Employee vs. Independent Contractor: How Should You Handle Worker Classification?

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Many employers prefer to classify workers as independent contractors to lower costs, even if it means having less control over a worker’s day-to-day activities. But the government is on the lookout for businesses that classify workers as independent contractors simply to reduce taxes or avoid their employee benefit obligations.

Why it matters

When your business classifies a worker as an employee, you generally must withhold federal income tax and the employee’s share of Social Security and Medicare taxes from his or her wages. Your business must then pay the employer’s share of these taxes, pay federal unemployment tax, file federal payroll tax returns and follow other burdensome IRS and U.S. Department of Labor rules.

You may also have to pay state and local unemployment and workers’ compensation taxes and comply with more rules. Dealing with all this can cost a bundle each year.

On the other hand, with independent contractor status, you don’t […]

By |May 2nd, 2019|employer, irs, tax|0 Comments

Disaster Relief Continues for Certain Californians

Disaster relief continues for certain Californians. The CA Franchise Tax Board has updated its Disaster Loss webpage, for victims of storms and fires that plagued the state in recent months. The updated list now includes many CA counties that suffered storm damage in 2019, and several counties which suffered wildfires in late 2018. Taxpayers directly affected by federally declared disasters may be eligible for tax relief, including extensions of time to file and pay taxes until 4/30/19. If you have questions, please contact your Linkenheimer CPA. Here’s the full list and more information: https://bit.ly/298JVSt 

By |April 11th, 2019|disaster, tax, tax planning|0 Comments

Understanding How Taxes Factor into an M&A Transaction

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Merger and acquisition activity has been brisk in recent years. If your business is considering merging with or acquiring another business, it’s important to understand how the transaction will be taxed under current law.

Stocks vs. assets

From a tax standpoint, a transaction can basically be structured in two ways:

1. Stock (or ownership interest). A buyer can directly purchase a seller’s ownership interest if the target business is operated as a C or S corporation, a partnership, or a limited liability company (LLC) that’s treated as a partnership for tax purposes.

The now-permanent 21% corporate federal income tax rate under the Tax Cuts and Jobs Act (TCJA) makes buying the stock of a C corporation somewhat more attractive. Reasons: The corporation will pay less tax and generate more after-tax income. Plus, any built-in gains from appreciated corporate assets will be taxed at a lower […]

By |April 2nd, 2019|business, New Tax Laws, tax|0 Comments

The IRS Releases its “Dirty Dozen” List of Top Tax Scams

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The Internal Revenue Service wrapped up issuing its annual “Dirty Dozen” list of tax scams. We want to remind taxpayers to remain vigilant to these often aggressive and evolving schemes throughout the year.

This year’s “Dirty Dozen” list highlights a wide variety of schemes that taxpayers may encounter at any time, although many may peak during tax-filing season. The schemes run the gamut from simple refund inflation scams, fake IRS collection calls to complex tax shelter deals. A common theme throughout all: These scams put all taxpayers at risk.

Here’s the Recap of This Year’s “Dirty Dozen” Scams:

Phishing: Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or tax refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. (IR-2019-26)

Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. […]

By |March 20th, 2019|tax, taxpayer|0 Comments

Fundamental Tax Truths for C Corporations

The flat 21% federal income tax rate for C corporations under the Tax Cuts and Jobs Act (TCJA) has been great news for these entities and their owners. But some fundamental tax truths for C corporations largely remain the same:

C corporations are subject to double taxation. Double taxation occurs when corporate income is taxed once at the corporate level and again at the shareholder level as dividends are paid out. The cost of double taxation, however, is now generally less because of the 21% corporate rate.

And double taxation isn’t a problem when a C corporation needs to retain all its earnings to finance growth and capital investments. Because all the earnings stay “inside” the corporation, no dividends are paid to shareholders, and, therefore, there’s no double taxation.

Double taxation also isn’t an issue when a C corporation’s taxable income levels are low. This can often be achieved by paying reasonable salaries and bonuses to shareholder-employees […]

By |February 4th, 2019|business, New Tax Laws, tax, tax rate|0 Comments

Is There Still Time to Pay 2018 Bonuses and Deduct Them On Your 2018 Return?

There aren’t too many things businesses can do after a year ends to reduce tax liability for that year. However, you might be able to pay employee bonuses for 2018 in 2019 and still deduct them on your 2018 tax return. In certain circumstances, businesses can deduct bonuses employees have earned during a tax year if the bonuses are paid within 2½ months after the end of that year (by March 15 for a calendar-year company).

Basic requirements

First, only accrual-basis taxpayers can take advantage of the 2½ month rule. Cash-basis taxpayers must deduct bonuses in the year they’re paid, regardless of when they’re earned.

Second, even for accrual-basis taxpayers, the 2½ month rule isn’t automatic. The bonuses can be deducted on the tax return for the year they’re earned only if the business’s bonus liability was fixed by the end of the year.

Passing the test

For accrual-basis taxpayers, a liability (such as a bonus) is deductible when it is incurred. To determine this, the IRS applies the “all-events test.” Under this test, a liability is incurred when:

  • All events have occurred that establish the taxpayer’s liability,
  • The amount of the liability can be determined with reasonable accuracy, and
  • Economic performance […]
By |January 8th, 2019|bonus, deduction, employer, tax, tax deadlines|0 Comments

2019 Q1 Tax Calendar: Key Deadlines for Businesses and Other Employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2019. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

  • File 2018 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2018 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
  • File 2018 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2018. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 11 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2018. If your tax liability is less than $2,500, […]
By |December 7th, 2018|business, tax, tax deadlines|0 Comments

Selling Your Business? Defer — and Possibly Reduce — Tax with an Installment Sale

You’ve spent years building your company and now are ready to move on to something else, whether launching a new business, taking advantage of another career opportunity or retiring. Whatever your plans, you want to get the return from your business that you’ve earned from all of the time and money you’ve put into it.

That means not only getting a good price, but also minimizing the tax hit on the proceeds. One option that can help you defer tax and perhaps even reduce it is an installment sale.

Tax benefits

With an installment sale, you don’t receive a lump sum payment when the deal closes. Instead, you receive installment payments over a period of time, spreading the gain over a number of years.

This generally defers tax, because you pay most of the tax liability as you receive the payments. Usually tax deferral is beneficial, but it could be especially beneficial if it would allow […]

By |November 6th, 2018|business, liability, tax, tax implications, tax planning|0 Comments

Tax-Free Fringe Benefits Help Small Businesses and Their Employees

In today’s tightening job market, to attract and retain the best employees, small businesses need to offer not only competitive pay, but also appealing fringe benefits. Benefits that are tax-free are especially attractive to employees. Let’s take a quick look at some popular options.

Insurance

Businesses can provide their employees with various types of insurance on a tax-free basis. Here are some of the most common:

Health insurance. If you maintain a health care plan for employees, coverage under the plan isn’t taxable to them. Employee contributions are excluded from income if pretax coverage is elected under a cafeteria plan. Otherwise, such amounts are included in their wages, but may be deductible on a limited basis as an itemized deduction.

Disability insurance. Your premium payments aren’t included in employees’ income, nor are your contributions to a trust providing disability benefits. Employees’ premium payments (or […]

Some California Taxpayers are Receiving Erroneous Late Notices

Some California taxpayers are receiving erroneous late notices. Taxpayers who reside in federally declared disaster areas have been granted extra time to accomplish state tax-related tasks, such as filing tax returns and paying taxes due. The CA Franchise Tax Board (FTB) has reported that, due to a systemic issue, some taxpayers who qualify for this relief have received notices assessing late-filing penalties. While the FTB works to update its system and address this issue, taxpayers can contact the FTB on its homepage and click live chat: https://bit.ly/2MG3HMz

If you have questions, you can also contact your Linkenheimer CPA.

By |October 2nd, 2018|disaster, ftb, irs, tax|0 Comments