Inspiration and Information for Starting Your Business

Happy National Small Business Week!


Celebrate National Small Business Week

Since 1963, National Small Business Week has recognized the essential role small business plays in the American economy and in American society. The theme for 2015 is “SBA: Dream Big, Start Small.” Throughout the week, there will be live events in Miami/Boca Raton, Los Angeles, San Antonio, New York, and Washington, D.C., as well as a variety of live-streaming presentations.

Live events are held in a different city each day of Small Business Week, beginning with Miami/Boca Raton on Monday, May 4, 2015 and continuing until Friday’s events in Washington, D.C. If you live in or near one of the host cities, you can get more information and register on the Small Business Association’s website.

If you aren’t able to attend in person, you still have the opportunity to hear from experts on a wide variety of topics via live-streaming throughout the week. The live-streaming events kick-off on Monday at 1 PM Eastern Time with a panel discussion on small business financing. The discussion is followed by a conversation with SBA Administrator Maria Contreras-Sweet and Joyce Rosenberg of the Associated Press.

Each city’s presentations focus on topics of interest to small business, but the concluding day in Washington, D.C., includes the InnovateHER final competition. This is a live pitch competition featuring 15 entrepreneurs whose products and services were deemed by the SBA to best meet the competition criteria and present the greatest potential for success in supporting the lives of women and families.

The SBA has also pulled together webinars on key topics of interest to small business owners. These hour-long webinars are free, but registration is required.

  • Do I Have to Pay My Employees for That? Common and Not-So Common Workplace Scenarios: Monday, May 4, 2015 at 4-5 PM, Eastern Time
  • The Secrets to Crafting a Digital Footprint: Monday, May 4, 2015 at 6-7 PM
  • What Small Business Owners Need to Know about Liability for Counterfeit Fraud on Chip Card Accounts: Tuesday, May 5, 2015 at 3-4 PM, Eastern Time
  • Voluntary Benefits: Not Just For the Big Guys: Wednesday, May 6, 2015 at 4-5 PM
  • How Online Payments Can Drive Small Business Growth: Thursday, May 7, 2015 at 2:30 PM

This week, take the time to give yourself a well-deserved pat on the back for your accomplishments to date—and take advantages of opportunities to learn how to take your business to the next level.

Celebrate! April 24 Is Tax Freedom Day

Tax Freedom Day is April 24

By Marcia Richards Suelzer, MA, JD

Today, April 24, 2015, is Tax Freedom day—that glorious day when you start working for yourself, rather than for the government, according to the annual report from the nonpartisan Tax Foundation.  Each year the nonprofit Tax Foundation adds up all the federal, state, and local taxes and divides them by the nation’s income to determine when the nation will have earned enough money to pay its total tax bill for the year.

This year, Tax Freedom Day falls 114 days into the year.  That’s the number of days Americans must work to pay the $3.28 trillion in federal taxes and $1.57 trillion in state and local taxes that will be owed for 2015.  Based on computations by the Tax Foundation, our 2015 national total tax bill is 31 percent of national income—which is more than Americans collectively will spend on food, clothing, and housing combined.

Tax Freedom Day is one day later than last year due mainly to the country’s continued steady economic growth, which is expected to boost tax revenue especially from the corporate, payroll, and individual income tax.  Historically, the date for Tax Freedom Day has fluctuated significantly. The latest ever Tax Freedom Day was May 1, 2000 – meaning that Americans paid 33% of their collective incomes towards taxes. After a fairly significant drop during the Bush-era tax cuts, the amount owed is once again inching upward.

April 24, 2015 is “National Tax Freedom” day—but, depending upon where you live—you might already have achieved Tax Freedom. Or, you might have to continue working for the government for a while longer.  Louisiana residents “paid” their tax bill on April 2, while residents of Connecticut and New Jersey won’t get their taste of freedom until May 13.

Map of Tax Freedom Day by State

Tax Freedom is more than just an interesting date to note. “Tax Freedom Day gives us a vivid representation of how much we pay for the goods and services provided by governments at all levels,” said Tax Foundation Economist Kyle Pomerleau. “Arguments can be made that the tax bill is too high or too low, but in order to have an honest discussion, it’s important for taxpayers to understand cost of government. Tax Freedom Day helps people relate to that cost.”


Five Red Flags on Your Tax Return

Category: Taxes

Red Flags on Your Tax Return

Marcia Richards Suelzer, MA, JD
Less than one percent of returns were audited by the IRS in 2014, and that percentage is likely to be even lower this year due to budget cuts. However, it still is wise to make sure your returns are as accurate as possible. This is particularly true if you own your own business.

Business owners are more likely to find their income tax returns under scrutiny than those who have only wage income from an unrelated employer. Why? Because the IRS has computerized matching programs that can easily tie Form W-2 wages to a specific tax return, making it harder to hid income. Plus, employee deductions are also severely limited, making it harder to lower the tax bills by inflating expenses.

On the other hand, business owners have a greater ability to underreport income and overstate deductions because simple matching programs can’t verify the accuracy of many of the reported numbers. As a result, a tax return with a Schedule C (Business Expenses) or Schedule E (Supplemental Income) is more likely to catch the eye of an IRS employee.

Here are xxx items that are hot buttons on a tax return.

  1. Failing to report all income from all sources. The IRS is especially wary of cash-intensive businesses, such as restaurants and beauty salons. During an audit, the Service will “reconstruct” your income using a variety of methods.
  2. Paying yourself (or your family members) unreasonable salaries. It is perfectly legal—and usually wise—to reduce your overall tax bill by paying yourself a salary from your corporation.  And, other family members can be on the payroll as well. However, the salaries paid must be reasonable for your area, industry, level of expertise and the amount of work done.
  3. Claiming an excessive amount for business meals, travel and entertainment. Whether an amount is excessive depends upon your location and type of business. But, all meal, travel and entertainment expenses must be for a business purpose and substantiated with detailed records.
  4. Inflating the amount of business use. Many types of property, such as cars and computers, can be used for both business and personal use. If you have mixed-use property, makes sure you accurately estimate the extent of your personal use.
  5. Inaccurate reporting of rental income and expenses. Schedule E (Supplemental Income) items likely to pique the IRS’s curiosity are improperly computing depreciation expenses and improperly applying the passive activity loss and at-risk rules.

It’s smart to make sure you claim every deduction and credit that you can. However, inflating expenses or ignoring income can prove to be costly. So, protect yourself. Know the rules for claiming the deductions and don’t try to game the system. And, make sure you have the documentation required by the rules, well-organized and easily accessible if you are audited.


Cuddle Me Is Featured Borrower on Kiva Zip

Cuddle Me Diaper Bank Seeks Kiva Zip Funding
BizFilings understands that forming your company is only one step toward business success. Obtaining the funding that your business needs to operate and to expand is also critically important. For that reason, BizFilings has partnered with Kiva Zip, a crowdfunding microloan site that helps entrepreneurs obtain 0% interest loans to fund and grow their businesses.

This week, The Partnerships for America (PFA), a BizFilings customer, debuts as a borrower on Kiva Zip. PFA is seeking funding for its Cuddle Me Program. The Cuddle Me Program provides free diapers, wipes, and other baby essentials to families in need. To learn more about Cuddle Me, we spoke with PFA’s founder and CEO Ann McIntyre.

Partnership for America and the Cuddle Me Program got its start in 2005 when Ann McIntyre received an unusual call from her business banker. A runaway teenage girl and her infant had been sleeping in the bank’s ATM building. The bank manager knew that Ann had connections with many social service agencies in the area and would find a way to help the girl keep her baby.

When she was unable to find a place that would take both mother and baby, Ann took them home with her, stopping on the way to buy necessary baby items. Eventually, Ann located housing for the girl and her baby, but the expense involved in purchasing basic baby supplies—diapers, baby wipes, bottles—made her realize the hardships that many parents face.

At that moment, the Cuddle Me program began to take shape. “I had to do something to help,” Ann explained. “I can’t allow these children to not be taken care of.”

Diapers, wipes, and other basic baby supplies are not covered by state and federal aid payments, such as the WIC program. A typical infant will use up to a dozen diapers a day, which can add up to over $100 per month in diapers alone. Diaper services are equally cost prohibitive and many laundromats forbid patrons to wash diapers, Ann pointed out. Plus, few day-care centers will accept children in cloth diapers. By providing diapers, the Cuddle Me Program helps keep the babies healthy and increases the family’s day care options.

From Ann’s initial act of kindness to one teenage mom, the program has grown to serve 37,000 babies and toddlers in eight states and the District of Columbia. Cuddle Me partners with other non-profits, such as churches and food banks, as well as state agencies to handle the distribution of the baby supplies. Each distribution day, the Cuddle Me partner sites distribute between 1,000 – 5,000 diapers, as well as wipes and cans of formula.

Cuddle Me is focused on helping the child get a better start in life. As Ann explained, “The kids are the first priority. We help the parents make sure that the kids are taken care of.” To help accomplish this, during the distribution process, the program partners evaluate each child for signs of abuse, malnourishment, and undiagnosed medical conditions. Guidelines are also in place to prevent fraud so that the supplies distributed benefit those in need. Another indication of Ann’s commitment to “kids first” is that only 10% of every dollar goes to administrative costs.

As one can imagine, the cost of supplying 37,000 babies with diapers is staggering. In addition, Cuddle Me bears the cost of distributing the supplies to its partner organizations. As CEO, Ann spends much of her time building partner alliances and fundraising. She’s always on the lookout for additional avenues to raise needed funds.

So, when she received an email from BizFilings inviting her to participate in the Kiva Zip partnership program, she was intrigued. Thus far, Ann reports, “It’s been interesting. We’ve never done anything like this before. It’s a little different than going out and talking with someone directly.” Although it’s been a learning experience to prepare her Kiva Zip profile, she’s excited by the prospect of obtaining funding through the microloan program and building connections with her investors, which can help Cuddle Me met its goal to expand into all 50 states by 2016.

We are excited to have Ann participate in this program. Ann has been a Biz Filings customer since 2010 when she incorporated The Partnerships for America as a Delaware nonprofit. Operating as a non-profit entitles the organization to a tax-exemption, which was important to the growing charity because many states tax diapers. Plus, Ann added, “having a non-profit status meant that there were many grants we could go after.”

She chose BizFilings on the recommendation of a friend. “We were so overwhelmed with trying to get diapers that we did not want to deal with the state paperwork.” In addition to the initial incorporation in Delaware, “BizFilings has done our filings in other states and is our registered agent in all states.” Ann summed up her experience with BizFilings: “They provide a sense of relief almost. When you look at state’s websites, you think ‘this is ridiculous.’ So I turned it over to BizFilings.”

We are looking forward to following her progress. We encourage you to check out Ann’s Kiva Zip page. And, if you are interested in exploring Kiva Zip financing for your company, we invite you to contact Kiva Zip.

A New Solution: Empowering Teachers to Lead and Inspire

Katherine Jettson founder of JettPak seeks KivaZip fundingShe has a habit of turning unfortunate things into good things. This time around, Katherine Jetton, the CEO and Founder of JettPakk, Inc., is making a positive change in the lives of struggling children and challenged teachers.

We talked with Katherine about her new company, her inspiration for building it, and some funding choices in bringing her solutions to a larger audience. What we learned were some pretty amazing aspects about JettPakk and its role in changing the game for teachers and students.

The JettPakk Difference

Where JettPakk really makes a difference is in helping teachers develop students into life-long learners and self-motivated leaders. It empowers a teacher to become a Transformational Leader – inspiring kids to unleash their learning potential – instead of a Transactional Leader.

“We see so many other professions, apart from teaching, where people have resources to help them do their jobs and fulfill their personal missions. Teachers often care deeply about their students, but lack the classroom management resources needed to maintain control of the class.”

JettPakk’s classroom-management tools help equip teachers to really “reach” each child. It provides key resources to help maintain classroom control and lead the class into a life-long journey of learning, growth and achievement.

How does she do this? The JettPakk learning techniques serve to educate students’ hearts, as well as their minds, and focus on balanced, validated learning over “instructing” kids to perform certain actions.

“We give dedicated teachers who are thinking of leaving teaching a better choice: resources to get your class on back on track. JettPakk is designed to help teachers engage, motivate, and inspire students to work hard to achieve personal goals.”

Early Beginnings: Her Inspiration for JettPakk

Like many other business owners, Katherine has had her share of overcoming challenges.

“My first month in teaching was really hard. It is incredibly disappointing to work so hard to reach your students and then feel as if they are taking over the controls, not responding positively, and ultimately, not learning or growing. Fortunately, I was able to figure it out.”

As it turned out, Katherine’s students outscored their peers by 25% on the semester district exam. In her second year, though, the challenges increased: an 8th grade class had been without a teacher for 2 months due to health, and, the school would lose funding if they did not pass their test. Using the techniques that inspired JettPakk, Katherine was able to turn things around: The students passed and the school kept its funding.

Although she had figured it out, though, she soon realized that other teachers were not implementing the techniques she had been using to turn things around. What would happen to her students in years to come? Would they continue to grow and develop or would they “lapse” back to old ways?

I want to share and support other teachers who want to be great teachers, but do not yet have the right resources to get there.”

And today we have JettPakk.

New Horizons and Next Steps

Getting JettPakk up and running, however, is only the beginning. Having done some pilots, a very important next step for the business is to support its leadership development program.

“To help support this development, I am actively involved in the Kiva Zip-BizFilings partnership. The 0% interest loan will be super-helpful in building out the program to help propel positive results for teachers and students.”

If you are inspired by Katherine’s mission and would like to help or simply learn more, visit her on Kiva Zip.

About the Kiva Zip/BizFilings Partnership

BizFilings has partnered with Kiva Zip, a crowdfunding microloan site that helps qualified small business customers obtain 0% interest loans to fund and grow their businesses. If you are interested in exploring Kiva Zip financing for your company, we invite you to contact Kiva Zip.


2015 S Corp Election Due March 16

Category: S-Corp, Taxes

money stuffed into bag marked taxes

March 16, 2015 is the deadline to make an S corporation election that takes effect in 2015 for companies with a calendar tax year. There is a very short period of time to make an election that is effective in the year that you make it. (You have all year to make an election that will become effective in the next year.)

You do not need to be a corporation to be an S corp. An LLC can make this election as well.

At one point, the S corporation was the only way to have business income “passed through” to the business owners’ personal tax returns. At a time when the corporation tax rates greatly exceeded individual tax rates, this was a distinct advantage. Plus, with pass-through taxation, there was no danger of being taxed twice on dividend income. Now a business owner can achieve these same goals by forming a limited liability company (LLC).

However, operating as an S corporation can provide other tax advantages that the default taxation of an LLC does not. One of the biggest tax advantages that an S corp offers is the ability to characterize income received from the business as both salary and dividends. This can significantly lower your overall tax bill. Without an S corporation election, the income passed through from an LLC is self-employment income which is reported and taxed on the owners’ returns. While employment taxes must be paid on salary, the overall amount of taxable income of the business is reduced by deductions for salary and employment taxes paid. In many cases, the savings can be significant. Your tax professional can help you balance all of the trade-offs.

If you operate your business as a corporation, rather than an LLC, keep in mind that taxation is the only difference between a C corporation and an S corporation. You will need to comply with all state laws governing corporations—maintaining a registered agent, holding annual meetings, and filing annual reports.

Whether you operate as an LLC or as a corporation, you become an S corporation by filing IRS Form 2553, Election by a Small Business Corporation. As noted earlier, you must act quickly if you want the election to take effect in 2015. March 16, 2015 is the deadline for calendar-year companies –unless your company was formed after the start of 2015. There are two exceptions to this deadline, brand-new corporations / LLCs and fiscal-year companies.

  • If you are a brand-new corporation or LLC, you still must file by the 15th day of the third month of the tax year. But, the tax year is considered to start on the day the business has shareholders  or members, acquires assets, or begins doing business, whichever occurs first. From the IRS’s point of view, months start on the same numerical day at the date when the tax year started, and they end on the close of the preceding numerical day.  So, if your corporation begins its first tax year on January 8, 2015, the 15th day of the third month is March 22, 2015.
  • If your business uses a fiscal year, rather than a calendar year, you still have the same length of time to file: the 15th day of the third month of your company’s tax year. So, if your corporation’s fiscal year begins on July 1, you have until September 15, 2015 to make the election for your 2015 tax year.

Bear in mind that this election can have significant tax consequences, and it is important to understand all of them. If you are thinking about electing S corporation status, discuss all the ramifications with your tax professional.

Beware of “Annual Records” Scams!

By Marcia Richards Suelzer, M.A., J.D.

It is unfortunate, but there is always someone ready to use trickery or deception to make a fast buck off of virtually every aspect of daily life. You’ll see fake charities pop up after every disaster, and most of us have received at least one email asking for us to help a down-on-his-luck Nigerian prince. For the past several years, many businesses have been targeted by companies who engage in deceptive practices related to corporate recordkeeping and annual report filing requirements.

As we discussed in our earlier post, “Four Facts You Must Know About Annual Reports,” nearly every corporation and LLC must file one or more annual reports with state governments during 2015. Keeping up with annual report filing can be challenging due to lack of uniformity in due dates. Given that the consequences can be dire, it often makes excellent sense for the small business owner to partner with a trustworthy business compliance company that he or she knows and trusts, such as BizFilings. This strategy makes even more sense when that company already provides your business with registered agent services.

Unfortunately, there are a number of untrustworthy companies out to take your hard-earned cash by offering “annual record services” that are not required and cannot satisfy your annual report filing requirement. How can you spot these scams?

The company’s name may not be a give-away. Many of these outfits try to mimic names of reputable business compliance companies. For example, the Delaware secretary of state’s website warns Delaware companies to beware of the “Corporate Records Service,” as does the secretary of state of Illinois. While Corporate Records Service seems to be one of the most common names used, it is not the only name. Rhode Island secretary of state’s website warns its filers about the two such companies: “Annual Business Services” which is sending letters and “Rhode Island Corporate Compliance (RICC)” which is sending emails to companies registered in Rhode Island.

So, what should alert you? The following are common red flags:

  • You receive a letter from an unfamiliar company, not the company that serves as your registered agent or that helped you incorporate or form your LLC.
  • The envelope and form are designed to fool you into thinking that it is an official government communication. There will be quasi-governmental seals and be many citations to state statutes and provisions. While there is likely to be a disclaimer that it is sent by a private company, the overall tone and appearance of the communication strongly conveys the opposite impression.
  • There be an official-looking form with a title similar to “2015 Annual Minutes.” If you are curious what one version of this form looks like, the Milwaukee-Wisconsin Journal Sentinel reproduced a copy of the form in its story about the scam operating in Wisconsin last year.
  • There will be a demand to return the form to the corporation by a specific date. As the Indiana Secretary of State’s website warns, “They include a return by date to give the false impression that action is necessary on your part.”
  • There is a fee of $125 payment for the service.

There are two major dangers with this scam. (Three, if you count throwing away $125.)

First, this bogus communication may cause you to miss the state filing deadline. These solicitations are timed to correspond with the annual report due date. The company is banking (literally) on the similarity in name the name of their form, “Annual Records,” and the state-required filing, “Annual Report,” to inspire business owners to complete their form. And, the similarity may fool business owners into thinking that they have compiled with the state filing requirement. This may result in fines, penalties, loss of good standing and dissolution.

Second, your information may not be adequately safeguarded. The form sent requests information in excess of what you are generally required to provide to the state. For example, the form requests a list of all of the shareholders’ names. The only guarantee you have that any information provided, including your credit card number, will be safeguarded and not released to third-parties is the assurance provided on the form. And, when you consider that Corporation Records Service is under investigation for fraud in multiple states—and has agreed to numerous consent judgments related to deceptive practices–your faith in the disclaimer may be ill-founded.

What should you do if you receive mail that asks you to provide information to prepare your annual minutes or consent records?

You can simply shred the correspondence and toss it into the recycle bin. However, you may wish to report the solicitation attempt by contacting your secretary of state’s office. The secretary of state can advise you on how best to proceed in your jurisdiction. If you are not sure if what you received is a scam or a legitimate offer to help streamline your paperwork responsibilities, the compliance experts at BizFilings will be glad to answer any questions that you might have. You can contact one of our customer service specialists at 800-981-7183.

Four Facts You Must Know About Annual Reports

Category: Annual Reports

By Marcia Richards Suelzer, M.A., J.D.

When you formed your LLC or incorporated your company, your business became an official entity in the eyes of the state. This status as a separate entity is what protects your personal assets from business creditors and liability. But, this separate existence also creates ongoing compliance responsibilities in the formation state. And, if your business expands to other states, you will face ongoing compliance duties in each state where you register as a foreign corporation or LLC.

One of the most crucial of these ongoing compliance obligations is filing an annual report. The term “annual report” is used in a variety of contexts. It’s not uncommon for people to hear “corporate annual report” and think of the detailed, multi-page document that published by publicly traded corporations to inform shareholders, regulators, industry analysts, and potential investors about the company’s financial well-being.  Fortunately, this elaborate and detailed exploration of the company’s fiscal health and future plan is not required for a state-mandated annual report.

The state annual report is designed to provide the public and government officials with the information necessary to determine who owns the company and how to contact the company. So the forms generally require only:

  • Company name and address
  • Officers / Managers / Directors names and addresses
  • Registered agent name and address

Some states, such as Delaware, combine the annual reporting requirement and their franchise tax assessment. In that case, the form will also ask about shares authorized and issued and/or value of the company assets.

Now that you know what an annual report is (and isn’t), here are four more facts you must know.

  1. Virtually every corporation and limited liability company will need to file an annual report this year in its state of formation and in every state where it has registered to do business. There are a few states (such as Indiana and New Mexico) that require a filing every other year, but in most it is an annual obligation.
  2. Due dates vary from state-to-state and in some states, by entity type. If would be nice if there was a single, national due date for annual reports, but that is not the case. Each state sets its own due dates. And, the deadlines may be different for a corporation and an LLC, so it is important to keep track of the correct date for your company type. For example, a Delaware corporation must file its annual report by March 1, but an LLC’s is not due until June 1.
    What’s more, most states don’t have a due date tied to the calendar. Many times, the date for the return is tied to the date the company was formed, incorporated or registered in the state. In other states, the due date is tied to the company’s fiscal year. For instance, the due date in Nevada is the last day of calendar anniversary month of incorporation, formation or qualification.  If you operate in multiple states, keeping track of due dates can become time-consuming.
  3. Not every state sends reminders. Back in the day, most states sent reminders well in advance of the filing deadline and often supplied the form for the business to complete and return. In many states, that no longer is the case because courtesy notices were among the first items trimmed from state budgets during the recent economic slowdown. In addition, more states are encouraging electronic filing.  Some states, such as Connecticut, online filing is mandatory  As the states have become less helpful, the value of partnering with a company such as BizFilings becomes more valuable in staying on top of filing obligations.
  4. Failing to file can be disastrous. Complying with the annual reporting requirement is one of the prices paid for legal recognition of your company. Failing to file can cost your company its “good standing” in the state. Proof of good standing is generally required to obtain financing, enter into contracts, or merge with another company. A certificate of good standing is also required to register your company in another state. What’s more, failing to file can result in the state stepping in and dissolving your company.
    Dissolution will prevent your company from bringing a lawsuit to enforce a contract or obtain damages. Dissolution can also expose you to personal liability for business debts and liabilities. And, you may be personally liable for fines and penalties imposed by the state.
    Failure to file – or to file on time – also alerts business scammers that you are not paying attention to your company’s compliance responsibilities.  These criminals often assume that if you aren’t watching deadline, you aren’t watching information and this gives them a green light to file a few simple papers with the state and hijack your business identity. Once they have assumed your identity, they can use that information to open lines of credit, make purchases and abscond with the illegally purchased assets—leaving you liable for the debts.

Staying on top of your ongoing compliance responsibilities can be made easier if you work with a trusted business provider, such as BizFilings. But, whether you partner with a business professional or take the do-it-yourself route, it is essential that you know the annual report filing date for each corporation and LLC that you operate and make sure to file (and pay the state fees) by the deadline.

After Anthem and Turbo Tax: Four Tips to Avoid Identity Theft During Tax Season

By Marcia Richards Suelzer, M.A., J.D.

As the world grows evermore interconnected and dependent on technology, the risks of identity theft and diversion of personal (and company) assets increases as well. And, it seems that there is always an uptake in these nefarious activities around the holiday season and around tax time.

That’s right: tax time. Tax-related identity theft is a huge problem. In fact, the IRS acknowledged that is paid that it paid roughly $5.2 billion in ID-theft-related refunds on 2013 returns, and it succeeding in detecting and thwarting an additional $24.2 billion of fraudulent claims, according to a report issued by the U.S. Government Accountability Office in August 2014. Bear in mind, this is only what the IRS estimated based on what it could detect—the actual risks are probably greater.

Tax-related identity theft at the state level might get less national press coverage, but the problem is significant there as well. In fact, the recent hack records of Anthem, Inc., one of the country’s largest health care networks, compromised the security of more than 80 million individual records. Anthem reports that the stolen information included names, dates of birth, member ID/ social security numbers, addresses, phone numbers, email addresses and employment information. It is easy to see how individuals possessing this stolen information can assume the rightful owner’s identity for many purposes—including filing tax returns and claiming erroneous refunds.

The danger is significant enough that the state of Connecticut went on record urging its citizens who may have been affected by the Anthem data breach to file their tax returns as soon as possible. If a criminal obtains your refund, “it can take years to resolve the problem,” according to Department of Revenue Services Commissioner Kevin Sullivan Commissioner. While early filing is may be more of a priority for some individuals, it makes sense to file as early as you can

In the same week, tax preparation software giant Turbo Tax temporarily suspended the filing of state tax returns due to a sharp increase in returns that carried hallmarks of identity theft. (The issue appears to have affected only returns prepared with the Turbo Tax program, not  other Intuit products used by tax professionals.) Although the shutdown was very brief, the spike in illegal activity was significant. In the press release it issued warning its residents of the threat, the State of Utah indicated that it had flagged 8,000 returns as potentially fraudulent and reported that similar problems had been experienced in 18 other states.

Although no confirmed link exists between the Anthem data breach and the uptick in fraudulent returns, the coincidence in timing is concerning as is the fact that the states involved and Intuit have indicated that their own systems were not breached.  Again, taxpayers need to be both vigilant and aggressive in monitoring their tax returns and personal information.

What’s a taxpayer to do? Here are four tips to protect your tax information, as supplied by the IRS in this year’s “Dirty Dozen,” an annual compilation of actions that that the IRS considers the most outrageous and egregious tax-related behavior. As tax season gets underway, watch out for these dirty tricks that can put your refund—and other assets—at risk.

  • Phone Scams. The IRS will never call you out of the blue, threatening you and demanding immediate payment. As the IRS put in a news release, there been a sharp increase in “aggressive and threatening phone calls by criminals impersonating IRS agents.” In fact, some of these crooks are so clever that they “spoof” the phone numbers to appear as if they are calling from an IRS office.If the IRS has an issue with something on your return they will first notify you via old-fashioned snail mail. If you get such a call, report the incident to the TIGTA at 1-800-366-4484 or at
  • Phishing. Criminals don’t always use the phone. They also resort to emails in hopes of conning you into replying with information or visiting a bogus website that might harvest your information directly or via malware inserted into your computer. Again, remember, the IRS will not initiate an email contact. If the IRS has questions about your taxes, they will send you a letter.
  • Identity Theft. This made the Dirty Dozen list before the Anthem data breach. Now, it probably will rocket to the top of concerns about the taxpayers’ financial safety. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. The identity theft section on the IRS website has a wealth of information on prevention, detection and assistance for victims.
  • Return Preparer Fraud. The IRS reports that roughly 60 percent of taxpayers used tax professionals to prepare their returns. Ideally, every small business owner will seek guidance from an experience tax professional throughout the year for guidance. In most cases, taxpayers build a relationship with their accountant over time and are able to rely on his or her expertise.However, if tax season rolls around and you find yourself in the market for a preparer, you need to watch out for unscrupulous return preparers. The IRS cautions that there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Others will play fast and loose with the tax laws—either through ignorance or avarice. Take the time to interview any potential preparer: ask about credentials, including IRS Preparer identification numbers, and experience with your type of business. The IRS has an online directory of qualified tax professionals, as well as tips on choosing a reputable prepare in the “Choosing a Tax Professional” section of their website.

The Anthem data breach and the problems with Turbo Tax software should be a wake-up call for every taxpayer, regardless of whether you were directly affected. While guarded your identity is important year-round, take the time during tax season to learn more about how to protect your tax identity.

Sales Tax Takes a Holiday

sales tax holidayWhere has the summer gone? It’s already “back to school” time with many school districts set to reconvene classes in only a few weeks. In many states, “back to school” means “sales tax holiday” which provide a (very) short-term exemption from sales tax on many school-related items.  If you are in one of the states that have a sales tax holiday, here are five tips to make this busy shopping time easier on you and your employees.

Know What Is “On Holiday” in Your State

Not all items are exempt from tax during the holiday. All the states provide that the exemption applies only to certain items. Most limit the exemption to items under a certain price.  And, you may still have to impose local taxes—even if there is no state tax due.

The nuances of the laws can be surprising. For example, Florida exempts a backpack—but not a briefcase—from tax during the sales tax holiday. Your state department of revenue website provides a comprehensive listing of what is and isn’t tax-exempt.  Print out the list. Make sure there are copies at each cash register. Have the list available throughout the store to help your customers know what is exempt.

Stock Your Shelves

Make sure you have enough inventory to meet the demand. This is especially important for items that are purchased in large quantities only at back-to-school time. Spiral note books, notebook paper, pens, pencils, and markers fall into this category. Running out of an item can result in lost sales. It can also cost you goodwill with your customers–even if you issue rain checks because, in nearly every state, customers have to pay sales tax when they redeem the rain check.

Market with Back-to-School in Mind

If you are in a sales tax holiday state, you are almost always required to participate if you sell any items on your state’s tax-exempt list. So, you may as well make the most of it by designing special promotions and advertising to bring new customers into your store—with the goal of turning them into repeat customers.

Focusing on repeat business is important because many tax experts feel that sales tax holidays don’t generate any extra revenue for retailers. The tax holiday does not affect buying decisions; it simply shifts when the purchases are made. Translated, this means that you may see a flood of customers during the holiday, but diminished traffic during the remainder of the month.

Your marketing strategy should meet two goals:

  • increase spending on non-tax-exempt items during the holiday weekend by offering discounts or special pricing on non-exempt items, such as sports equipment and beauty products
  • bring customers back into your store after the weekend is over by offering coupons for repeat purchases of school supplies later in the year (when the kids have lost their notebooks and destroyed their markers).

Prepare Your Employees

Knowledgeable, competent, helpful, friendly employees create customer goodwill. This is especially important when your store is crowded and procedures are more complex. Make sure each employee understands what is tax-exempt and your state’s rules regarding discounts, buy-one-get-one offers and other pricing options.  If possible, staff up for the peak periods to reduce the annoyance of long lines.

Reprogram Your Point-of-Sales Systems

You will need to account for tax-exempt and non-exempt sales. Most point-of-sales systems accommodate sales tax holidays. However, you will have to make sure that the overrides are in place and are functioning correctly. If you rely on a service to handle your systems, make sure you contact them well in advance of the holiday weekend to ensure that the system is ready when your doors open for business.