Certified Public Accountants
Tacoma Mall Office Building
4301 South Pine Street, Suite #241
Tacoma, Washington 98409-7205
David S. Nelson, CPA
PHONE: 253-752-9522
FAX: 253-276-0144
Edition 0204-1
February, 2004

A Message From Nelson & Company, P.S., CPAs

Q: I am starting my own business this year. Any tips for a newcomer?
A: This column doesn't permit space enough for all the advice I would like to give anyone starting in business. Here are a few basic tips:
  1. Write a good business plan. If you don't know how, take a class before you invest a nickel.
  2. Check the competition. This should be the primary part of your basic marketing research.
  3. Secure adequate capital. Under-capitalization is the major cause of failure.
  4. Once you start your business, run it by the numbers. Make sure you have a good record-keeping system that provides you current and accurate data. This is the only way you will know if you are meeting your goals.
  5. Be prepared to work at least 60 hours a week and prepare your family for the long hours that are required to be successful in business today.
  The number of self-employed individuals is rising at a staggering rate. From 1995 to today, the United States has gone from 11,000,000 businesses to over 24,000,000. This pace will continue because of out-sourcing by major corporations. By 2008, one in every three Americans will be self-employed.

The IRS raised the limit for Social Security from $87,000 to $87,900. This is the smallest increase since the new system went into effect. There is still no limit on the amount of Medicare tax on wages. The rates remain the same: 6.2% for Social Security and 1.45% for Medicare.

Federal Unemployment remains at the $7,000 wage limit and a tax rate of .08%. However, the IRS has changed the deposit requirements. There are no deposit requirements if the tax liability is under $2,500 for a year. Therefore, you can file Form 940 and pay the tax due as of January 31 and incur no penalty.

Employment Security/State Unemployment has changed drastically. The wage limit has gone from $29,700 to $30,200. The administrative fund rate remained the same at .3%. Because of the way the department calculates the rate, you might find your rate actually rising with little or no additional claim. The major changes will be how the department figures benefits. Benefit amounts should be reduced since they will be calculating over additional quarters.

After several hearings, Labor and Industries had an across the board increase of 9.8%. This is an average and increases will vary by industry. You should check your experience rating and if you haven't had any recent claims, make sure that you get the 10% adjustment.

Effective January 1, 2004, the minimum wage for the State of Washington was raised to $7.16 an hour. Isn't it wonderful we now have the highest minimum wage in the United States?

There have been almost no changes regarding the Department of Revenue Excise Tax Reports. However, you should always make sure your sales are in the right category for excise tax. For sales tax, be certain you are reporting only the sales that you're required to pay tax on. The department E-File system is easy to use and we now recommend all clients to use it. You can still mail a don't have to pay electronically.

Certified Public Accountants

Inside This Issue....


Four people from the Fresno, Calif., area have been indicted for allegedly creating a scheme to collect false tax refund checks.

Jaime Sierra Torres, 32; Virginia Ramos, 47; Ramos' sister, Oralia Barajas de Torres, 50; and Barajas de Torres' son, Jose Barajas Torres, 27, allegedly filed income tax returns that listed employers who did not employ the alleged wage earner and then claimed wages that would make the wage earner eligible for a tax refund.

The four defendants used their home addresses and post office boxes to receive the fraudulent refund checks, which the defendants then cashed at various check-cashing establishments throughout California's Central Valley. If convicted, the defendants each face up to 10 years in prison and a fine of up to $250,000.

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Smuggler, Tax Shelter Operator Convicted

A South Florida man accused of smuggling into the United States ozone-depleting refrigerant chemicals known as Freon and hiding the income in tax shelters has been convicted of tax evasion and money laundering.

Marc M. Harris was found guilty on 14 counts in all. Trial evidence showed that Harris conspired to evade federal excise taxes on the sale of Freon to customers in South Florida by filing phony paperwork to hide sales of illegally imported Freon. Harris then used shell corporations and bank accounts to hide the income, resulting in a tax loss of approximately $6.2 million between January 1993 and June 1994. In some cases, Harris laundered money through wire transfers to Panamanian corporations and bank accounts.

Harris faces up to five years in prison for each of the two tax charges and up to 20 years in prison for each of the 12 money laundering charges.

NJ Restaurateurs Admit Tax Evasion

The former principals and shareholders of two New Jersey restaurants called Company B's admitted in court to attempting to evade $835,800 in payroll and sales taxes from 1993 to 2000.

Christopher T. Bruton, 44, of Suffern, N.Y., and Leon Badick, 40, of Congers, NY, underreported the total salary and wages paid to the employees by approximately $2.8 million in order to evade approximately $477,407 in payroll taxes, according to information filed with the court. The restaurateurs also concealed $358,397 in collected sales taxes.

Each faces up to five years in prison and a $250,000 fine.


Question:     I have my own business, and I do my own taxes. It's a one-man operation, but I make a good living. I also like to have complete control over the business. That's why I do my own taxes, I guess. Wasn't that a mistake! I got some advice online, read a few books, and made a number of write-offs on last year's return. That resulted in an IRS audit. Now the government says I owe $25,000 in back taxes. I can't pay that tomorrow. What can I do?

Answer:     You're not the first person I've talked to who has suffered this fate. Small-business owners who do their own taxes often research write-offs to reduce the amount owed. They sometimes get bad information and often become overzealous and write off expenses that aren't allowed by law. That can raise red flags and result in audits, such as the one you received.

From your question, it sounds like you do have the financial resources to pay the $25,000 tax bill, even though you do not have the immediate cash available. For this reason, your best action would be to consult with a qualified tax professional about hammering out an agreement with the IRS that would allow you to make installments.

IRS agents realize that few people have large sums of liquid capital available. How many people can cut a check for $25,000 on command? Not many. That's why the IRS provides installment plans. For qualifying taxpayers, the IRS allows debtors to pay a small monthly amount over a set period of time. It's similar to the way you pay your mortgage or car loan.

Keep in mind, however, that the $25,000 figure may not be accurate. You may actually owe much less. A qualified tax professional will analyze your previous tax return, expenses and receipts to find the exact amount owed. This could be thousands of dollars below what you currently think you owe. Following that process, your tax professional can discuss an installment plan with the IRS.

I solve problems such as yours every day. That's what I do: I'm an IRS Problem Solver. I encourage you to call our office at 253-752-9522 or send me an E-mail at for a free, no-risk consultation. There IS a solution for your IRS problem. Call us today!

David S. Nelson, C.P.A.
Certified Public Accountants

Tacoma Mall Office Building
4301 South Pine Street, Suite #241
Tacoma, Washington 98409-7205
Phone: 253-752-9522
FAX: 253-276-0144