Will you be ready for the new overtime pay rules?

In May, the Department of Labor updated the rules for paying overtime. Under the new rules, salaried employees who earn less than $913 per week ($47,476 per year) will be eligible for overtime pay. That’s double the annual exempt amount of $23,660 from previous rules. In addition, the total annual pay for an exempt highly compensated employee is $134,004 (up from $100,000 previously). These amounts will be updated automatically every three years beginning in 2020.

The changes take effect December 1, 2016, which means you need to begin reviewing your payroll now, as penalties and fines can be assessed for noncompliance. One important step is to begin tracking hours for your salaried employees. You’ll also want to review your payroll practices so you can determine the best options for your business as you get ready to implement the new rules.

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Are you at risk of an audit?

According to recent statistics, budget cuts, staff attrition, and a heavy workload for IRS employees mean your chances of undergoing a tax audit are less than 1%. Does that sound like a non-event to you? Don’t be lured into a false sense of security. The statistic is a blended rate covering many types of incomes and taxpayers. Here are some of the reasons returns were audited.

  • No adjusted gross income (AGI). For AGI of zero, audit risk jumped to over 5%. The IRS benchmarks AGI because it is total income including losses from businesses and investments.
  • Large adjusted gross incomeAudit risk was nearly 2% for returns with AGI over $200,000. Audit risk climbed to 16% when AGI was $10 million or more.
  • International returns. Due to a focus on offshore tax evasion, the audit rate of international returns was almost 5%.
  • Estate taxes. Approximately 8.5% of estate returns were audited. Gross estates of $10 million or more were tagged with a 27% audit risk.
  • Corporate returns. Small corporations experienced up to a 2% audit risk. The risk for large corporations with assets over $20 billion was 85%.

Be aware that even if you don’t fit into any of these categories, your return may still be selected for audit. That’s one reason it’s essential to keep good records to support all deductions and credits you claim on your tax return for at least three years after filing. Examples of required recordkeeping include:

  • When you deduct expenses for meals and entertainment, the written evidence must show who was in attendance and what business was discussed.
  • A home office deduction must be supported by evidence showing your home office is used regularly and exclusively as the principal place of business.
  • Certain non-business property that you gift, donate, or intend to distribute through your estate requires an appraisal.

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