and the address where those records will be kept.

The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return. If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.

You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business. If you do not have a pre-printed envelope in which to send your taxes, refer to the Where To File page for a list of addresses. Below is a list of typical actions to take when closing a business, depending on your type of business structure:

Checklist

• Make final federal tax deposits

  • Electronic Federal Tax Paying System (EFTPS)
    OR

  • Form 8109-B

• File final quarterly or annual employment tax form.

  • Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF)

  • Form 941, Employer's Quarterly Federal Tax Return (PDF)

  • Form 943, Employer's Annual Tax Return for Agricultural Employees (PDF)

  • Form 943-A, Agricultural Employer's Record of Federal Tax Liability (PDF)

• Issue final wage and withholding information to employees

  • Form W-2, Wage and Tax Statement (PDF)

• Report information from W-2s issued.

  • Form W-3, Transmittal of Income and Tax Statements (PDF)

• File final tip income and allocated tips information return.

  • Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips (PDF)

• Report capital gains or losses.

  • Form 1040, U.S. Individual Income Tax Return (PDF)

  • Form 1065, U.S. Partnership Return of Income (PDF)

  • Form 1120 (Schedule D), Capital Gains and Losses (PDF)

• Report partner's/shareholder's shares.

  • Form 1065 (Schedule K-1), Partner's Share of Income, Credits, Deductions, etc. (PDF)

  • Form 1120S (Schedule K-1), Shareholder's Share of Income, Credits, Deductions, etc. (PDF)

• File final employee pension/benefit plan.

  • Form 5500, Annual Return/Report of Employee Benefit Plan (PDF)

• Issue payment information to sub-contractors.

  • Form 1099-MISC, Miscellaneous Income (PDF)

• Report information from 1099s issued.

  • Form 1096, Annual Summary and Transmittal of U.S. Information Returns (PDF)

• Report corporate dissolution or liquidation.

  • Form 966, Corporate Dissolution or Liquidation (PDF)

• Consider allowing S corporation election to terminate.

  • Form 1120S, Instructions (PDF)

• Report business asset sales.

  • Form 8594, Asset Acquisition Statement (PDF)

• Report the sale or exchange of property used in your trade or business.

  • Form 4797, Sales of Business Property (PDF)

Checklist for Starting a Business from IRS

August 4, 2010

From the IRS website (July 27, 2010)

The checklist below provides the basic steps you should follow to start a business. This list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.

Information about specific industries can be found at the Industries/Professions Web page.

Each state has additional requirements for starting and operating a business. For information regarding state-level requirements for starting a business, please refer to your state's Web site.

Refer also to the Small Business Administration's Checklist for Starting a Business.

• Apply for an Employer Identification Number (EIN) if applicable.

• Select a business structure.

• Choose a tax year.

• Choose your accounting method.

• If you have employees have them fill out Form I-9 and Form W-4 (PDF). If your employees qualify for and want to receive advanced earned income credit payments, they must give you a completed Form W-5 (PDF).

• Pay your business taxes.

References/Related Topics

• Business.gov

• Starting a Business

• Tax Calendar for Small Businesses and Self-Employed

Know Your Market by Determining Your SWOT: Guest Blog by Douglas C. Dobson, President, Competition Analysis, LLC

August 2, 2010

Some things to think about before choosing a name for your business...

July 27, 2010

Before you create a name for a new business it is important to do a name search and check public records.

You should pick a name that describes your business, that the public is likely to remember, and one that is not already being used by another business or group as a trademark or a domain name.

In this internet age you can save yourself trouble by also doing some research to find if a website uses a particular name (domain). See if the name you plan to use is available as a website domain name. Use search engines like Google and Yahoo! to see how your chosen name is used.

Look in you local phone books to see if the name or any variation of the name is being used. Visit a library and look at business and trade publications.

Take a look at the federal trademark database of the U.S. Patent and Trademark Office. Keep in mind that not all registered names are on that list.

Check your state or territorial trademark registry for the use of your proposed name or similar names.

Also do not forget to check the fictitious name databases (d/b/a or doing business as databases) at your local county, state or territorial office to see if a business or nonprofit is using your proposed name as a fictitious business name.

Not only must your name reflect your brand and be memorable, there are also a host of legal issues to consider. An attorney can aid you in the process of selecting a name for your business.

Name Squatting on Social Media Sites

July 25, 2010

Business Owners may want to check social media sites like Twitter, Facebook, and other such sites to see if a social media account user has registered an account name that was identical to your federally registered trademark. Such a phenomenon appears to be growing. Twitter has a specialized Name Squatting page on which instructions exist on how to report a name squatting incident to Twitter http://help.twitter.com/forums/26257/entries/18370-name-squatting. Some vigilance is required on the part of businesses to protect a person from using a Twitter or Facebook name and using the name for less than commendable purposes.

What is an Employer Identification Number (EIN)?

July 23, 2010

The IRS provides a quick and simple way of obtaining a separate identifying number for your business, that is called an Employer Identification Number (EIN). The application for the EIN is free, easy to complete, and can be found at http://bit.ly/GUfDR. Your social security number is used if you do not use an EIN and that causes identity theft concerns.

What are Registered Agents?

July 22, 2010

Registered agents are required for businesses because they provide a physical location where a human being can accept service (lawsuits and official papers from the state or taxation departments) on behalf of the company during business hours. The business owner can act as his or her own registered agent, but it may be difficult to ensure someone is available either in the office or at home during business hours year-round. There are a number of commercial registered agent services but some business owners prefer to have their lawyer serve as registered agent so that a lawsuit can be addressed more quickly. http://brc.dc.gov/resources/city/contact.asp

Should your business Get a NAICS Code?

June 22, 2010

As a small business owner, you probably have heard of the NAICS code, but may not know what it means and what it is used for. Read more about the NAICS numbering system at the US Census Bureau. http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2007

Some federal and state agencies require businesses to have a NAICS code for administrative, contracting, and tax purposes. If you are working with a particular federal agency or state agency, you can ask if you need one. Federal Compliance Contacts and Resources: http://business.g...ov/business-law/contacts/federal/

Steps you need to take before bidding on federal procurements...

April 26, 2010

The steps you need to take before bidding on federal procurements:

Step 1: Obtain a D-U-N-S Number at:

http://fedgov.dnb.com/webform/displayHomePage.do;jsessionid=81407B1F03F2BDB123DD47D19158B75F

Step 2a: Register Your Business with the federal government's Central Contractor Registration (CCR), the primary database of vendors doing business with the federal government. Federal acquisitions regulations require all prospective vendors to be registered in CCR prior to the award of a contract; basic agreement, basic ordering agreement, or blanket purchase agreement.
https://www.bpn.gov/ccr/default.aspx

Step 2b: Fill out the Online Representations and Certifications Application (ORCA),in which you provide additional information about your company and its business activities. The Federal Acquisitions Regulations, Section 52.212-3, Offeror Represen...tations and Certifications - Commercial Items, explains the information that you'll be asked on ORCA. https://orca.bpn.gov/login.aspx

Step 3: Obtain Past Performance Evaluations. Businesses interested in getting on a GSA schedule contract, should obtain an Open Ratings, Inc. Past Performance Evaluation. https://prod.openratings.com/spe/order

AROCHO LAW OFFICE ALERT: HIRE ACT

March 30, 2010


The Hiring Incentives to Restore Employment Act

The 2010 Hiring Incentives to Restore Employment (HIRE) Act was signed into law by President Obama on March 18, 2010. To encourage employers to hire new employees, this Act exempts qualified employers, including nonprofits, from paying the employers share of the social security employment taxes (6.2 percent of the first $106,800 of wages) for wages paid in 2010 for any new employee hired after February 3, 2010, and before January 1, 2011. The exemption is for the nonprofits share of Social Security taxes on wages paid to these workers after March 18, 2010. However, the new employee must have been (1) previously unemployed and (2) does not replace another employee of the employer. The new employee cannot be a family member or other relatives of fiduciaries of the nonprofit.

This reduced tax withholding does not effect the employees future Social Security benefits, and employers would still need to withhold the employees 6.2-percent share of Social Security taxes and income taxes. The employer and employees shares of Medicare taxes would also still apply to these wages.

Furthermore, the new law requires that the nonprofit employer get a statement from each eligible new hire certifying that he/she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

IRS, IR-2010-33: http://www.irs.gov/newsroom/article/0,,id=220326,00.html

For more information regarding the 2010 HIRE Act, please contact Arocho Law Office at info@arocholaw.com.


2010 Arocho Law Office

Antonio "Tony" Arocho is admitted to practice law in the District of Columbia and U.S. Virgin Islands.

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