Payroll Tax Cut in the 2010 Tax Relief Act

The Social Security payroll tax on individual wages will be lowered to 4.2% in 2011, from the 6.2% rate. Self-employed workers will also get a two percent reduction from 12.4% to 10.4%. There is no phase-out of the payroll tax reduction for higher income workers; it applies to everyone who works, regardless of income. However, since Social Security taxes apply only to the first $106,800 (the 2011 wage base) of earnings, the benefit for high earners tops out at $2,136. The employer’s share of Social Security tax remains at 6.2%.

IRS Auditors Begin Accepting QuickBooks and Peachtree Records

The Internal Revenue Service has begun accepting taxpayer records for audits and examinations in electronic format from small businesses using Intuit’s QuickBooks and Sage’s Peachtree accounting software.

Approximately 1,100 IRS revenue agents recently completed training on QuickBooks Premier Accountant Edition 2010 software and are now trained to accept taxpayers’ QuickBooks files, as appropriate.  In order to insure security of the electronic files they should not be emailed.  Electronic files should be provided on a CD, DVD or flash drive.  The IRS will also accept electronic records from Peachtree accounting software.

Obtaining the electronic files from the taxpayer provides the IRS significant advantages including:

• Taxpayers do not have to print records stored electronically
• A complete  set of accounting records
• Reduction in the number of document requests
• Increase the revenue agents analysis and testing of the books and records
• Speed and efficiency of field examinations
• Faster audit resolution

The legal authority for requesting a taxpayer’s QuickBooks backup files and accounting records in electronic format is based on IRC Section 6001, Regulation 1.6001-1(a) and -1(e), Revenue Ruling 71-20 and Revenue Procedure 98-25. Rev. Proc. 98-25 does not prevent or exempt a taxpayer from providing electronic records, if such records exist.

The IRS May Want Your QuickBooks File

Are your QuickBooks files ready for the IRS to review?  Because taxpayers keep their records in Quickbooks, the IRS has purchased 1,100 Quickbooks licenses for use by its revenue agents. This will potentially allow the agents the ability to quickly audit a taxpayer by reviewing records maintained in Quickbooks.

A Quickbooks file may provide access to multiple tax years. What should you do?  According to the National Association of Accountants who recently attended an IRS presentation recommended that a record for a particular tax year can be renamed (similar to the command, “Save As…”). The taxpayer can then delete any extraneous information from that renamed file before providing a copy—flash drive or CD only, no emails—to the IRS agent.