May, 2010

Withholding Tax for Foreigners

If you’re paying a foreigner, you may be required to withhold up to 30% for US Taxes.

Unfortunately, this area of taxation is complex…I might even call it a mess.

If you’re paying a foreigner for services, the way to report the payment depends on where the income was earned. If the services are performed IN the US, they are *probably* subject to a 30% withholding. If the same services are performed completely OUTSIDE the US, there is *probably* NO withholding requirement, BUT you should have some form of documentation that the person you’ve paid is actually located outside the US. Find Form W-8ECI at and have your payee complete the form. (We could just say everyone we’re paying is outside the US, therefore not subject to the withholding rules, eh?)

You’ll also need to have a set of the W-89BEN and 1042S and 1042 for payment of services to a foreigner if they performed work WITHIN the US (see link below).

For non-services, things like Dividends, rents, interest and royalties, these ARE subject to the withholding rules. This is called FDAP income (this does not include capital gains nor tax exempt muni bond payments). FDAP stands for Fixed or Determinable, Annual or Periodic payments, as opposed to pay for services. When FDAP is paid from US Source activities, you’ll need to get form W-8BEN at and then produce a Form 1042S and send a copy to the payee, plus send a Form 1042 to the IRS. The 1042S and 1042 are roughly equalivalent to the Forms 1099 and 1096 given to non-Foreigners.

The part that gets really complex is that international tax treaties can alter both the kinds of income that are subject to withholding, and the % of any required withholding.

For more information, please see IRS Publication 515 at or call us.

Employer Match for New Employees SS Waived and a $1,000 Credit

According to the new HIRE legislation, if you hire unemployed workers onto your payroll after Feb 3, 2010 and before Jan 1, 2011, you may qualify to NOT PAY the employer match of 6.2% of Social Security taxes. The employee sill needs to have their 6.2% withheld. You’ll still owe the Medicare match of 1.45% and the employee still needs to have their 1.45% withheld.

For each worker you keep on payroll for at least a year, your business may also claim a tax credit up to $1,000 per worker on your 2011 tax return.

This is NEW, and there are some restrictions on it. You can’t fire someone and replace them with a ‘qualified’ worker and get the credit, but if someone leaves voluntarily and is replaced by a ‘qualified’ worker, it is OK.

Qualified Workers have to have been previously unemployed for 60 days before beginning work, or worked fewer than 40 hours for someone else during the 60 day period. Did I mention this is NEW? The IRS is still developing a form to collect the required 60 day statement from the employee.

The credit will be reported/claimed on the second quarter Form 941.

I’ll send details as they become available—they’re still working this out.

The Eightfold Path to Pay Less Tax and Avoid an Audit

Eight basic things business owners want to know printed in booklet form. This is ten years of working with the IRS Tax Code distilled down so it doesn’t take YOU ten years.

Just another way we’re trying to simplify your life. And the purchase is tax deductible!

You can order from Here’s the link to Amazon:

The booklet also contains a sections on how returns are selected for audit, when to seek professional help, and how long to keep your tax records

Classes Balance Sheets, Basis and the S Corp, Intermediate S Corporation, Basic Payroll, Schedule C and Household Employees

Balance Sheets, Basis and the S Corp
Dinner meeting speech for CSATP June 22nd 6-8:30 pm
Francesco's Restaurant, 8529 Pardee Dr, Oakland, CA. See their website for more details, registration and fee to attend. In this event, we’ll look at why balance sheets are necessary and what they tell us (and the IRS) about your clients. We’ll also discuss basis, both inside and outside (the corporation! No al fresco dining!).

Intermediate S Corporation Class will be presented in Alameda in May and Lafayette in July. This is an intermediate class, so we won’t be discussing how to fill out the form. Rather, we’ll be looking at how to quickly solve the most common problems encountered with preparing an 1120S, and what to do now to reduce the likelihood of future problems. July class is limited to 10 participants, so you’ll be able to ask all your questions. We’ll also cover the complex issue of basis and why we care what it is.

“This is the best class on S Corps I’ve ever been to, and I’ve been to a lot.”

Monday, July 19th, 2010 from 10 am to 2 pm – Just added!
July 19th class will be held in the Lafayette Chamber of Commerce Conference Room, 100 Lafayette Circle, Suite 103, Lafayette CA 94549

Monday, May 10th, 2010 from 10 am to 2 pm – sold out.
The May 10th class will be held in the Law Office Conference Room, 1516 Oak Street, Suite 109 in Alameda CA.

Fee to attend is $225, but reduced to $175 for NAEA/CSEA members. CPE credit of 4 hours available for Enrolled Agents who attend, no credit currently available for CTEC, but it’s a good class.

Send me an e-mail if you want to attend for reservation of your spot and directions. Class size is limited. Flyer is on the website at

In conjunction with the IRS and EDD, Andy's going to be doing some Basic Payroll seminars coming up in the near future.

Basic Payroll: Seminar runs 9 am – 3 pm with an hour for lunch

The next seminars will be
Basic Payroll in San Francisco at the SBA office 455 Market Street, 6th floor (I take BART to Embarcadero) 9 am – 3 pm, May 26th and June 23rd.

Basic Payroll in Oakland at Elihu M. Harris State Building,1515 Clay Street, Room 1, Second Floor, 9 am – 3 pm, June 10 and July 8th.

Register by going to and find your favorite location. We’re working on the 2010 schedule, and trying to figure out how I can present this in other states.

These seminars have proven to be very popular, plus they’re free.

How to Prepare your Own Schedule C
Prepare your business taxes for ’09 and get ready for ‘10. Review what the IRS wants to know from you and how to report it on the Schedule C for your business. This is a class for business owners who need a basic understanding of their 1040 Schedule C tax forms. We’ll also talk about what to do with the numbers once you have them. We can’t guarantee you won’t get audited, but this class will make it less likely.

This class will be presented for free in San Jose Wednesday, May 5th 10 am – 12:30 pm at the SBA Entrepreneur Center, downtown, 84 W Santa Clara St, Suite 100, San Jose, but the address may change. Still in San Jose, but the SBA may move.

Andy will be at the US Small Business Administration offices in San Francisco at 455 Market Street, 6th Floor Tuesday May 4th, 6-8:30 pm. This class will be free. To register, check out the SBA website, or just show up.

Household Employees class was very successful and I’m working on finding an additional venue to present this again in 2010. It turns out the EDD is giving their own version of this information June 15th at 10 am in San Jose, but I’m not expecting it to include the federal side…we’ll see! I’ll have another date for my own class set by the next newsletter publication in June. If you want to join me in San Jose June 15th, see the EDD website—I think you may have to call to get a reservation.

I went to a class on QuickBooks given by Kim Woodrum. If you’re in the market for QuickBooks training in a classroom setting, I recommend her. She teaches a two day QuickBooks seminar and travels a great deal. Her website is

For Relaxation and Clear Thinking: On The Spot

To carry you through the stressful tax season, we recommend meditation and that you check out On The Spot Massage at to help you relax. A relaxed mind is a clear thinking mind. We have some discount cards for $5 off at the Alameda Natural Grocery location on Park Street, open daily 11 am 7 pm.

Phone and Fax Numbers

Our northern California physical office is shared commercial space in Alameda. Phone numbers are:
Phone (510) 522-2300
Fax (510) 522-2307
Our mailing address:
3527 Mt. Diablo Blvd #366, Lafayette CA 94549

“The hardest thing in the world to understand is the income tax.” — Albert Einstein, physicist