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University of Mississippi eGrove Newsletters American Institute of Certified Public Accountants (AICPA) Historical Collection 1-1999 CPA Client Bulletin, January 1999 American Institute of Certified Public Accountants (AICPA) Follow this and additional works at: https://egrove.olemiss.edu/aicpa_news  Part of the Accounting Commons, and the Taxation Commons t PAJANUARY 1999Business & Tax Planning Ideas for Our Clients and FriendsDon't Wait Any Longer—Plan Now for Year 2000 ProblemsBy this time, you have heard and read endless stories about the year 2000 problem (also known as the y2k problem). This prob­lem can occur in computer pro­grams where the year has been entered as two digits instead of four, e.g., '98 instead of 1998. Computers and any mechanism with a computer chip with a two- digit year field in its memory will read the year 2000 as the year "00." The result will most likely be that the program will go to its "default" setting, and depending on the program, this may cause no problems or some large ones. The y2k problem will not only affect personal computers, but any software application with a two-digit year field instead of four-digit field. This may include accounting software, computer operating systems, programs that run VCRs, time-controlled vaults, and hundreds of other types of date-dependent electronic equip­ment and programs.IN THIS ISSUEDon't Wait Any Longer—Plan Now for Year 2000 Problems PP. 1,2,3Other Tips for the Year 2000 P.2Tax Issues and Y2K P. 3More Business Provisions from the 1998 IRS Restructuring and Reform Act P.3Hotel Crime Prevention P. 3New Year's Resolution: Review Important Personal Documents P. 4Tax Calendar P. 4WISHING OUR CLIENTS AND FRIENDS ALL THE BEST IN 1999.It's not just computers that are affectedHopefully, you have already ensured that your personal and business computer sys­tems are compliant, and that you have back­up plans in case they are not. But you may not have considered other areas of your busi­ness or personal life that may also be affect­ed. It may be these "small things" that could have a big impact on your daily duties and activities. For example, if you are in an office building, check with the landlord or man­agement company to see if the building sys­tems, such as security systems, are compli­ant. If a security door is not compliant, its default setting may be "unlocked"—a possi­ble security hazard for your business. Other building systems could also be affected, and could cause nuisances. These include eleva­tors, heating and air conditioning systems, sprinkler systems, and anything with auto­matic sensors, such as lights.Other areas to look into are telephone systems and utilities. Almost every company has a telephone/voice mail system, and all should be checked to make sure they are y2k-compliant. If the system is not correct­ed, it could put out the wrong message on the wrong day. For a small business that is dependent on phone orders, this is a major problem; billing details could be erroneous, and date-stamped messages in voice mail could also be incorrectly recorded. To find out if your phone system is compliant, call your vendor or look on its Internet page. If your system requires a fix, install it as early as possible and test it to make sure it works with next-century dates.Miscellaneous hardware devicesThe y2k problem may also affect many other continued on page 2JANUARY 1999 CPA Client BulletinOTHER TIPS FOR THE YEAR 2000Medical equipmentHospitals, nursing homes, home health agencies, and physicians' offices all need to be aware that some medical equipment may have a y2k problem. For example, some medical devices and equip­ment have internal clocks track­ing the time since the last mainte­nance. If the maintenance is not done in time, the equipment may stop functioning. The greatest risk involves medical equipment that is old and still in use. The best way to find out is either to test the equipment, or contact the manufacturer or vendor and question them about compliance.Paper checksAlthough paper checks don't have a y2k problem, you may want to make sure that any new checks you order no longer have "19" (e.g., 19_____ ) prefacingthe area where the date is writ­ten on the check.continued from page 1devices, such as personal digital assistants (PDAs) or sophisticated calculators. All of these should be checked for compliance. Other handheld devices, such as ones used for inventory control or point-of-sale ordering, must be considered as well. One large area of concern for credit card com­panies are the credit card readers used by most retail vendors; many are not compli­ant, and should be tested. When credit card companies began issuing new cards with a "00" expiration date a few years ago, many card readers were found to be non- y2k-compliant. The best way to check all of these devices is to contact the manufactur­er or visit the Web site and search for y2k instructions. Other business equipment that should be reviewed includes copiers and faxes. Although, for most companies, these machines are considered low priority and noncritical, a simple test or phone call to the vendor should answer your compli­ance question.Who do you depend on?What is your bank doing about y2k? Has it told you about its compliance efforts? The size of the bank will determine the type of problems that may occur. A larger bank has more systems that it needs to fix and ensure are properly working, while a small bank may rely on an outside party to process its transactions. If you keep any­thing in a bank vault, make sure the vault is also compliant.Does your local town, county, etc., have emergency plans? Do you know what they are? Are your customers and suppliers com­pliant? Even if your company does not have bugs of its own, it may be affected by the problems of suppliers, customers, busi­ness partners, and others. One way to pro­tect your business is to inquire with your associates about their potential y2k prob­lems and how they are handling them. It will be in both your interests to make con­tingency plans in case there is a temporary loss of data, rush deliveries need to be made, etc. No one can guarantee that they've fixed all y2k problems until the day actually arrives, so it is best to be prepared for anything.Don't correct a failing systemY2k should not be looked at as just a prob­lem, but also an opportunity. Suppose you installed a software inventory system seven years ago that was to clean up your inven­tory woes, but ended up giving you more problems than it solved. Now, in addition, it has a y2k problem. Instead of trying to fix a system that doesn't work for you, per­haps the y2k issue is the reason to spur you to change systems. Any new or updated software program should guarantee that it has no y2k issues. You can then concen­trate on things that will truly help your business, such as better inventory tracking, faster order fulfillment, etc.Where to go for helpGeneral information and help can be found on the Internet; free software (called freeware) is available to help run tests. To get such software, search for the following programs on the Internet (key word: free­ware): DOSCHK, 2000Test, 2000Fix, and Year2000.For business issues, more specific help can be found on the IRS's and the Small Business Administration's (SBA) Web sites. Both of these agencies are making many resources available to small busi­nesses that want help with computer con­versions. The IRS sent out a special, detailed notice to more than 6 million small businesses in its last issue of the Social Security Administration's IRS Reporter. The IRS also has a link to the SBA home page; the SBA allows taxpayers to go to a virtual classroom and go throughJANUARY 1999the compliance process step-by-step. In addition, through the SBA, small busi­nesses can get guaranteed government loans to help with the cost of transition, and considers these loans financing forTax Issues and Y2KDeducting costsWhat if you have a year 2000 problem in your business and you incur costs fix­ing it: How do treat them for tax pur­poses? Currently, the tax law allows you to deduct most software development costs. However, not all costs involved in fixing the problem will be connected to software development. Some will be related to hardware, labor, and consult­ing, which may be more difficult to clas­sify. Some could be considered replace­ment costs, for example, replacing a computer chip. However, if you have to replace an entire system, the IRS may consider it as part of a renovation plan, and require the company to capitalize and amortize the costs.The year 2000 problem presents a wide range of issues in a company, including tax, professional liability, and operations issues that need to be ana­lyzed and addressed before December 31, 1999. For tax purposes, make sure any fixes to your computer system are well documented and properly charac­terized.1999 tax season at the IRSExtra care should be taken when send­ing anything to the IRS next year. IRS Commissioner Rossotti says he doesn't expect a meltdown at the IRS due to year 2000 problems, but he is concerned about "localized" problem areas. Therefore, businesses should be espe­cially careful when sending tax-related data and funds to the agency next year. Businesses should also sit down now with IRS personnel and review potential problem areas, and should be very vigi­lant and ensure that information and funds are being recorded properly and credited to the correct account. Individual taxpayers should send their returns and correspondence to the IRS by registered or certified mail, return­receipt requested, as evidence of mail­ing.an ordinary cost of business. (The SBA Web site can be accessed at HYPERLINK http://www.sba.gov . The IRS site is at http://www.irs.treas.gov.)More Business Provisions from the 1998 IRSRestructuring and Reform ActLast year's IRS Restructuring and Reform Act (the "Act") not only laid out a new framework for the IRS, it also contained many tax provisions for individuals and for businesses. Below are some of the business highlights from this important legislation.Deduction for vacation and severance pay Generally, an accrual-basis taxpayer is able to deduct compensation in the year it accrued, such as vacation or severance pay, if the compensation is paid within the first 2 ½ months of the following year. The Act specifically provides, however, that the accrued compensation is deductible only if the amount is actually received by the employee within the first 2 months of the succeeding year.Deduction of unused employer Social Security creditFor owners of food and beverage estab­lishments, there is a newly created deduc­tion of the general business credit relating to some portion of an employee's tips. This deduction will occur when the car­ryforward period expires and the employ­ers' Social Security credit remains unused. This is effective retroactively for tax years beginning after August 10, 1993.AMT exemption for small corporationsFor tax years beginning after December 31, 1997, a small corporation is exempted from corporate alternative minimum tax (AMT). If a corporation's first year of exis­tence is after 1997, the corporation gener­ally qualifies for its first year for the AMT small corporation exemption. (There are a few exceptions that apply, such as to a con­trolled group or successor entity.) The IRS determines that a corporation qualifies as a "small corporation" by applying a gross receipts test between $5,000,000 and $7,500,000. Once a corporation fails the gross receipts test, the corporation can never again qualify as a small corporation.HOTEL CRIME: PREVENTION IS THEBEST MEDICINEAlthough most hotels take many security measures to ensure the safe­ty of their guests, guests themselves should take certain steps to avoid becoming a crime victim in a hotel.Making a reservation. When reserv­ing the room, ask what type of lock the room has. Room locks that are operated by traditional metal keys are the most vulnerable. Why? Guests often forget to turn in room keys, and the lock might not get changed until several keys are missing. The best type of hotel key is the magnetic card. The strip allows the code to be auto­matically reprogrammed every time a guest checks out. Next safest is the punch card style key card. This type of card can also be reprogrammed if it is not returned.Hotel lobby. Hotel lobbies are busy areas and impossible to keep com­pletely secure. Always keep brief­cases and laptop computers on the counter or between your legs and the counter.Room location. Request a room near the elevator, between the fifth and eighth floors. Rooms on lower floors are more at risk for break-ins. Above the eighth floor may be risky as well, since not all local fire departments have ladders than can reach above that height. A room near an elevator ensures that there is greater foot traf­fic near the room, preventing an intruder from going into your room unnoticed, and makes it more likely that a shout for help will be heard. Rooms at the ends of halls have less traffic, and are usually located near the stairs, making it easier for an intruder to escape.Safe deposit box. The only type of room safe deposit box that is truly safe is the one that allows guests to program their own combination. If it needs a key, you are better off using the safe deposit boxes at the front desk.3JANUARY 1999New Year's Resolution: Review Important Personal DocumentsJust as you get your car inspected every year and do yearly mainte­nance on your home, you should also do yearly maintenance on your financial plans and your will and other documents that name bene­ficiaries. Such documents include your IRAs, life insurance, pension plan, mutual finds, and bank accounts. Over the years, you may forget whom you have designated for what. To avoid costly mistakes, make sure these documents reflect your current wishes. By doing this, you will also become up-to-date on where your current finances stand.After doing this, you may find that you need to do some financial and tax planning. Ask yourself: Do I have enough life insurance? Do I put enough away into my IRAs and 401(k)s? Are my investments diversified? These are not just one­time questions, but issues that should be reviewed regularly and updated as needed. Don't put it off knowing that a review might raise new issues. Fine tuning a little bit each year is easier than trying to revise an entire financial plan all at once. Checking beneficiaries is a good first step to keeping your per­sonal, financial, and other long­term plans up-to-date.Tax CalendarJANUARYJanuary 4Employers. Stop advance payments of the earned income credit for any employee who did not give you a new Form W-5 for 1999. Make sure you give your employees their copies of Form W- 2 for 1998 before February 1.January 11Employees who work for tips. If you received $20 or more in tips during December, report them to your employer.January 15Individuals. Make a payment of your estimated tax for 1998 if you did not pay your income tax for the year through withholding (or did not pay enough that way). This is the final installment date for 1998 estimated tax. However, you don't have to make this payment if you file your 1998 return and pay any tax due by January 31, 1999.Farmers and fishermen. Pay your estimated tax for 1998. You have until April 15 to file your 1998 income tax return. If you don't pay your estimated tax by this date, you must file your 1998 return and pay any tax due by March 1, 1999, to avoid an estimated tax penalty.Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in December 1998 if the monthly deposit rule applies.FEBRUARYFebruary 1Individuals. File your income tax return for 1998 if you did not pay your last installment of esti­mated tax by January 15. Filing your return and paying any tax due by this date prevents any penalty for late payment of the last installmentAll businesses. Give annual information statements to recipients of certain payments you made during 1998. Payments that are covered include: 1) compensation for workers who are not con­sidered employees, 2) dividends and other corporate distributions, 3) interest, 4) amounts paid in real estate transactions, 5) rent, 6) royalties, 7) amounts paid in broker and barter exchange trans­actions, 8) payments to attorneys, 9) profit-sharing distributions, 10) retirement plan distributions, 11) original issue discount, 12) prizes and awards, 13) medical and health care payments, 14) debt cancellation (treated as payment to debtor), and 15) cash payments over $10,000.All employers. For nonpayroll taxes, File Form 945 to report income tax withheld for 1998 on all non-payroll items, including backup withholding and withholding on pensions, annuities, and gambling winnings.February 10Employees who work for tips. If you received $20 or more in tips during January, report them to your employer.February 16Individuals. If you claimed an exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year.The CPA. Never Underestimate The Value.The CPA Client Bulletin is prepared monthly by the staff of the AICPA for the clients of its members. The Bulletin does not have any official author­ity and the information therein should not be acted upon without professional advice. Copyright © 1999, American Institute of Certified PublicAccountants, Inc., Harborside Financial Center, 201 Plaza Three, Jersey City, N.J. 07311-3881. Printed in the U.S.A. Maria Luzarraga Albanese, Editor.4 

CPA Client Bulletin, January 1999

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CPA Client Bulletin, January 1999

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