Archive for November, 2010

Senate Again Fails to Repeal 1099 Requirements (from Accounting Today)

Tuesday, November 30th, 2010

The Senate voted Monday evening on a competing pair of amendments to repeal the expanded 1099 information reporting requirements that were included in the health care reform bill, but failed for the second time this fall to roll back the controversial requirements.

The provision, which was included in the health care reform bill, would require companies to report on any purchases of goods or services of over $600 from a single vendor during the calendar year to the Internal Revenue Service on a Form 1099-MISC. The dueling amendments, from Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Mike Johanns, R-Neb., mainly differed in how they would be paid. They were attached to a larger food safety bill, which overcame a procedural hurdle to move forward by a vote of 69-26, shortly before the vote on the amendments.

“There are two big differences between our two amendments,” said Baucus. “First, my alternative is especially friendly to small businesses. It takes extra measures to permit the IRS to waive certain duplicative reporting requirements for small businesses that use credit cards to pay their bills. Second, our two versions differ about paying for the change. The alternative offered by my colleague from Nebraska would give the unelected director of OMB [the Office of Management and Budget] unprecedented authority to slash spending, all on his own. The Johanns alternative would thus abdicate Congress’s responsibility over the budget. For these reasons, I urge my colleagues to oppose the Johanns amendment and support my alternative.”

Johanns contended that the Baucus amendment would add $19 billion to the federal deficit and drive up the overall cost of the health care bill.

He noted that his own amendment would direct the Office of Management and Budget to identify $39 billion in unspent and unobligated accounts to replace the revenue that might have been generated by the 1099 paperwork mandate, representing only about 5 percent of the total funds in unspent and unobligated accounts and giving the administration discretion to ensure the funds do not affect ongoing and necessary programs.

“Every small business out there is asking the question, ‘Why is the cost of this health care bill falling on my back?’” said Johanns. “You can’t go anyplace in this country without people asking, ‘What is this about the 1099 requirement?’ They are concerned they are going to spend on accountants for compliance with this requirement. They are asking, ‘Why are you picking on us?’ Why would you add $19 billion to the federal deficit, and that’s what the Baucus amendment does. You simply won’t find better offsets than the ones mine has. My phone is ringing off the hook, and we can’t go along with these offsets. The Baucus amendment simply does not pay for these offsets. In the end, it hampers the next generation. It adds to the national debt.”

Sen. Tom Harkin, D-Iowa, one of the lead sponsors of the food safety bill, the FDA Food Safety and Modernization Act, recommended that neither amendment should be approved.

“If the Baucus or Johanns amendment is adopted, it will kill the bill,” he said. “There’s no doubt about it. Revenue measures have to originate in the House. I hope this body will reject any extraneous amendments.”

The Johanns amendment received 61 votes in support and 35 votes in opposition, but failed to reach the two-thirds margin needed. The Baucus amendment received 44 votes in support and 53 in opposition and thus did not pass either.

The Senate failed to pass a repeal of the 1099 reporting requirements in September after Democrats and Republicans introduced competing amendments to the Small Business Jobs Act (see Senate Fails to Repeal 1099 Requirements).

After his amendment was defeated, Baucus vowed to continue fighting to repeal the expanded 1099 requirements. Although the requirements had not yet gone into effect, he noted, many small business owners expressed concerns the requirements would create an onerous paperwork burden.

“Small business owners voiced legitimate concerns that these requirements would be burdensome, and the Senate should act in response to those concerns,” Baucus said in a statement. “I am disappointed that we weren’t able to repeal these requirements today, but I intend to keep working until we do. Our bill will allow small business owners to direct their focus onto job creation and growth rather than on paperwork. We will keep up our fight on behalf of small businesses so they can continue their critical work to create jobs and help the economy recover.”

Small Businesses Remain Uncertain About Economy (from Accounting Today)

Tuesday, November 30th, 2010

U.S. small business owners were feeling slightly less optimistic about economic conditions and their own financial position in the third quarter, even though their financial performance remained stable, according to a new survey.

Capital One’s quarterly Small Business Barometer survey found that a decreased percentage of small business owners believe economic conditions are improving and fewer say that their financial position has improved since last year. An increased percentage of small businesses surveyed plan to hold spending on business development and investments at current levels rather than increasing spending. On the hiring front, however, an increased number of small businesses report plans to add positions over the next six months.

“Our survey results for the third quarter of this year suggest that financial performance is stable for many of the small businesses we surveyed, but some respondents have a more cautious outlook about their growth and expectations for the broader economy and their business,” said Capital One executive vice president of small business banking Robert M. Kottler in a statement. “It is a positive sign, however, that most small businesses believe they have access to the credit and financing they need and many are making plans to increase their workforce and begin hiring again.”

The survey results suggest that the overall economic outlook of U.S. small businesses has continued to weaken slightly. While financial performance remains stable for most small businesses, fewer respondents report improved finances compared to last quarter.

In the first quarter, 39 percent of small business owners surveyed said that economic conditions for their business were improving, but this number dropped to 32 percent in the second quarter of this year and 27 percent in the third quarter. Nearly half (49 percent) of small businesses report stable conditions and one-quarter (24 percent) say that economic conditions are getting worse.

Thirty percent of small business owners polled report that their firm’s financial position is better than it was one year ago, down seven percentage points since last quarter. On a year-over-year basis, however, this number is up six percentage points.

About half (51 percent) of small businesses surveyed say that their firm’s financial position has held steady relative to one year ago. This number increased 8 percentage points since last quarter. Consistent with the last two quarters, only 18 percent of small businesses report that their financial position has worsened compared to one year ago.

Most U.S. small businesses polled plan to continue holding off on additional business development and investment spending in the near-term, but the percentage of respondents reporting plans to hire increased slightly.

The majority (66 percent) of small businesses say they plan to keep business development and investment spending at current levels for the next six months. Fewer small businesses plan to boost spending this quarter – only 16 percent – compared to 21 percent in the second quarter. Consistent with results from the last three quarters, 15 percent of respondents reported plans to decrease spending.

Thirty percent of small businesses polled in the third quarter plan to add employees to the payroll over the next six months, consistent with results from the first quarter of 2010 but 4 percentage points higher than last quarter. Still, 63 percent of small businesses say that they will not hire additional employees during the same period.

The survey results suggest that most small businesses continue to have adequate access to credit and financing.

Nearly three-quarters (73 percent) of small businesses surveyed report that they are able to access the financing they need while 22 percent say they do not have adequate access to credit and financing.

About one-quarter (23 percent) of small businesses in the survey say that securing the capital needed to continue operations will be one of the biggest challenges they face over the next six months.

When asked about funding sources for financing their firm’s growth, half (52 percent) of respondents say they will seek financing from a bank or commercial lender, consistent with past results. A slightly increased number of respondents say they will rely on personal savings to finance growth (40 percent compared to 35 percent last quarter).

Last quarter, the Small Business Barometer survey found that there were significant uncertainties about the potential longer-term consequences of the Gulf oil spill. Results from the third quarter suggest that the impact of the spill has not spread significantly and fewer respondents believe they will be affected long-term.

To date, only 11 percent of small businesses surveyed say that their business has decreased since the spill, the same as last quarter. Six percent report increased business.

Only 13 percent of small business owners or managers nationally believe the disaster will have a moderate to significant impact on their business, down from 25 percent in the second quarter.

Ten percent say that it’s too early for them to predict whether or not their business will be affected, whereas 17 percent of respondents were unsure about the longer-term impact last quarter.

Good news for small business: Things aren’t as bad as they seem (from WebCPA)

Thursday, November 11th, 2010

In 410 AD, the Visigoths laid siege to Rome, eventually sacking the city and raping and killing thousands of its inhabitants. In the 14th century, the Bubonic plague was responsible for an estimated 100 million deaths across Europe, or 30 percent of the population. Over the course of 100 days in 1994, an estimated 800,000 citizens were murdered in Rwanda as a result of ethnic infighting. And over the past four months, Pittsburgh Pirates fans have watched their team lose more games than any other team in baseball.

Sure, business owners are deeply concerned about rising deficits and the prospect of higher taxes. Yes, we’re uncomfortable with the future effects of health care reform. Of course, we’re struggling to manage and generate profits in an environment of flat demand. But we’re not fleeing from the Nazis or hoarding bread while an army of Normans lays siege to our city. We’re not under occupation by a foreign army or being forced to convert to another religion. And most of us are lucky enough to not be living in Pittsburgh, either.

Things aren’t great. But they’re not terrible. In fact, there’s actually some good news for managers of small businesses.

For starters, there’s a change in the political winds. I don’t question our president’s motives or good intentions. But over the past two years, his administration, with Congress’ backing, has spent an unprecedented amount of money and created massive deficits.

Most Pirates’ fans won’t find this as bad as the Aramis Ramirez trade. But these policies have unnerved the small-business owners I know and have caused many of us to hold back on hiring more people or making capital investments. Two things will happen for sure this fall: The Pirates’ players will be watching post-season games from their homes; and the Republicans will gain back significant seats in the House and Senate. Our forefathers created a system of checks and balances for a reason. One political party running roughshod can only result in mischief. This should slow down legislation and hold back spending.

Speaking of spending, did you know that the Pirates only pay $400,000 to Charlie Morton, arguably one of the league’s worst pitchers (at the time of this writing, Morton has thrown 46-2/3 innings and allowed a whopping 75 hits, 52 earned runs and 13 homers). That’s peanuts compared to others. I wish I could say the same for our government.

A trillion dollars has been spent onarguably one of the world’s worst stimulus plans. That ain’t peanuts. Even so – somehow, someway, the Federal Reserve has managed to keep interest rates and inflation at historical lows. This is good news too. For those of us able to borrow, money is cheap. We can lock in at low, low rates. And although we’re not earning much in our savings accounts, we can take comfort that the value of our cash is barely declining. We can hold back on significant raises. We can keep our prices in check. Unlike those trying to make a buck in hyperinflationary places, we don’t have to consider inflation and interest in our business dealings right now. Which means we have a little less to complain about.

But, like Pirates fans, small-business owners like to complain.

Some like to complain that they’re unable to get financing like they could a few years ago. That’s not something to complain about. Having a losing record for 18 seasons in a row is something to complain about. I say it was too easy to get financing a few years ago. Due to recent reforms and the overall public mood, today’s banks are lending less frequently and putting their potential customers through the kind of due diligence that they should have been doing in the first place. They’re asking for financial statements, checking up on credit history and getting more involved in their customers’ affairs. This is a good thing. Bankers are making more responsible loans. They’re not allowed to make as many risky investments. They’re back to … banking. And small-business owners who qualify are only getting the financing that makes sense and not over-extending themselves. Too many business owners in the past 10 years were given too much free money … and found themselves in dire straits when they realized they couldn’t pay it all back.

High unemployment creates pressure on the government and reduces consumer demand. But it also creates a buyer’s market for business owners looking to hire new people. I recently advertised for a part-time marketing assistant on Craigslist and got over 200 applicants. Why, even a few players from the Pirates applied. So that’s good news for a business owner. There are plenty of smart people out there looking for jobs. I haven’t heard a business owner complain about a tight job market in years. Now, if you need an experienced worker, you just go out and find one. And if you’re spooked by health care reform or the government’s spending and don’t want to bring on another employee, you can just have your existing employees work more. They’re terrified of losing their jobs and are happy to take on the extra responsibilities.

Even the things that we can’t control seem to have stabilized too. The stock market continues to hover around 10,000. That’s still almost 30 percent below its historical high, but at least we’re not hearing about huge lopsided losses … unless the Pirates are playing the Brewers.

Judging by corporate profits, which have been strong this past quarter across most industries, the stock market will most likely continue to rise. And now that our economy has cooled down, so have energy prices. Rising gas and oil prices are no longer in the headlines and probably won’t be for a while – at least until demand heats up again.

And demand is definitely heating up.

Certain economic barometers are telling us this for certain. Rail traffic is much higher than it was a year ago. The Baltic Dry Index, which measures shipping activity, has also significantly risen. Key commodities are higher. Retail sales are on the upswing. Consumer confidence, at least for those consumers who have money to spend, is up. Savings rates are higher. Big companies like General Motors and AIG are paying back the money that the government lent them as demand has returned. Why, the economy’s so much better that Pirates management may even consider raising ticket prices … again!

And no matter who’s bashing the U.S. this minute, let’s face reality: There are too many investors in this world who would much rather sink their money into the American economic system than risk their funds in countries run by dictators, communist regimes or corrupt bureaucrats.

And when that next big idea hits (energy? health technology? mobile?), new industries will be created, new markets will rise and thousands of business owners will benefit. The Pirates will still suck, of course. That goes without saying.

See? Things aren’t great. But there’s plenty of good news out there. And business owners know it. That doesn’t mean we can’t complain. But at least most of us can be grateful our baseball teams aren’t as bad as the Pirates.

Small Businesses Added 44,000 Jobs in October (from WebCPA)

Thursday, November 11th, 2010

Small business employment growth and compensation picked up in October with a strong uptick in hours worked, according to a new payroll report from Intuit.

Those were among the results of this month’s update of the Intuit Inc. Small Business Employment Index. The monthly report found that small business employment grew by 0.2 percent in October, equating to a 2.7 percent annual growth rate. This translates to approximately 44,000 new jobs created nationwide. The Index is based on figures from the country’s smallest businesses that use Intuit Online Payroll.

“October’s employment numbers look better than they did last month — employment and compensation show a healthy rise, and hours worked are up sharply,” said economist Susan Woodward, who worked with Intuit to create the index. “The annual growth rate for employment will not drive us back to full employment soon, but it is very encouraging. A double-dip recession is looking less and less likely.”

Based on Intuit’s latest data, the employment growth rate for September was revised upward to 0.26 percent growth, equating to 52,000 jobs added and a 3.2 percent annual growth rate. Since the growth trend first began in October 2009, small business jobs have increased by a revised estimate of 530,000.

Total compensation per employee and hours worked resumed their upward trend after being flat in September.

Average monthly pay for all small business employees was $2,617 per month in October, a 0.3 percent increase from the revised September figure of $2,609 per month. This translates to wages of about $31,400 per year.

Small business hourly employees worked an average of 107.1 hours for the month of October, translating to a 24.7-hour work week. That was up by a substantial 0.7 percent from the revised 106.4 hours worked in September, a rise of about 9 percent at an annual rate.

“The increases in compensation and hours worked for October are impressive,” Woodward said. “Compensation showed a solid year-over-year increase of about 3.7 percent per year. The extraordinary increase in hours worked may foretell an even stronger rise in employment next month. If small businesses are asking this much more of their people, they probably need more people.”

The Intuit Index also breaks down employment by census divisions and states across the country. In October, the West North Central division continued to see job losses, while the East North Central division showed employment growth for the first time in three months.

“It’s uplifting to see slightly higher growth rates in small business employment across the U.S.,” said Cameron Schmidt, vice president of Intuit’s Employee Management Solutions division. “States that saw no growth or job losses last month, like Texas and New Jersey, saw employment growth this month. While we’re well aware of the hardship small businesses are facing, our October report shows promise that the small business employment climate is slowly improving.”

IRS to Get Tougher on Sole Proprietor Audits (From WebCPA)

Wednesday, November 3rd, 2010

The Internal Revenue Service will be taking additional steps to check on whether sole proprietors are hiding sources of income during field audits.

A report by the Treasury Inspector General for Tax Administration found that IRS field examiners are generally effective in checking for unreported income during field audits of sole proprietors. However, the report recommended that the IRS could take further steps to determine if additional sources of income need to be reported.

While IRS field examiners generally check for unreported income, TIGTA found that the IRS could improve the accuracy of its preliminary cash transaction analyses by taking greater advantage of performance feedback mechanisms and ensuring that appropriate personal-living-expense data are being used. The preliminary cash transaction analysis involves little or no taxpayer burden, but uses tax return and personal expense data to determine whether the sole proprietor’s income and expenses are roughly equal.

“Tests for unreported income during IRS audits of sole proprietors are critical to the process of verifying that the correct amount of tax is reported,” said TIGTA Inspector General J. Russell George in a statement. “Our results indicate that sole proprietors may have avoided tax and interest assessments of over $8 million in fiscal year 2008.”

The IRS’s National Research Program estimated that unreported business income by sole proprietors accounted for $68 billion (or 20 percent) of the $345 billion tax gap. This is due in large part to resource constraints and the need to balance audit coverage across other segments of the tax return filing population, such as corporations and partnerships.

TIGTA recommended that the IRS issue guidance to group managers to provide specific written feedback to examiners on the adequacy of their tests for unreported income, and that the IRS reinforce the requirement and importance of using appropriate personal-living-expense data in preliminary cash transaction analyses. The IRS agreed with these recommendations and plans to take the appropriate corrective actions.