Indiana State Unemployment Tax - Multi-State Employees

C. Multi-State Employment
If an employee performs all duties in one state their wages are reportable to that state. If an employee performs duties in more than one state the following criteria are used to determine in which state to report wages:
• Report wages to the state from which the employee is directed or controlled if some part of the work is performed in the same state as the direction and control.
• Report wages to the state in which the employer’s corporate office is located if the employee performs some part of their work in that state.
• If neither of the above applies the employer reports wages to the state in which the employee lives if some part of the employee’s services are performed in the state of residence.

Indiana Employer Guide (page 8)
 

Indiana - State and County Tax withholdings

Question:  I have a question about withholding county tax.  We have an employeethat lives in grant county and works for us in Madison county.  Do I withhold county tax at the Madison county non-resident rate or did Iwithhold at the Grant county rate?

Answer: You will withhold for the county that the employee lives in at the resident rate. You will only use the non-resident rate when you have an employee that lives in another state and you will use the county that your business is located in at the non-resident rate.

Indiana State and County tax table can be found here; http://www.in.gov/dor/files/dn01.pdf

After I file my taxes, I generally worry about getting audited. When does the IRS notify you if you are going to be audited?

Generally speaking you will be notified of an audit between 12 and 18 months after you have filed your tax return.  The statute of limitation is 36 months from the time you have filed your return.  Keep in mind, there are no statute of limitation of you did not file a return. 

Note:  If you have understated your income by 25% or filed a fraudulent return then the 36 months is extended.  In the case of the understated income the extension is to 6 years.  In the case of a fraudulent return there is no limit, but generally the IRS won’t audit anyone after 6 years.  (NOLO Tax Savvy for Small Business, p 279)

Who must I send 1099s too?

I was challenged this week to answer this question.  I thought it was pretty straight forward at first but my answer started a controversy in the office.  My answer was directly from the IRS Publication called “2013 Instructions for Form 1099-MISC.”   
Which says, “Specific Instructions File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year: At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8); At least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate; Any fishing boat proceeds; or Gross proceeds of $600 or more paid to an attorney. See Payments to attorneys, later. In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.  Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements. Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), farmers' cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies are also reportable. 
Exceptions. Some payments do not have to be reported on Form 1099-MISC, although they may be taxable to the recipient. Payments for which a Form 1099-MISC is not required include all of the following.  Generally, payments to a corporation. But see Reportable payments to corporations, later.  Payments for merchandise, telegrams, telephone, freight, storage, and similar items. Payments of rent to real estate agents. But the realestate agent must use Form 1099-MISC to report the rent paid over to the property owner. See Regulations section 1.6041-1(e)(5), Example 5, and the instructions for box 1.Wages paid to employees (report on Form W-2, Wage and Tax Statement).  Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services (report on Form W-2).  Business travel allowances paid to employees (may be reportable on Form W-2).”  At issue was the question of do we need to send 1099 to companies like Office Depot or Walmart.  We spend over 600 per year with them so some in the office thought we did.  Professor Karl sent me some information confirming my belief that we do not need to send them 1099.   
Additionally, I came across a blog (http://www.indianabusinesslawblog.com/2010/11/how-will-the-upcoming-changes.html) that mentioned a new law that would require such action.  However, the article linked to an update that shows that the law was repealed and that the requirement does not exist.  (http://www.indianabusinesslawblog.com/2011/04/form-1099-reporting-changes-re.html).

When does the IRS notify you if you are going to be audited?

Generally speaking you will be notified of an audit between 12 and 18 months after you have filed your tax return.  The statute of limitation is 36 months from the time you have filed your return.  Keep in mind, there are no statute of limitation of you did not file a return. 

Note:  If you have understated your income by 25% or filed a fraudulent return then the 36 months is extended.  In the case of the understated income the extension is to 6 years.  In the case of a fraudulent return there is no limit, but generally the IRS won’t audit anyone after 6 years.  (NOLO Tax Savvy for Small Business, p 279) 

Quickbooks and PrePaid Expenses

This post is to cover how to handle prepaid expenses in Quickbooks.  This can cover big items like insurance all the way to smaller items like IPASS tolls.  We will use tolls as our example but the process applies to any prepaid expense.  We will accomplish this in two steps:

1. Step One - is to record the prepayment.  In our toll example, we set up with IPASS the ability for them to charge to our debit card when a minimum amount is reached, when our account is down to $50.00 they replenish the account by charging our debit card $100.00.  This will insure that our drivers never get ticketed for not paying a toll.  To record this "auto-replenishment" we will use the "write check" feature of Quickbooks.  The check will be written to the toll company from the checking account used with our debit card.  The account we will use is the "Prepaid Tolls" account.
2. Step Two -This step is to record the transactions when the drivers are charged for tolls.  Monthly we receive a statement from IPASS showing all the charges for tolls.  When you receive this statement you will record each line item on the statement as a toll expense in the following manner. Unfortunately we have to use a general journal entry so please watch making this transaction very carefully.  Make sure you enter the current date.  For the Entry number please use “IPASS” followed by the month of the entry, you should have one per month.  Then you will Credit “Prepaid Tolls” account by the total amount of the invoice and then create one Debit line entry for each item (expense) on the IPASS invoice.       
   

 To see the effects of these entries let's look at the Balance Sheet and the Profit & Loss Statement

Profit & Loss Statement - Here you can see the toll expenses that were incurred in the period.

Balance Sheet - Here you can see the prepaid amount that is remaining.
              
I hope you found this helpful!  If you have any questions or comments please leave them below or send me an email at dwalker@endurancemcs.com