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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Todd Koch
April - May 2012

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Plan ahead to comply with hot-button tax issues this year

Everyone is looking for more income, including Uncle Sam. In each budget cycle since 2003, the Minnesota Legislature has included money to hire additional auditors and has assigned collections targets for those auditors. In 2011, these additional audit compliance efforts in Minnesota provided the state with $12.5 million beyond its expected target of $26.8 million.

Much of the additional tax collection results from closer computer scrutiny of documentation from employers and financial entities compared with claims on individual and business returns. If the numbers don’t match up, a letter goes out and it’s up to the taxpayers to prove their claims.

A letter doesn’t mean your individual or business tax reporting is wrong, but it will require some investigation on your part to learn exactly what the tax authority is asking and how you should respond. Review of past returns can go back as far as seven years from the current tax year.

Following are some high-priority audit areas for the state. Plan ahead this year to avoid or reduce your risk for a belated tax inquiry. 

1. Inquiries by industry

Contractors, car dealerships and boat dealers have experienced increased scrutiny on tax compliance, and this year it’s someone else’s turn.

Based on analysis of data reported by businesses, the Minnesota Department of Revenue will focus its 2012 audit attention on compliance in the following industries: catering, health stores, hotels and motels, and sports vehicle dealers.

The Minnesota Department of Revenue will likely focus on sales and use tax compliance as this area generates significant dollars. Companies must ensure they pay proper sales and use tax in Minnesota, but also in other states where they procure or purchase goods. Likewise, they need to properly report sales and use tax collection on a sales and use tax return.

2. Sales and use tax reporting

Sales and use tax issues are often as complicated as income tax issues. Even a small error can beget a large problem if the small error is repeated frequently throughout the business.

For example, if you fail to charge sales tax on a single cup of coffee and undercharge a customer 15 cents, this is not much of a problem. If you sell 500 cups of coffee a day over a 3-and-a-half-year audit, the individual 15 cents adds up to more than $100,000.

Even if a vendor does not properly charge sales and use tax, the purchaser is still liable for paying it as use tax. It’s important for the business owner to note whether the vendor – especially an online vendor – is properly charging tax for the state or local jurisdiction. If not, make sure to report it properly on your business’s income return. If a vendor did charge you tax, retain the documentation that shows you paid it. Without documentation, an audit may specify that you pay the tax again. 

The same is true for businesses that sell goods in other local and state jurisdictions. Make sure to properly calculate the sales and use tax for the customer and report the collection on that state’s sales and use tax return.

3. 1099 compliance

If you hire service providers or outsource to subcontractors, careful documentation and filing of 1099 forms are important to show the income you paid them. If you did not file a 1099 form by the end of February for the 2011 tax year, doing so now will result in a lower penalty than if you wait for the IRS to catch it.

Although business owners are not obligated to file a 1099-MISC form for any payment less than $600 to a contractor or other service provider, it’s better to be safe than sorry. Plus, if you did not receive a 1099 form for income as a service provider, you must still report all of your income. 

4. Residency issues

For business owners no longer dependent on a brick and mortar location, their “headquarters” can change with the weather.

A business owner who spends six months in one location and six months in another can prompt questions about which state is owed revenue. Honesty is the best policy, given that tax authorities can track everything from credit card transactions to fishing licenses to compare stated residency with reality. Talk to your CPA about how to properly file returns if your lifestyle includes more than one state.

These are just some of the ways that tax authorities are comparing notes and using computerized methods to make sure every taxpayer pays his or her share. If a pound of prevention is still worth an ounce of cure, then make 2012 your year to get organized in tax planning and reporting. 

5. More audit red flags

According to a survey of members by the Minnesota Society of Certified Public Accountants, these activities can also put you at greater risk for tax inquiries. For more information, contact your CPA or visit www.mncpa.org.

Lack of documentation, especially with charitable deductions, business transactions, business travel and entertainment.

Mishandling credits, deductions and depreciation. There is often confusion about whether to expense or capitalize the purchase of a business asset.

Co-mingling expenses. CPAs still find that business owners are running personal expenses through a business and calling it a business expense, whether for travel, meals, mileage, office space, club memberships or a variety of other deductions.

Misclassification of workers. Business owners will continue to face scrutiny on how they classify employees and contractors and their resulting pay, benefits, taxes paid and withholdings.

Not separately tracking credit card transactions. You get a grace period through 2011, but 2012 should be the year for separately tracking credit card transactions for reporting on Form 1099-K.