There are, however, several alternative methods available to you that allow you to withdraw cash from a corporation while avoiding dividend treatment:

(1) To the extent that you have capitalized the corporation with debt, including any amounts that you have advanced to the corporation, the corporation may repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt is deductible by the corporation. This assumes that the debt has been properly documented with certain terms that characterize debt, rather than equity, and that the corporation does not have an unduly high debt to equity ratio. Otherwise, the repayment of the “debt” will also be taxed as a dividend. If, you choose to make additional cash contributions to the corporation in the future, you may wish to consider structuring such contributions as debt in order to facilitate later withdrawals on a tax-advantaged basis.

(2) Reasonable compensation that you, or members of your family, receive for services actually rendered to the corporation is taxable to you or your family member, but deductible to the corporation. The same rule applies to any compensation (i.e., rent) that you receive from the corporation for the use of property. In either case the amount of compensation must be reasonable in relation to the services rendered or the value of the property provided. To the extent the compensation is excessive, the excess will be nondeductible.

(3) You may withdraw cash from the corporation without being taxed by borrowing money from the corporation. However, in order to avoid recharacterization of the loan as a dividend, it is important that the loan be properly documented and be made on terms (including provision for interest) which are comparable to those on which an unrelated third-party would lend money to you. All payments of interest and principal on the loan should actually be made in a timely fashion.

(4) You may withdraw cash by receiving certain fringe benefits that are deductible to the corporation and not taxable to you. These may include life insurance, certain medical benefits, disability insurance, dependent care and other benefits. Most of these benefits are tax-free only if provided on a nondiscriminatory basis to other employees of the corporation. You can also establish a salary reduction plan that would allow you (as well as other employees) to take a portion of your compensation as nontaxable benefits, rather than as taxable compensation.

Guidelines Include:
•     The employee must have been hired after February 3, 2010 and before January 1, 2011.
•     The employee must have worked fewer than 40 hours during the 60 days prior to beginning work, and must sign a statement to that effect, Form W-11.
•     The employee must be an additional hire, or if the employee is a replacement, it must be replacing a voluntary termination or an employee that was terminated for cause.
•     The employee must not be related to the qualified employer or anyone owning 50% or more of the stock or other capital of the employer.

What you need to do:
•     Identify Qualified Employees.
•     Obtain a signed Form W-11 from eligible employee.
•     Setup Payroll system to track eligible employees.
•     Handle quarterly Form 941 reporting correctly.
•     Handle annual Form W-2 reporting correctly.
•     Track employees that qualify for $1,000 credit in 2011.

How we can help:
•     Assist with identifying eligible employees.
•     Assist with QuickBooks setup and accounting involved.
•     Prepare your payroll to ensure you receive the tax savings available.
•     We can prepare your quarterly reports and W-2 forms in compliance with new regulations.

Please call if you have any questions or need assistance (360-876-4491). We welcome the opportunity to help you grow your business.

The worker, Homeownership, and Business Assistance Act of 2009 provides for an election similar in nature to the NOL carryback provision in the American Recovery and Reinvestment Act:

Businesses may elect to extend the general two-year NOL carryback period to three, four, or five years. The election is not limited to businesses that meet a specified gross receipts test.

The election can be used for an NOL for a taxable year beginning or ending in either 2008 or 2009. The election can be used for only one year, however.

Under the terms of the election, NOLs carried back five years would be able to offset up to 50 percent of the taxable income from the fifth year, but could offset all of the income from the other carryback years.

Eligible small businesses that elected to carry back 2008 net operating losses under the provisions of the American Recovery and Reinvestment Act of 2009 can still elect to carry back a 2009 NOL under the provisions of this Act.

Board members of nonprofit organizations have a fiduciary responsibility to oversee management of the organization. Among other duties, board members hold management accountable for maintaining internal controls over revenue, expenses, capital outlays and investments. To achieve this, effective internal control systems must be in place to both reduce the likelihood of resources being misappropriated and detect financial irregularities in a timely fashion.

Participating on the board of a nonprofit organization differs from serving on the board of a publicly traded company because the nonprofit board member has no personal financial interest in the organization. If a publicly traded company performs poorly, board members have a vested interest in holding management accountable. As a result, management of publicly traded companies will work diligently to maintain efficiency, profitability, and stock value at the risk of losing their jobs.

Since the nonprofit board member has no financial interest at risk in the organization, he or she may not be motivated to thoroughly question management regarding the financial performance of the organization. Board members of smaller nonprofits may not be educated with respect to financial reporting matters and as a consequence may not feel comfortable asking financial questions at board meetings.

If you are currently a board member of a nonprofit organization with limited exposure to financial reporting, how would you know if the organization is at risk for experiencing financial irregularities (Fraud)? The following conditions are indicators that an organization’s accounting systems may be lacking sufficient internal controls to prevent or detect financial irregularities:

•     Organization is still using a manual bookkeeping system (inefficient and prone to clerical errors)
•     There are numerous bank accounts and transfers between these accounts
•     Financial statement reporting is not timely
•     Financial statements contain obvious errors, such as negative or excessive balances in payroll tax accruals
•     Inquiries regarding financial statement issues seldom are resolved
•     Motions are made to accept financial statements as submitted without any discussion
•     Bank overdraft fees, late fees and/or penalties appear on the profit and loss statements
•     Assessments of internal controls by independent CPA are never performed
•     Financial statements are overly confusing or contains either too much or too little detail
•     Management is quick to make excuses for the condition of the financial reporting system (software problems, under staffed, etc.)
•     A current accounting procedures manual does not exist
•     One individual in the organization has control over most of the financial reporting functions
•     Accounting staff have little or no formal accounting training
•     The finance manager has authority to sign checks
•     Management owns a company that provides services to the organization

As a nonprofit board member, you have every right to respectfully ask questions of management regarding the condition of the financial reporting system. If you are not sure if any of the aforementioned conditions exist, ask!

Conversely, evidence that the financial reporting systems and internal controls are in place and/or operating properly include:

•     Internally-prepared financial statements are presented in a timely manner
•     Financial statements are provided to board members prior to board meetings early enough to allow adequate time to review and note questions
•     Accounting procedures manual has been adopted
•     Internal financial statements appear to be free from obvious clerical mistakes
•     Requests for additional financial information are provided in a timely manner
•     All bank accounts were reconciled within 30 days of month end
•     All accounting staff have proper training and education
•     Proper segregation of duties exist for all accounting functions
•     Outside CPA attends annual board meeting to discuss pending issues affecting nonprofit organizations, status of tax filings, and provide an independent overview of the financial condition of the nonprofit

If annual audits are required:

•     Audits are completed within 12 months of year end
•     Audit reports are “unqualified”
•     No reportable conditions on internal controls are noted during audits

Nonprofit embezzlement is common but seldom reported for fear of damage to the nonprofit’s reputation and the potential decline in donations.

Remember, only trustworthy employees steal from nonprofits.

Unscrupulous individuals never get hired in the first place.

Eligible individuals will receive an income tax credit for two years (tax years beginning in 2009 and 2010). The new credit, like other tax credits, will reduce a person's tax liability on a dollar-for-dollar basis. Wage earners who don't earn enough to pay income taxes will be able to claim the difference as a tax refund. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. These changes may result in an increase in the amount of take-home pay. The amount of the credit will be reported on the 2009 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return filed in 2010.

The new credit is the lesser of (1) 6.2% of an individual's earned income or (2) $400 ($800 in the case of a joint return). In other words, for individuals with earned income above roughly $6,451 ($12,902 for couples), the credit maxes out at $400 ($800 for couples). For the last half of 2009, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. That reduction goes down to about $7.70 per week next year.

Nonresident aliens do not qualify for this credit. Neither do estates, trusts, or individuals who can be claimed as a dependent on someone else's return.

The credit is available in full only if AGI (adjusted gross income, with some modifications for highly specialized income) doesn't exceed $75,000 for an individual ($150,000 if you file a joint return). The credit is phased out at a rate of 2% of the eligible individual's AGI above $75,000 ($150,000 in the case of a joint return). So no credit is allowed for individuals with AGI of $100,000 or more, or for joint filers with AGI of $200,000 or more.

Unlike the $600 per worker lump-sum rebates issued last year, the credit can be received as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return.

Self-employed taxpayers can claim the “Making Work Pay” credit on their 2009 return filed in 2010. Self-employed individuals should evaluate their expected income tax liability and determine whether they want to make any adjustments in their estimated tax payments.

Here are a few things the IRS wants you to know about recordkeeping.

Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.

Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Other records to support deductions or credits you claim on your return

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records

If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks