A potential client contacted me to ask if I would be willing to prepare her sales tax return for her. I've prepared sales tax returns for over 20 years so this should be no problem. "What have kind of product have you been collecting sales tax on?" I asked.
"Horse board".
"Are you sure about this?"
She sounded pretty sure. So I decided to investigate myself.
She lives in New York State, so I contacted the New York State Department of Taxation and Finance. Yes, I was told, horse boarding in New York State is subject to sales tax. The customer service rep there referred me to their tax regulations and several tax memos and advisories. Further digging uncovered the NY State Horse Council, which has website including an index of legal issues affecting horseman, including a list of what is and is not subject to sales tax for commercial horse boarding operations.
Sales tax is regulated by individual states, or in some cases, individual counties or cities. But there are some general concepts. Generally, all tangible personal property is taxable except with exemptions. So if you are a farrier and also sell hoof supplements to your customers, in most states you would be required to collect and remit sales tax on the supplements you sell. In many states, sales tax should be collected and remitted for sales of horses - a subject to be discussed in a future newsletter.
The difficulty sometimes becomes defining what tangible personal property is. In NY State, horse boarding is compared to leasing storage space. It's the stall itself that is considered to be the primary item in a boarding transaction, so sales tax is assessed on that tangible personal property. If in a sales tax audit, you feel that sales tax should not be assessed on a certain type of personal tangible property, the burden of proof is on you -the taxpayer- to prove this is the case. Conversely, generally only certain services are taxable. In a sales tax audit, the burden of proof is on the auditor to make the case that the services at issue are subject to sales tax.
Sales tax audits are much more common than IRS audits of income tax returns. Some states have no statute of limitations for examination of prior years' sales tax returns and penalty and interest can amount to up to 60% of the tax.
What can you do to find out more about the possibility of sales tax liability for your horse business?
1. Contact your state Department of Revenue. Ask for information regarding what goods and services are taxable in your state.
2. Contact your state Farm Bureau, Horse Council, etc. for more information. If you feel that you may have potential sales tax liability, ask them to recommend an attorney with expertise in this area.
3. Contact a CPA firm or attorney that deals only with matters of sales tax. Sometimes, this is less expensive than people fear and gets them a definitive and relatively quick answer. If you do need to collect sales tax, you will need to register with your state but speak with the attorney or CPA first. There could be serious tax consequences if you register and owe back taxes. Your attorney may be able to negotiate a settlement before you register. If you register first, the chances of negotiating a settlement is very small.
4. If you don't use one already, consider putting your financial data into an accounting software program like QuickBooks. You can create invoices with sales tax included and track and remit sales tax liabilities relatively easily using QuickBooks.
Remember that each state is different. Find someone that is familiar with the sales tax regulations that affect you. A little attention now may save you time and money in the future.
Protecting Yourself Against Data Theft
Protecting Yourself Against Data Theft
by Michael Ehart, CISSP, etc.
There has been a rash of reporting of data theft lately that has a very strange effect of causing many to become complacent about their data protection measures because, after all, their system is working.
The problem is that there is no way to know if your data is bulletproof. You can only be certain when it is not, and you have evidence that your security has been breached. The vast majority of data theft is undetectable and unprosecutable, because unlike physical theft the stolen data is still there. If someone sneaks into a museum in the dead of night, dressed in spandex and night goggles and makes off with a Bottecelli, in the morning there is a big square of unfaded wall, an empty nail, a light dusting of tracked-through laser-detection talcum powder and no painting.
The problem with stolen data is that most of the time there is no way to know that your system has been breached, or if it has been, that anything is missing because nothing is actually missing.
So what do you do to keep your data secure? The threats come in three flavors, and there are steps that you can take to protect yourself from each one.
1. The Barbarians at the Gates. There are people out there who don't like you. There are people out there who don't care about you, but want what you have. And there are people out there who don't care about you, or what you have, but want inside just because they can. These are the folks that firewalls were invented to thwart, and I assume that you have covered this loophole. Firewalls, encryption, strong passwords, and some sort of Intrusion Detection System (IDS) cover you there. If you don't understand or like this stuff hire someone who does. A competent IT security consultant can set up security for most small offices in a few hours of system hardening. Do make sure that the contract includes some basic training for your users concerning the changes and best practices.
2. The Enemy Within. Far more likely to cause you grief is the viper cherished in your bosom. No one knows for sure, but I would guess that the retail model applies here--- 90% internal theft. After all, who else holds the keys to your kingdom? Training, monitoring, set usage policies and careful terminal check-out procedures can help, but you never know. If you have 20 employees and they all seem perfectly content, either you are the shining example all other bosses should aspire to or at least 5% of your workforce is adept at hiding their dissatisfaction. I know which one seems most likely to me.
3. Stupid is as Stupid Does. And Stupid seems to be doing more than his fair share lately. Data theft is the classic crime of opportunity. "It was just laying there, so I took it." Or "The web site was unsecured" or "The safe was left open" or -one that I recently was asked about- "I left the box of records in the back seat, and someone borrowed my car." I love consulting, but dang, please make it harder for me, will ya? No more post-it notes with passwords conveniently stuck to the monitor, or so cleverly stuck under the keyboard. No more backup tapes on a shelf behind your desk, or stacked on top of the server. No more shared passwords for the entire office.
Once again, if you don't know about this stuff contract someone who does. It is so very much cheaper and less stressful to spend a few bucks and a few hours hardening your system and providing a few hours of common sense training for your crew than it is to learn about your data disclosure from the guy with good hair and too many teeth holding the mike and standing sideways in your lobby so his cameraman can get a good shot.
Michael Ehart is a Certified Information Systems Security Specialist (CISSP) and carries certifications as a HIPAA Professional and HIPAA Security Specialist (among other things). Visit Michael Ehart's HIPAA blog Comply With Me
Spring is getting closer. Time to freshen up the financial management of your company. Also tax time fast approaching. Tasks that needn't be complicated as long as have a full service accountant involved.Whatever your business and requirements I am familiar with more than 20 years experience.Springing your business - legal, retail, property management, non profit, construction, hospitality,
Famous Last Words... My tax situation is pretty simple
Several years ago, I met a woman who was involved in carriage driving. I remarked on how well behaved her horse was and asked who trained her. The woman said that she got the horse from a family who bought the filly as a yearling and trained her themselves. They had never owned a horse before and decided that as a family project, they would buy a horse and train it to drive. Their only resource for how to train the filly was a book that they bought on raising and training horses.
A lot of you who are reading this are probably cringing, thinking of all the ways this experience could have gone terribly wrong. 99% of the time, it wouldn't have a happy ending. Horses are complicated and some of the time most of us need assistance from professionals who know how to do the job right.
Most of us wouldn't try to do electrical wiring or writing our own legal contracts. So why do so many people do their own tax returns?
It isn't uncommon when I first meet a prospective client or speak with an attendee at a seminar that they tell me that their tax situation is pretty uncomplicated. But when we go on to discuss the situation further, it can prove to be anything but straightforward. As I start to explain the intricacies of some of their tax issues, I hear "How am I supposed to know that?" or "This is more complicated than I thought".
Quoting U.S. Representative Spencer Bachus from AL:
"With its 6,000 pages and 500 million words, the complexity of our tax code is the prime source of frustration and anger felt by millions of Americans toward their government."
CPAs and Enrolled Agents spend a significant portion of time staying informed about current tax law. How can someone who only prepares one tax return once a year be aware of all of the issues that can affect their tax situation?
Here is a sample of questions that I've heard recently:
Personal:
1. Is the scholarship I received taxable?
2. How much of my Social Security benefits are taxable?
3. I surrendered my life insurance policy for cash. Does that affect my taxes?
Business:
1. If I give my employees gifts for Christmas, is the cost deductible?
2. If I am a one person S Corporation, can I set up a health insurance plan for myself that is non-taxable to me and deductible for the corporation?
3. What is a Section 179 deduction?
If something is wrong on your tax return, it may be a red flag to the IRS which can trigger an audit or it may increase the amount of taxes you pay or decrease the amount of your refund. But it's not something you realize at the time. It can take years to discover the problem which could translate into amending the tax returns for all the years involved.
There are certainly people other than CPAs and Enrolled Agents who can correctly prepare a return. And there are tax returns that are fairly simple and straightforward for the average taxpayer to prepare. How do you know if that's your situation?
1. You can hire a tax preparer to review your prior year return to see if you have any potential problems.
2. You can hire a tax preparer to prepare your return this year. Compare it to what you did last year (assuming your situation has not changed significantly) and see what the differences are.
3. Schedule a consultation with a tax preparer and explain your business or personal situation. They may be willing to point you toward tax issues specific to your situation.
Tax returns done wrong can be a costly problem to remedy. Get expert advice and then decide whether preparing your tax return yourself is the best alternative for you.
A lot of you who are reading this are probably cringing, thinking of all the ways this experience could have gone terribly wrong. 99% of the time, it wouldn't have a happy ending. Horses are complicated and some of the time most of us need assistance from professionals who know how to do the job right.
Most of us wouldn't try to do electrical wiring or writing our own legal contracts. So why do so many people do their own tax returns?
It isn't uncommon when I first meet a prospective client or speak with an attendee at a seminar that they tell me that their tax situation is pretty uncomplicated. But when we go on to discuss the situation further, it can prove to be anything but straightforward. As I start to explain the intricacies of some of their tax issues, I hear "How am I supposed to know that?" or "This is more complicated than I thought".
Quoting U.S. Representative Spencer Bachus from AL:
"With its 6,000 pages and 500 million words, the complexity of our tax code is the prime source of frustration and anger felt by millions of Americans toward their government."
CPAs and Enrolled Agents spend a significant portion of time staying informed about current tax law. How can someone who only prepares one tax return once a year be aware of all of the issues that can affect their tax situation?
Here is a sample of questions that I've heard recently:
Personal:
1. Is the scholarship I received taxable?
2. How much of my Social Security benefits are taxable?
3. I surrendered my life insurance policy for cash. Does that affect my taxes?
Business:
1. If I give my employees gifts for Christmas, is the cost deductible?
2. If I am a one person S Corporation, can I set up a health insurance plan for myself that is non-taxable to me and deductible for the corporation?
3. What is a Section 179 deduction?
If something is wrong on your tax return, it may be a red flag to the IRS which can trigger an audit or it may increase the amount of taxes you pay or decrease the amount of your refund. But it's not something you realize at the time. It can take years to discover the problem which could translate into amending the tax returns for all the years involved.
There are certainly people other than CPAs and Enrolled Agents who can correctly prepare a return. And there are tax returns that are fairly simple and straightforward for the average taxpayer to prepare. How do you know if that's your situation?
1. You can hire a tax preparer to review your prior year return to see if you have any potential problems.
2. You can hire a tax preparer to prepare your return this year. Compare it to what you did last year (assuming your situation has not changed significantly) and see what the differences are.
3. Schedule a consultation with a tax preparer and explain your business or personal situation. They may be willing to point you toward tax issues specific to your situation.
Tax returns done wrong can be a costly problem to remedy. Get expert advice and then decide whether preparing your tax return yourself is the best alternative for you.
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