Client Advisor Winter 2011


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Check out our Client Advisor for Winter 2011. Includes articles on hiring practices, unemployment optoins, manufacturing deductions, tips for starting a new business and more!

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Client Advisor Winter 2011

  1. 1. 3330 W. Esplanade Avenue Suite 100 Metairie, Louisiana 70002 Advisor CERTIFIED PUBLIC ACCOUNTANTS ClientNot hiring based on criminal history Winter 2011 can be discriminatoryI n what may seem questionable logic to some, the Equal Employment Opportunity Commission has use a prospective employee’s criminal convictionrecord – even felony convictions – as an “absolutemeasure” of whether they should be hired. undesirable candidates, keep a safe work environment, reduce fraud and prevent negligent hiring claims. recently reaffirmed its position that it is illegal to “Past behavior is the best predictor of future behavior” is an old dictum in the field of psychology. But the EEOC says the practice is snowballing because of the ease of doing searches quickly and efficiently using This is because its use could result in discrimination new technology. S E Eagainst minorities, who have higher arrest and conviction And the adverse impact is increasing because of the Good option forrates. In 2008, African Americans were about six times already tight job market. Minorities with criminal records unemployed: Go back to schoolmore likely to be incarcerated than whites. The incarcera- are having an especially hard time finding employment.tion rate for Latinos was 2.3 times higher than for whites. For these reasons, employment experts are warning Manufacturing The only exception is when there is a clear, demon- employers to expect closer scrutiny from the EEOC and deduction higheststrable business reason not to hire based on criminal to exercise caution when basing hiring decisions on ever in 2010 backgroundhistory, according to the EEOC. criminal histories. Doing so may lead to liability for Six tips for starting discrimination under Title VII and/or state anti- a new businessCriminal checks discrimination laws on either a disparate treatment or I N S I D E disparate impact basis. There is a distinction between arrest records and conviction records. According to the EEOC, prior convic- tions may be considered in hiring if they are job-related, based on the following three factors: ◆ The nature and gravity of the offense ◆ ow long ago the conviction occurred (for example, H last year versus 20 years ago) ◆ ow the job relates to the type of crime committed H (e.g., a convicted embezzler seeking an accounting position) The only exception is when there is a However, according to the EEOC’s policy guidance, employers who consider arrest clear, demonstrable business reason records in hiring, must not only evaluate not to hire based on criminal history those three business necessity factors, they must also evaluate whether the applicant More employers are beginning to use criminal back- actually engaged in the alleged misconduct. A blanketground checks in hiring. About 73 percent of major exclusion of people with arrest records “will almostemployers report that they check applicants’ criminal never withstand scrutiny,” according to the EEOC.records, according to a 2010 survey by the Society for Regardless of how you feel about the EEOC’s logicHuman Resource Management. in this matter, it might be wise business practice to Employers see the checks as one way to weed out heed the experts’ advice. ❚© 2011 CPAmerica International
  2. 2. Good option for unemployed: Go back to school Be sure to look at tax benefits The credit is available for four years of a full- or part-time degree or certificate program. Qualifying expenses include tuition and fees, but not room and board. The credit is phased out for a single taxpayer with modified adjusted gross income over $80,000 or for joint filers with over $160,000. The credit is allowed against both the regular and alternative minimum tax (AMT), and up to 40 percent of it may be refundable. The credit is set to expire after 2010. Lifetime Learning Credit – The maximum credit is $2,000 per year for a postsecondary eligible education institution. If you or someone close to you is temporarily out of work in Moreover, the credit is available for courses taken to acquirethese difficult economic times, you should be aware of some or improve your job skills.of the tax law provisions that could benefit you. The credit amount is 20 percent of the first $10,000 in If you itemize your deductions, you may be able to deduct qualifying expenses.job-hunting expenses, as long as you are seeking a job in the Work-related expenses – An employee can deductsame line of business. The expenses are nondeductible if you work-related expenses, job-hunting expenses, plus otherare seeking your first job or employment in a new line of business miscellaneous expenses, as a miscellaneous deduction, butor if you have experienced a long period of unemployment. only for amounts that exceed 2 percent of adjusted gross While you are unemployed, or if you have additional time income. If you are self-employed, you can deduct the expenseson your hands because of a temporary layoff or reduced work directly from self-employment income.hours, consider the possibility of improving your marketability To the extent education expenses qualify for a credit and/orthrough education or training. The tax law provides a number an itemized deduction, you can’t double-count the sameof valuable benefits. And best of all, most of these benefits are expenditure. You should determine which characterization isavailable for any field of study, not just your current field. the more beneficial to you. American Opportunity Tax Credit – Formerly known Finally, if you have been unemployed for more than 60 days,as the Hope credit, the maximum American Opportunity Tax be sure to tell prospective employers that hiring you couldCredit is $2,500. The credit amount is 100 percent of the first qualify them for tax credits under the Hiring Incentives to$2,000 of qualifying expenses, plus 25 percent of the next $2,000. Restore Employment Act. ❚Manufacturing deductionIt’s the highest ever in 2010 Every business in the manufacturing sector, whether smallor large, should consider the domestic production activitiesdeduction, sometimes referred to as the IRC §199 deduction. For 2010, the deduction has reached its maximum rate of 9percent – three times the amount available initially. Thededuction was first available in 2005 at a rate of 3 percent of“qualified production activity income.” Preparation of food As a result, more businesses may find it worthwhile to and beverages for retailcalculate and substantiate the deduction than in previous sale is not eligible foryears, when the percentage was lower. The rules are complex, and the calculations can be difficult, the you need to weigh the benefit of the deduction against the Preparation of food and beverages for retail sale is not eligiblecost of calculating and supporting it. for the deduction. Activities that are purely services – except You must be willing to undertake the effort to properly in the fields of construction, engineering and architecture –identify and substantiate qualifying activities and to allocate also do not qualify.income and expenses. The domestic manufacturing deduction can be quite valu- The deduction is available for a wide range of production able. A 9 percent deduction is equivalent to lowering youractivities performed in the United States, including manufac- marginal tax rate by approximately 3 percentage points.turing; mining; oil extraction; farming; production of software, Most companies that qualify for the deduction will needrecordings and films; and construction of real property and the services of an experienced tax adviser to assist them withrelated architectural and engineering services. the required calculations. ❚Winter 2011
  3. 3. Six tips for starting anew business Are you thinking about starting a new kind of records. However, the business business? Here are six tax tips every new you are in affects the type of records you business owner should know: need to keep for federal tax purposes. 1. First, you must decide what type of 5. Every business taxpayer must figure business entity you are going to establish. taxable income on an annual accounting The most common types of business are period called a tax year. The most common the sole proprietorship, partnership, LLC, tax years used are the calendar year or a corporation and S corporation. fiscal year ending at the end of a month 2. The type of business you operate other thanmonths and someyears may not exceed 12 December. Tax taxpayers are determines what taxes you must pay and restricted from using a fiscal year. how you pay them. The four general types of business taxes are income tax, self- 6. Each taxpayer must also use a con- employment tax, employment tax and excise sistent accounting method, which is a set tax. of rules for determining when to report income and expenses. The most commonly 3. An Employer Identification Number used accounting methods are the cash is used to identify a business entity. method and an accrual method. Generally, businesses need an EIN. Visit Under the cash method, you generally for more information about report income in the tax year you receive whether you will need an EIN. You can also it and deduct expenses in the tax year you apply for an EIN online at the site. pay them. Under an accrual method, you 4. Good records will help you ensure generally report income in the tax year successful operation of your new business. you earn it and deduct expenses in the tax You may choose any record-keeping system year you incur them. Some businesses are suited to your business that clearly shows required to use the accrual method. your income and expenses. Except in a few Read more in IRS Publication 583, cases, the law does not require any special Starting a Business and Keeping Records. ❚Annoyed with your cell phone service? Some tips Only 54 percent of cell phone owners are satisfied with their Wireless surcharges under investigationservice, according to a recent annual survey of cell phone The Federal Communications Commission isusers by Consumer Reports National Research Center. investigating the use of wireless surcharge fees That’s considerably lower than for most products the charged by some individual carriers with namesconsumer center researches – and two of three cell phone that sound like government fees, such asusers had a major complaint about service. High cost was the Federal Universal Service Fund complaint. A coalition of consumer groups is The consumer research center offered some of the following fighting the fees, which caninformation to help cell phone users lower their cost and increase cell phone bills by asimprove their service. much as 30 percent. The coalitionMany cell phone users overbuy minutes is calling on the FCC to prevent carriers Two out of three cell phone owners use 200 minutes or less from imposing the charges for expenses that area month of their 600-minute plans. That’s partially because part of doing business. Question any suspicious fees.they take advantage of free nights and weekend, as well as Avoid buying phone insurancemobile-to-mobile calling. When you purchase a new phone, you are typically asked if Review your bill to see if you could save money by switching you want to purchase insurance on it in case the phone is lost,to a plan with fewer minutes that still has periods of free calling. stolen or damaged. The insurance usually runs from $4 to $8 aAn unusually big bill? A call might help month, often with a $25 to $100 or more deductible. Did your teenager go over limit by 800 texts? Consumer Reports found that only 17 percent of buyers polled If you have one of those rare big bills because of unusual got a new phone because the old one broke, and only 3 percentusage, you may have a chance to have it reduced. because the phone was lost or stolen. Instead, they recommend Many carriers will reduce or forgive unusual charges if you keeping your old phone until the new phone’s contract ends.take the time to ask them to. Your best bet: Call a representative. If you lose or break the new phone, reactivate the old one andDon’t rely on e-mailing your request. use it until you qualify for a free or low-cost phone. ❚ Winter 2011
  4. 4. Items ofInterestRemember rules for mortgage interest deductions Small businesses beware: With mortgage interest rates at generational lows, you IRS audit rates risingmay be inclined to purchase a new home, take out a loan Is your business ready for a visit from theto make improvements on your existing home or take out IRS?a second mortgage to pay down high-interest credit card In the last five years, the number of hours thedebt. IRS spent auditing small businesses with assets The IRS has issued a reminder that interest deductions of $10 million or less increased by 30 percent,on home mortgages are limited, including limitations for according to a recent study by Syracusehome acquisition and home equity indebtedness. University’s Transactional Records Access ➥ There is one limit for loans used to buy, build or Clearinghouse.substantially improve a residence – called home acquisi- In the same time period, the time the IRStion debt. spent auditing companies with $250 million or ➥ There is another limit for loans secured by a quali- more in assets dropped by 33 percent.fied residence but used for other purposes – called home The average number of hours spent on eachequity debt. audit of large corporations also went down, The tax law allows a deduction for interest on indebted- from 973 in 2005 to 830 in 2009.ness secured by your residence. Acquisition indebtedness By contrast, the average number of hourscannot exceed $1 million. Home equity indebtedness spent on a small or mid-sized business auditcannot exceed $100,000. remained substantially the same. CERTIFIED PUBLIC ACCOUNTANTS 3330 W. Esplanade Avenue Suite 100 Metairie, Louisiana 70002