Under the new credit card laws, the government is removing some of the advantages for businesses that accept credit cards.

It used to be that retailers were unable to to offer discounts to customers using cash. Under the new laws, retailers may offer a cash discount for those customers who do not use a credit card. This means that many retailers will start offering anywhere from 2 to 10% discounts to those customers who choose to pay by cash.

What does this mean to you, the business owner?

FICA stands for the Federal Insurance Contributions Act.  It is a federal employment tax paid by both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, the disabled, and children of deceased workers.

Social Security benefits include old-age, survivors, and disability insurance. Medicare provides hospital insurance benefits. The amount that a person pays in taxes throughout that person’s working career is indirectly tied to the social security benefits annuity received as a retiree.

Unless the worker is an independent contractor, the answer is always!

There are specific criteria to determine if a worker is an employee or an independent contractor. The key word in that sentence is “independent.”  The most important factor is who is in control.  This is covered in more detail in our March 2010 article Employee or Independent Contractor?

But there are several other issues that can also trip you up.

Do you hate paperwork? Almost everyone does, but when it come to dealing with the Internal Revenue Service, you need to have all the proper paperwork and have all the i’s dotted and the t’s crossed.

When you operate as a corporation, the corporation is a separate legal entity from you, so you should have a corporate paper trail that clearly reflects intent and action. One area that can really be a minefield is accounting for monies paid to corporate officers, other than payroll.

Is it a Loan or a Dividend?

In one scenario, William H. Bruecher III paid more than $27,000 in taxes on money his corporation supposedly loaned to him. Instead of receiving a salary, the corporation paid his personal expenses, classifying the payments as advances.

In an audit, the IRS will check to see if such advances are loans or dividends. If repayment by the owner and collection by the corporation seem assured, the advance is a loan.

To decide whether there is intent to repay, the following are factors:

• Is there a promissory notes or other written promises to repay the advance?
• Is the interest charged on the advance?
• Is there collateral to ensure repayment?
• Is there a history of repayment?

Neither Mr. Bruecher nor his corporation could produce documentation of any of these factors; therefore, the advances were taxable dividends.

The State of Texas’ annual holiday from sales and use tax is coming up soon.  The 2010 holiday is August 20, 21 and 22. As in previous years, the law exempts school supplies, clothing and footwear priced under $100 from sales and use taxes. Check the lists and exceptions on the Texas Comptroller’s website.

School Supplies

The 81st Texas Legislature passed HB 1801 (2009) expanding the list of items qualifying for exemption from Texas state and local sales and use taxes during the annual sales tax holiday in August. Effective this year, in addition to clothes, footwear and some backpacks, Texas families also get a sales tax break on most school supplies priced at less than $100 purchased for use by a student in an elementary or secondary school.

No exemption certificate is required – with one exception. If the purchaser is buying the supplies under a business account, the retailer must obtain an exemption certificate from the purchaser certifying that the items are purchased for use by an elementary or secondary school student. “Under a business account” means the purchaser is using a business credit card or business check rather than a personal credit card or personal check; being billed under a business account maintained at the retailer; or is using a business membership at a retailer that is membership based.

Backpacks

Backpacks under $100 and used by elementary and secondary students are also exempt. A backpack is a pack with straps one wears on the back. The exemption during the sales tax holiday includes backpacks with wheels, provided they can also be worn on the back like a traditional backpack, and messenger bags. The exemption does not include items that are reasonably defined as luggage, briefcases, athletic/duffle/gym bags, computer bags, purses or framed backpacks. Ten or fewer backpacks can be purchased tax-free at one time without providing an exemption certificate to the seller.