January 2001

THE ARKANSAS PUBLIC ACCOUNTANT IS THE MONTHLYPUBLICATION OF THE ARKANSAS SOCIETY OF PUBLICACCOUNTANTS. WE WELCOME ARTICLES AND ADVERTISINGTHAT IS COMPATIBLE WITH THE GOALS AND INTEREST OF THEACCOUNTING PROFESSION. IF YOU HAVE MATERIALS TO BEPUBLISHED, PLEASE SEND THEM TO THE EDITOR AT THEADDRESS BELOW.
LaVERNE LONG, Editor
P.O. BOX 758
NEWPORT, AR 72112-0758
llonga@ipa.net

The Arkansas Public Accountant

OFFICERS & GOVERNORS
2000 - 2001

PRESIDENT......................................SHELLY RUSSELL
PRESIDENT ELECT.........................JAMES C. HODGE
1ST VICE PRESIDENT...................DONNY J. WOODS
2ND VICE PRESIDENT................BRIAN THOMPSON

GOVERNOR DISTRICT I..............SUZANNE BALTZ
GOVERNOR DISTRICT II................DONNA GOWAN
GOVERNOR DISTRICT III...............LONNIE TAYLOR
GOVERNOR DISTRICT IV............GEORGE SIMPSON
GOVERNOR DISTRICT V.....CARL DALRYMPLE JR.
GOVERNOR DISTRICT VI.................TOM SIMMONS

FROM THE PRESIDENT’S PEN

“HAPPY FILING SEASON”

Dear Members:

Wasn’t December an interesting month? The ice storms, snow, bitter cold, having to cope with no electricity, etc. makes us pause and give thanks for the many things we so often take for granted. I was without electricity for 4 days during the first ice storm, which certainly put me behind, but fortunately did not have that problem during the second ice storm. I know many of you were not that lucky.

It was good to see so many of you at the Gear Up 1040 Seminar December 18 and 19. Our next educational function will be a one day seminar on the Form 1041. I know that seminars will be the last thing on your mind for the next four months; but if you do any 1041’s, you need to put this on your calendar. IRS has rarely audited these in the past. However, we have received information that they will be pulling these for audit much more frequently in the future.

Another seminar we are looking at bringing you is a seminar on Quick Books. So many of our clients are using (or attempting to use) this program, and we thought it would be a good idea for us to be more familiar with it. Helping our clients to get the program set up properly would not only benefit us, but would also be an opportunity for us to generate more income. If you are interested in this, please send me a quick email at SRuss51670@aol.com or to LaVerne at llonga@ipa.net. This would not take the place of any of our other regular seminars, but would possibly be offered in late June or sometime in the fall.

At our last Board meeting we voted to increase our budget for membership recruitment. Donny Woods is chairman of the Membership Committee and Donna Gowan and Suzanne Baltz are serving with him. Please be ready to help them if they call on you.

We are happy to welcome two new members this month, Paul Merritt, CPA and Kevin DeAngelis, EA, both from Little Rock.

I sincerely hope all of you have a profitable and relatively stress-free tax season.

Sincerely,
Shelly Russell
President

WOULD YOU ATTEND A TWO-DAY QUICKBOOKS SEMINAR?

ASPA is considering having a two-day QUICKBOOKS seminar in the spring.

I you have an interest in a seminar of this type please let me know. You can email me: llonga@ipa.net. This does not mean that you are registering, just will give me some idea as to how much interest there is in us sponsoring this seminar. You need not even include your name if you don’t want to.

NANNY TAX RULES ARE VERY TRICKY

Best way to pay taxes on household employees today

Congress has simplified the so-called nanny tax rules. These came about after failure to comply with them caused two nominees for the post of Attorney General of the United States to have their nominations defeated.

But the tax still is due when you hire a household employee. And because it now is reported on your personal tax return, audit problems may arise if you fail to comply. How to manage the rules now............... when it’s owed

The nanny tax really consists of two different employment tax liabilities...one for Social Security and Medicare tax and another for federal unemployment tax (FUTA). If you pay .......

$1,200 or more to any household employee in 2000, you must pay Social Security and Medicare taxes on the employee’s wages at a total tax rate of 7.65%. You also must withhold and remit an equal amount of tax (another 7.65%) from the employee’s wages
$1,000 or more in any calendar quarter of 1999 or 2000 to all household employees combined must pay federal unemployment tax on the first $7,000 of each employee’s wages, generally at a 0.8% rate.

The tax is 6.2%, but a 5.4% credit applies if both the state and federal unemployment tax is paid on time.

You are not required to withhold income tax from employee wages. But if an employee asks, you may do so voluntarily.

A household employee is an employee that you hire to work in or around your home.

Examples: Baby-sitters, nannies, maids, yard workers, caretakers, health aides, and other domestic workers.

Test: A worker is your employee if you direct not only what work is to be done but also how it is done.

Employee status is supported if you provide all necessary supplies and equipment, require the worker to perform services personally, and the individual works only or primarily for you.

If the worker acts independently in determining how work is done, then he/she is not an employee but is self employed. Retaining that worker will not result in any tax liability.

This status is supported if the worker is unsupervised on the job, provides his/her own supplies and equipment, performs the same work for others, and may delegate the task to an assistant or employee of his/her own.

NSA’s District Governor’s Report

NSA - The Society of Choice for Tax Professionals
The National Society of Accountants has a new Core Statement, Core Beliefs, and Core Values. Identification and approval of these items by the Board of Governors closely followed direction by President Ralph McBride.

The result of this action if official recognition that many of our members, in addition to being accountants, are also active as professional tax practitioners and, in fact earn a substantial portion of their incomes from this area of practice. The newly approved statements will initiate a greater emphasis on providing services to this segment of our membership. The Long-Range Planning Committee will meet and, using these statements as their guide, suggest modifications to our Strategic Plan.

NSA Core Statement
The members of the National Society of Accountants are accredited, licensed and unlicensed accounting and tax professionals who provide a variety of financial and information services to small businesses and individuals.

NSA Core Beliefs
     (1) We shall be the Society of choice for the professional that provides accounting, tax services, estate and financial planning, information services to small business and individuals.
     (2) Members of the Society will show their professional competency through use and promotion of earned credentials.
     (3) The Society will be nationally recognized as a Self-Regulating Organization (SRO) and an Accredited Educational Institution.

NSA Core Values
     (1) Preserve the public trust and confidence in the accounting and tax professional through the use of earned credentials.
     (2) Support the use of earned credentials by those who demonstrate and maintain competence through education, examination, and experience requirements.
     (3) Ensure that the integrity, objectivity, and independence of the small practitioner are recognized in the marketplace.
     (4) Foster compliance with all ethical and professional standards.
     (5) Protect the practice rights of our members by oversight and representation at the Federal and state level.

NSA, long active in monitoring tax changes, sponsoring conferences with the IRS, and testifying before Congress regarding tax-related matters, is solidifying its role as the professional society of choice for Enrolled Agents, accountants and financial planners active in the area of taxation, and other practitioners.

Wanda Samek
NSA District VIII Governor

UNDELIVERED TAX REFUNDS TOP $67 MILLION: IRS LOOKS FOR OWNERS
In the year 2000 an annual review shows 786 Arkansans have a total unclaimed refund amount of $462,381. The average refund due these taxpayers is $588.

If these taxpayers file a return for the tax year 2000 the IRS will automatically send these refund checks to the address shown on the 2000 return. There is no statute of limitations on these refunds.

All these refund checks have for one reason or another been returned to the IRS. Some people forget they have a refund coming, others may have moved and left no forwarding address. Some could be college students who file during school and then go home for one reason or another and never return. Some of these may just be that the taxpayer put the wrong address on the tax return to start with.

Whatever the reason, these persons need to get their money. We might help by inquiring of those taxpayers we come in contact with, if they could be one who did not get a refund or if they know of any person that they have come in contact with who might be one of those who have a refund coming and have never received it.

IRS ANNOUNCES 2001 STANDARD MILEAGE RATE
The Internal Revenue Service announced last month the optional standard mileage rates to use for 2001 in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

The amounts for the various deductible costs for use of a car will be effective January 1, 2001 and are as follows:

The standard mileage rate for the cost of operating a car is 34.5 cents for all business miles driven. The rate for 2000 was 32.5 cents a mile.
The standard mileage rate for the use of a car when giving services to a charitable organization remains at 14 cents a mile.
The standard mileage rate for use of your car for medical reasons is 12 cents a mile. The previous rate was 10 cents a mile.
The standard mileage rate to use when computing deductible moving expenses is 12 cents a mile. The previous rate was 10 cents a mile.

The primary reason for the mileage rate increases is due to the jump in gasoline prices.

The standard mileage rates for business, medical and moving purposes are based on an annual study of the fixed and variable cost of operating an automobile. An independent contractor conducted the study on behalf of the IRS. The charitable standard mileage rate is provided by law.

Revenue Procedure 2000-48 was released to formally announce these standard mileage rates. It contains additional information on these rates.

PENSION PLAN LIMITATIONS FOR TAX YEAR 2001
The Internal Revenue Service announced cost -of- living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 20001. However, these limitations may be affected by pending legislation awaiting action by Congress. If this legislation is enacted before the end of the year, some of the cost-of-living adjustment described below may be modified, and the IRS will announce any modifications as soon as possible.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost-of-living increases.
Effective January 1, 2001, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $135,000 to $140,000. For participants who separated from service before January 1, 2001, the limitation for defined benefit plans under section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2000, by 1.0351.
The limitation for defined contribution plans under section 415(c)(1)(A) is increased from $30,000 to $35,000.
The code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of section 415(B)(1)(A). These dollar amounts and the adjusted amounts are as follows:
The limitation under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) remains unchanged at $10,500. This limitation affects elective deferrals to S 401(k) plans and to the Federal government’s Thrift Savings Plan, among other plans.
The dollar amount under section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period in increased from $755,000 to $780,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $150,000 to $155,000.
The limitation used in the definition of highly compensated employee under section 414(q)(1)(B) remains unchanged at $85,000.
The annual compensation limit under sections 401(a)(17) and 404(l) remains unchanged at $170,000. The annual compensation limitation under section(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under section 401(a)(17) to be taken into account, is increased from $275,000 to $285,000.
The compensation amount under section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $450. The compensation amount under section 401(k)(3)(C) for SEPs remains unchanged at $170,000.
The limitation under section 408(p)(2)(A) regarding simple retirement accounts is increased from $6,000 to $6,500.
The limitation on deferrals under sections 457(b)(2) and (c)(1) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $8,000 to $8,500.
The compensation amounts under section 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $75,000. The compensation amount under 1.61-21(f)(5)(iii) is increased from $150,000 to $155,000.
Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

IRS SIMPLIFIES TAX DEPOSIT RULES FOR SMALL BUSINESS
Under the new rules, the IRS will allow businesses to make payments every three months if they have less than $2,500 in quarterly employment taxes. It replaces the current standard, which allows quarterly payments only if businesses have less than $1,000 in quarterly employment taxes. Many small businesses above these threshold levels must make payments on a monthly basis.

The new threshold affects payment requirements for about one million businesses, and creates a number of advantages for them.

IRS notices to them is expected to decrease about 70 percent because there will be fewer deposits. Also because of fewer deposits they will encounter fewer penalties.

They also will have fewer cash flows issues since they will only have to deposit quarterly. They will also have less paperwork. This new rule goes into effect for the quarter beginning January 1, 2001.

Don’t forget to let me know if you want to have a Quick Books Seminar in the spring of 2001.

Happy New Year

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