irs - Linkenheimer LLP CPAs & Advisors

Working in the Gig Economy Results in Tax Obligations

Before the COVID-19 pandemic hit, the number of people engaged in the “gig” or sharing economy had been growing, according to several reports. And reductions in working hours during the pandemic have caused even more people to turn to gig work to make up lost income. There are tax consequences for the people who perform these jobs, which include providing car rides, delivering food, walking dogs and providing other services.

Bottom line: If you receive income from freelancing or from one of the online platforms offering goods and services, it’s generally taxable. That’s true even if the income comes from a side job and even if you don’t receive an income statement reporting the amount of money you made.

Basics for gig workers

The IRS considers gig workers as those who are independent contractors and conduct their jobs through online platforms. Examples include Uber, Lyft, Airbnb and DoorDash.

Unlike traditional employees, independent contractors don’t receive benefits associated with employment or employer-sponsored health insurance. They also aren’t covered by the minimum wage or other protections of federal laws and they aren’t part of states’ unemployment insurance systems. In addition, they’re on their own when it comes to […]

By Linkenheimer LLP|2021-05-12T16:54:49+00:00May 12th, 2021|business, covid-19, deduction, deductions, expensing|0 Comments

Help Ensure the IRS Doesn’t Reclassify Independent Contractors as Employees

Many businesses use independent contractors to help keep their costs down. If you’re among them, make sure that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be a costly error.

It can be complex to determine whether a worker is an independent contractor or an employee for federal income and employment tax purposes. If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax. A business may also provide the worker with fringe benefits if it makes them available to other employees. In addition, there may be state tax obligations.

On the other hand, if a worker is an independent contractor, these obligations don’t apply. In that case, the business simply sends the contractor a Form 1099-NEC for the year showing the amount paid (if it’s $600 or more).

What are the factors the IRS considers?

By Linkenheimer LLP|2021-05-12T15:55:30+00:00May 12th, 2021|business, employer, irs|0 Comments

Why it’s Important to Meet the Tax Return Filing and Payment Deadlines

The May 17 deadline for filing your 2020 individual tax return is coming up soon. It’s important to file and pay your tax return on time to avoid penalties imposed by the IRS. Here are the basic rules.

Failure to pay

Separate penalties apply for failing to pay and failing to file. The failure-to-pay penalty is 1/2% for each month (or partial month) the payment is late. For example, if payment is due May 17 and is made June 22, the penalty is 1% (1/2% times 2 months or partial months). The maximum penalty is 25%.

The failure-to-pay penalty is based on the amount shown as due on the return (less credits for amounts paid through withholding or estimated payments), even if the actual tax bill turns out to be higher. On the other hand, if the actual tax bill turns out to be lower, the penalty is based on the lower amount.

For example, […]

By Linkenheimer LLP|2021-04-27T18:06:43+00:00April 27th, 2021|irs, tax deadlines|0 Comments

Know the Ins and Outs of “Reasonable Compensation” for a Corporate Business Owner

Owners of incorporated businesses know that there’s a tax advantage to taking money out of a C corporation as compensation rather than as dividends. The reason: A corporation can deduct the salaries and bonuses that it pays executives, but not dividend payments. Thus, if funds are paid as dividends, they’re taxed twice, once to the corporation and once to the recipient. Money paid out as compensation is only taxed once — to the employee who receives it.

However, there are limits to how much money you can take out of the corporation this way. Under tax law, compensation can be deducted only to the extent that it’s reasonable. Any unreasonable portion isn’t deductible and, if paid to a shareholder, may be taxed as if it were a dividend. Keep in mind that the IRS is generally more interested in unreasonable compensation payments made to someone “related” to a corporation, such as a shareholder-employee or a member of a shareholder’s family.

Determining reasonable compensation

There’s no easy way to determine what’s reasonable. In an audit, the IRS examines the amount that similar companies would pay for comparable services under similar circumstances. Factors that are taken into […]

By Linkenheimer LLP|2021-04-21T17:12:17+00:00April 21st, 2021|business, irs|0 Comments

EIDL Loans, Restaurant Grants Offer Relief to Struggling Small Businesses

The American Rescue Plan Act (ARPA), signed into law in early March, aims at offering widespread financial relief to individuals and employers adversely affected by the COVID-19 pandemic. The law specifically targets small businesses in many of its provisions.

If you own a small company, you may want to explore funding via the Small Business Administration’s (SBA’s) Economic Injury Disaster Loan (EIDL) program. And if you happen to own a restaurant or similar enterprise, the ARPA offers a special type of grant just for you.

EIDL advances

Under the ARPA, eligible small businesses may receive targeted EIDL advances from the SBA. Amounts received as targeted EIDL advances are excluded from the gross income of the person who receives the funds. The law stipulates that no deduction or basis increase will be denied, and no tax attribute will be reduced, because of the ARPA’s gross income exclusion.

In the case of a partnership or S corporation that receives a targeted EIDL advance, any amount of the advance excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because targeted EIDL advances are treated as such, they’ll be allocated to the partners […]

By Linkenheimer LLP|2021-04-01T17:24:25+00:00April 1st, 2021|arpa, restaurant, sba|0 Comments