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in Small Business Tax

Automatic 401(k) enrollment earns government boost. How do new hires sign up for your 401(k) plan? At more companies, 401(k) enrollment is becoming automatic; a certain percentage of new employees' wages (typically 3 percent) are routed to their 401(k) plan unless they opt out. Last month, the U.S. Treasury Department gave you more flexibility with such automatic enrollment rules. Treasury guidance says companies can set a higher or lower contribution limit (other than the 3 percent cited in an earlier ruling). Plus, companies can automatically increase the contribution percentage over time. For details, visit www.americanbenefitscouncil.org/documents/irs_letter_automaticenrollment.pdf.

Don't try to play games with stock option income. Why? The IRS is taking dead aim at taxpayers who don't properly report it. Specifically, some taxpayers aren't reporting the "bargain element" of incentive stock options in alternative minimum tax (AMT) income. Or they're reporting taxable income at the grant date rather than the exercise date. Failure to comply with the rules can lead to stiff tax penalties. (IRS Notice 2004-28)

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