About.com Business Law / Taxes: U.S.

How to Read a Business Contract

Tue, 09 Feb 2010 06:57:23 +0000

A former student told me a story of how he was taken advantage of by a doctor for whom he was working as an independent contractor.� The problem was how his contractor income was determined, and it related to "overhead" and when it was calculated.� His problem made me realize that how you read a business contract can mean the difference between

I have read many contracts, both for myself over my long business life, and for students and clients.� I always tell people I am not reading them as an attorney, but as a lay person who wants to have as complete an understanding of the contract as possible.� Over the years, I have developed some guidelines for reading business contracts, to protect both parties and to avoid the difficulties that come with poorly worded contracts.

First, Agree on Definitions
In the case above, a lot of the difficulty came from an unclear definition of "overhead."� What does it include? How is it calculated?� If the parties had agreed on this definition from the start, they could have made some changes to make the payments more equitable, or given my friend a better picture of how his income would be calculated.

Don't Assume - Ask for Clarification
Assumptions are really the most difficult part of any contract.� You read a contract that includes a section on how the value of property is determined.� Even if you think you know what has been written, ask for an example, or ask a question like, "Just to clarify, I think this means X.� What do you think it means?"� Don't worry about appearing dumb or difficult; better to clarify now than find out later you and the other party were thinking of two different meanings.

Ask "What is Missing?"
This part is tricky; it is difficult to know what should be in a contract but isn't.� In employment contracts, I usually see a section about how the employer can terminate the contract and what notice must be given.� But sometimes there is no language about how the employee can terminate the contract and what notice must be given.� In one case, I was told, 'the employee can't terminate the contract."� Really?!?

I have also seen some contracts that had no effective date or which did not completely identify the parties.� Take a look at my Employment Contract Terms article for an example of the sections in a typical contract.� If you don't see something that should be in the contract, make sure it gets in.

Read "Boilerplate" Carefully and Don't Be Afraid to Change It
Boilerplate is standard language that is usually prepared by an attorney to protect a client and which is usually difficult to read.� I have been told many times, "This is our standard language.� It cannot be changed."� Not true.� In a contract, everything is negotiable, even "standard" language, whatever that means.� Read those long boilerplate sections, even if your eyes cross and you start to nod off.� Ask that the section be simplified or that it be shortened, if you feel it is possible.� Don't hesitate to make changes that clarify or to your advantage.� I have known some business owners to completely re-write boilerplate sections; it makes the lawyers crazy, but it clarifies, and that is more important.

For More Information
What Makes a Contract Valid (Enforceable by a Court)?

How to Read a Business Contract originally appeared on About.com Business Law / Taxes: U.S. on Tuesday, February 9th, 2010 at 06:57:23.

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2010 Tax Law Changes for Businesses

Tue, 09 Feb 2010 05:14:23 +0000

Several tax laws changed starting January 1, 2010, one tax law did not change, and several tax breaks for businesses expired, but they may be re-instated by Congress.� Here is the list:

Social Security Withholding Maximum
For the first time in many years, the maximum amount of wages considered for Social Security withholding did not change.� The maximum Social Security wages in 2010 is $106,800, the same as for 2009.� The Social Security Administration says the amount was kept the same by law, because the cost of living indicators did not trigger an increase in benefits for 2010.

This change does not affect Medicare, which has no maximum deduction. The withholding rate for Social Security remains at 6.2 percent, and the Medicare rate continues at 1.45 percent, for a total deduction for each employee of 7.65 percent.

IRS Standard Mileage Rates
The IRS lowered the standard� mileage rates for 2010 for business and medical/moving driving (but not for driving for charities) to:

50 cents per mile for business miles
16.5 cents per mile for medical or moving purposes
14 cents per mile in service of charitable organizations.

Business Depreciation Changes
Unless Congress restates these depreciation amounts, several key depreciation are reduced or not available for business assets purchased after December 31, 2009:

The higher amounts for Section 179 depreciation of $250,000 are gone, back to $134,000 on assets purchased and put into service in 2010.
The 50% bonus on first year depreciation is gone
Increased depreciation on heavy hybrids is also gone

As I noted above, though, there is a chance that Congress may give back these increased write-offs, to stimulate business spending. I will let you know if I hear anything.

For More Information
Save on Taxes with Business Depreciation

More About FICA Taxes (Social Security and Medicare)

Business Mileage Questions and Answers

2010 Tax Law Changes for Businesses originally appeared on About.com Business Law / Taxes: U.S. on Tuesday, February 9th, 2010 at 05:14:23.

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More States Seeking "Amazon Tax" Sales Tax Laws

Mon, 08 Feb 2010 06:45:11 +0000

With the recession continuing and state revenues dropping, more and more states are looking for ways to increase income.� Many are getting on the "Amazon tax" bandwagon, reports SalesTaxBuzz. Vermont, Mississippi, Virginia, New Hampshire, New� Mexico, and Colorado are considering joining New York, North Carolina, and Rhode Island to impose sales taxes on Internet transactions generated through associates.

What is the "Amazon Tax?"
As I reported in June 2009, New York was the first state to attempt to impose sales taxes on remote sales (over the Internet).� Sales taxes are imposed on businesses which have a presence (called a "nexus") in a state.� For example, if you have a retail store in Iowa and a warehouse in Illinois, you must charge sales tax in both states because you have a nexus in each state.� But in the past, online sales have not been taxed because there has been no way to find a nexus.

Now, the states have become more creative, stating that if a company has an agreement with an affiliate or associate who is� resident of a state for "commissions or other considerations" to "indirectly or directly" refer potential customers to the company, this constitutes a nexus. It's called the "Amazon tax" because it has been used against the Amazon Associates program, in which Amazon allows individuals and other businesses to sell through its site.� So, if a bookstore in New York is an Amazon Associate, New York wants to impose sales tax on all of that bookstore's online sales to New York residents through Amazon. Other retailers, like Blue Nile and Overstock, have also been affected by these new laws.

How Does This Affect Your Online Business?
If you have a small online company, these sales tax laws probably won't affect you; some states have imposed thresholds of $10,000 before they start looking at online sales. If you are an associate or affiliate of a larger company, you may already have been affected.� Amazon, for example, has threatened to pull its New York Associates out and Overstock is looking at doing the same for states like Colorado, which might enact a law soon. If you sell through one of these companies, you have likely heard about this already.

What is the Status of State "Amazon Tax" Laws?
Many of these states are in process, so it is difficult to tell where these laws might be now, or whether they will continue through the legislative process.� Here is what I have as of today (with bill numbers so you can track them in your state)� from SalesTaxBuzz:

The Vermont bill, H. 661, would be effective July. It has a $10,000 threshold.
The Mississippi bill, S.B. 2927, has no threshold; it didn't make it out of committee.
The Virginia bill, S.B. 660, has a $10,000 threshold.
The New Mexico bill, H.B. 50, has been tabled.
The Colorado bill, H.B. 1193, with a $10,000 threshold, passed the House on Feb. 3.

I will keep you posted, or you can check on the progress of the law in your state for updates.

More States Seeking "Amazon Tax" Sales Tax Laws originally appeared on About.com Business Law / Taxes: U.S. on Monday, February 8th, 2010 at 06:45:11.

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More on Taxes and Charitable Contributions for Businesses

Sat, 06 Feb 2010 09:36:23 +0000

I wrote early this week on making contributions to charities such as those helping with Haitian earthquake relief.� As a result of several questions, here is some more information:

Qualified Charities. Only contributions to charities listed as "qualified organizations" by the IRS are deductible. Consult IRS Publication 78 for a list of qualified organizations or search online at the IRS home page. Note that the list may not be completely up to date. I am on the board of a new charity which was given its certification letter by the IRS last fall, but it is not yet showing on the list.� If you have a question about the charity's status, ask them to send you a copy of the letter they received from the IRS recognizing them as a tax-exempt (501c3) organization.

Documenting Contributions.� If you contribute more than $250, either in cash or in goods, you must provide more information.� For cash contributions in excess of $250, you will need a letter of acknowledgment from the charity.� For contributions of goods in excess of $250, you will need details on exactly what is being donated, and its fair market value.

Volunteer Time Not Deductible. You cannot deduct time you or your employees or executives spend volunteering with a charity.� You can, however, deduct mileage at the IRS standard rate for charitable travel, and other expenses associated with volunteering, like travel expenses.

Gifts Received from Organization. If you received a gift in exchange for your donation, you must deduct the cost of the gift from the amount of your donation.� For example, if you donated $100 to a public TV station and you received a DVD (worth $15)� as a thank-you, you must deduct the value of the DVD from the amount you want to claim on your taxes; so you can only claim $85 as a charitable donation to this charity.

Year of Donation. In general, you can deduct contributions only in the year you make them. Pledged contributions cannot be deducted until they are actually paid.� But, the federal government has just announced an incentive for taxpayers to donate to Haitian Earthquake Relief by allowing you to take the tax deduction on your 2009 taxes, if you make a donation by February 28, 2010.

Donations of Property and Equipment. In general, you can take a tax deduction for property or equipment at the fair market value at the time of the donation. You cannot deduct a contribution that has already been written off as a depreciated asset. For example, if you have an old piece of equipment that has no book value, donating it to a charity will not give you any tax benefit, since it has no value to deduct.

If you have other questions about charitable donations, comment on this post or post a message in the Forum.

More on Taxes and Charitable Contributions for Businesses originally appeared on About.com Business Law / Taxes: U.S. on Saturday, February 6th, 2010 at 09:36:23.

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You Won in Small Claims Court! How Do You Collect Your Money?

Fri, 05 Feb 2010 05:21:04 +0000

You won your case against a customer or vendor in small claims court.� That's great!� But it is only the first step in the process of getting your money.� The Court issues a judgment (order) against the other party for the amount owed you plus court costs.� Now, you must try to collect.

Options for Collecting on a Judgment

The losing party may decide to appeal.� If the other party appeals the Court's decision, he or she is required to put up an appeal bond, guaranteeing payment if the appeal is denied. This may help you get your money, because the person has to show how the money will be paid, but you will have to wait until the appeal is heard.

If the other party does not voluntarily offer to pay you, you must decide how to proceed to get your payment. You have several options:

You can request the Court to require that the other party make installment payments.
You can do nothing and wait. The judgment will be entered as a lien against real estate or other real property owned by the other party. The lien must be paid off when the property is sold. If you wait long enough, you will get your money when the property is sold.
You can contact the other party directly and discuss payment, including payment terms.
If the other party does not agree to voluntary payments, or has stopped making payments on an installment agreement, you can file an Affidavit of Default with the Court showing the unpaid balance and requesting action.
You may ask the Court to garnish the person's wages or seize property owned (personal bank accounts) to pay off your debt.� Four states do not allow garnishment for creditor debts (North Carolina, South Carolina, Pennsylvania, and Texas), but other states will allow garnishment for this purpose.

Be Persistent
Because people who don't pay their bills are often reluctant to pay even court-ordered payments, you will need to� be persistent in asking for the money owed you.� The court doesn't automatically force a losing party to pay up; you have to actively work to get the court to garnish wages, put a lien on property, or initiate an installment payment plan.� State laws differ, so find out your rights for getting your money, and keep going back to the court for help.� It's one of those cases where, if you don't ask, you don't get.

When All Else Fails
The old saying, "You can't get blood from a turnip," applies here.� Sometimes, the person you have sued has no money, no assets, no job, no way to pay you back.� As the Iowa Bar Association says, "Obviously, if you have reason to believe any money judgment you might receive in Small Claims Court will not be collectable because of the other party's inability to pay any judgment, you probably should not even file your claim." Sad, but true.� The best way to collect in small claims court is to make sure the person you are suing has the money to pay you.

For More Information

All About Small Claims Court

Read About Other Small Claims Court Stories - And Add Your Own!

You Won in Small Claims Court! How Do You Collect Your Money? originally appeared on About.com Business Law / Taxes: U.S. on Friday, February 5th, 2010 at 05:21:04.

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Tips for Success in Small Claims Court

Thu, 04 Feb 2010 06:12:22 +0000

Have you ever taken a case to small claims court?� If so, tell us about it in my Small Claims Show & Tell.� Sharing your successes or failures with others is a good way to help our community of business owners.

One Small Claims Experience:
A friend said his design firm is taking a customer to court because she refuses to pay for the floor they installed in� her office.� Since the amount is under the small claims limit, they are using small claims court for this process.� Many small businesses take the "small claims" route to get customers or patients to pay money owed.

Advantages to the Small Claims Process
In small claims court, you don't need an attorney; all you really need is a good documented case against someone who has failed to pay you.� If you are willing to do some extra work filing papers and appearing to present your case,� you can save on court costs and attorney costs, and you may be able to get a judgment against your customer.� The biggest problem with small claims court (as with other court actions) is getting the person to pay once the judge has ruled in your favor.� I will address the question of collecting your money tomorrow. For today, let's look at what it takes to win in small claims court:

Tips for Success in Small Claims Court

Be sure you know the limit for small claims actions in your state.� Search on <your state> and� "small claims limit" to find this amount.� Then keep track of accounts receivable by running accounts receivable aging regularly so you don't allow a customer to exceed this limit.
Get all the relevant information about the defendant, like addresses, phone numbers, business type, and trade names.� If the court can't find the defendant, the person can't be served against, nor can you get any money from them.
Keep excellent records. The key to winning in small claims court is usually good records.� If you can prove that (a) the customer ordered the work or agreed to buy the product, and (b) that you delivered on the work or the product, you have a pretty strong case.
Be prepared for the counter-argument. In many cases, the customer will try to claim that the work wasn't done properly or as agreed to.� That's where your great records will show that you did the work or delivered the product as specified.� You do not have to prove that the work was perfect, just that it was done as agreed to.� In my friend's case, the floor was installed as the customer specified; if she didn't like it, that isn't his company's fault, and she still must pay.
Take photos. They really are worth a thousand words, in a lawsuit.� They can help you prove that the work was completed, or that the flooring was installed correctly.
Bring witnesses. Make sure they are credible and that they stick to the subject at hand.� Your mother telling the judge what a wonderful person you are won't help your case, but an employee talking about how he installs flooring will certainly help. If a witness is reluctant to appear, get the court to issue a subpoena.
Most important, show up for the trial. � You would be surprised how many defendants just don't appear for small claims court.� In these cases, the judge almost always awards you (the plaintiff) the judgment.� But if you set a case in motion and you don't show up, you just wasted your money.

If you have many customers who don't pay or vendors who cause problems, you can get the forms from the Clerk of the District Court and teach an employee how to file. You can also have a trusted employee present your case in court.� I'm not saying you will win every time, but following these tips can improve your odds of getting the judgment in small claims court.

I will keep you posted on my friend's experience.� Don't forget to tell us about your small claims experience.� Thanks!

For More Information

All About Small Claims Court

Tips for Success in Small Claims Court originally appeared on About.com Business Law / Taxes: U.S. on Thursday, February 4th, 2010 at 06:12:22.

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How to Correct a W-2 or W-3

Wed, 03 Feb 2010 06:53:36 +0000

Yesterday I received an email from a business owner who said an employee questioned his W-2 amounts.� The owner checked and found an error.� "Now what?!" he wanted to know.

Employers are required to submit W-2 wage and tax forms to employees at the end of January, and then to submit Form W-3 (summary transmittal form) to the Social Security Administration at the end of February.� One big reason for the delay in submitting the transmittal form is so you have time to check the W-2s for errors, or for employees to find errors.� For one of several reasons, you might find out that your W-2 is not correct:

An employee notices a mistake on his or her W-2
You find out that the total W-2 amounts (summarized on the W-3) don't match the year totals for Form 941 (the quarterly federal tax form)

What do you do? How do you correct a W-2 or W-3?

If the Error is in a W-2

If you discover an error in one or more W-2 forms,� and you have not sent the W-3 to the Social Security Administration, just re-do the form and give it back to the employee. Then make sure you put the corrected form in with the W-3 and make any necessary corrections on the W-3 totals.

If you have already submitted the W-3, you will need to submit a Form W-2C to the IRS,, and a W-3c to the SSA.

If the error is a missing employee name or SSN, you cannot use the W-2c to add this information. The Instructions for Forms W-2C and W-3C state that you must contact the SSA directly at 1-800-772-6270.

If the Error is in the W-3

Send a W-3c to the Social Security Administration.� If you sent an incorrect W-2� to the SSA along with the W-3, you will have to complete and submit both the W-2c and the W-3c.

You may also need to correct Form 941 (the quarterly employment tax report)� if that is where the error occurred.

For More Information

How to correct a W-2 or W-3 Form

How to Correct a W-2 or W-3 originally appeared on About.com Business Law / Taxes: U.S. on Wednesday, February 3rd, 2010 at 06:53:36.

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It's Time to Start Your Small Business Tax Return!

Tue, 02 Feb 2010 05:44:16 +0000

It is never too early to get started.� I like to get going as quickly as possible, in case I have a refund coming.� No sense waiting until April 15 to get that money!� This year, I am helping my sister do the business tax return for her antique business that she started in 2008.� It should be easier this time, since we already went through the process last year.

Which Tax Return?
Since she is set up as a single-member limited liability company (LLC), she will report her business profit/loss on a Schedule C as part of her personal 1040.

Which Tax Software?
We decided to use the free version of TaxAct this year, for two reasons:� I want to see how they do a Schedule� C, and we can share the input.� I can do the business return and she will do the personal part of her return.

What Information is Needed?
First, I asked her total her business income.� This should be easy, since she receives a statement each month from the antique mall where her booth is located.

Second, she will need to prepare an itemized list of expenses.� She travels a lot, to flea markets and auctions, and she records her mileage,so all I have to do is the calculation for the mileage expense.� I told her to include every expense she can document (with receipts). We'll figure out where it goes later.

Third, she needs to gather information on her inventory of antiques to calculate cost of goods sold.� She will need:

Starting inventory - which must match her ending inventory for 2008
Cost of total purchases of inventory
Cost of inventory sold
Ending inventory

That's enough for now.� When she provides this information and I start working on the Schedule C, I will post more about my experience with TaxAct.

For More Information

How to Calculate Cost of Goods Sold

How to Complete Schedule C for a Sole Proprietorship or Single-member LLC

All About Car Expenses and Mileage Deductions

It's Time to Start Your Small Business Tax Return! originally appeared on About.com Business Law / Taxes: U.S. on Tuesday, February 2nd, 2010 at 05:44:16.

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February Payroll Tax Reports - W-3 and 1096

Mon, 01 Feb 2010 06:29:46 +0000

February is another important month for payroll tax reports.� In January, you distributed W-2 forms to employees and 1099-MISC forms to contractors (you did do that, right?).� By the end of February, you must submit a summary report to the Social Security Administration (SSA), along with the forms you gave workers.� Form W-3 is due, along with all the W-2s, and a 1096 is due, along with all 1099-MISC forms.

A couple of things to remember:

These summary forms are due February 28, but since this is a Sunday, you have until Monday, March 1 to submit them.
The total on the W-3 or 1096 must agree with the total of all W-2s or 1099-MISC forms.
If you are submitting more than one type of 1099 (for retirees, it would be 1099-R, for example), you must have a summary 1096 for each different type.

You can submit W-2s to the SSA directly online through their Business Services Online portal.� You will need to set up a user name and password first.� Then the SSA says you can "send forms W-2 and W-2c to Social Security by uploading a specifically formatted electronic file or by directly keying W-2 and W-2c information into an online form."

Be Sure Transmittal Forms are Correct
There is a good chance that you already have the W-3 and 1096 forms, which may have been prepared by your CPA or accountant.� Don't send them out just yet.� Wait to see if any of the employees or contractors has a correction on a W-2 or 1099 first.� It is much easier to fix mistakes on these forms before you send them to the SSA than after.

For More Information:

How to Prepare Form 1096 (Transmittal for 1099s)

How to Prepare Form W-3 (Transmittal for W-2s)

End of Year Wage and Tax Reports for Employees and Contractors

All February Tax Reports and Payments

February Payroll Tax Reports - W-3 and 1096 originally appeared on About.com Business Law / Taxes: U.S. on Monday, February 1st, 2010 at 06:29:46.

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Learn More About Getting Government Contracts

Sat, 30 Jan 2010 09:26:30 +0000

As I have reported before, the federal government is committed to increasing opportunities for small businesses to participate as government contractors. In fact, by law 23 percent of government purchasing must be done through small businesses.

American Express OPEN is also committed to helping small businesses gain government contracts. They have put together an interactive online course to help you "navigate various areas of the government contracting process." The online course includes four levels of information:

1. An introduction to government contracting, with resources

2. An overview of how to prepare for success in government contracting

3. How to get involved in a mentor-protege program

4. How to become an accomplished government contractor

I logged on to get an idea of how the course works. I was told the entire course takes about 2 1/2 hours, but you can create a user id and password and take the course in several sessions, if you want. If you have thought about government contracting, but you didn't know where to begin, this course might give you the confidence to take the next step.

For More Information

How to Get a Government Contract with a Local Agency

How to Register as a Government Contractor

Small Business Administration Government Contracting Section

Learn More About Getting Government Contracts originally appeared on About.com Business Law / Taxes: U.S. on Saturday, January 30th, 2010 at 09:26:30.

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