Significant tax consequences result from the classification of a worker as an employee or independent contractor. These consequences relate to withholding and employment tax requirements, as well as the ability to exclude certain types of compensation from income or take tax deductions for certain expenses. Some consequences favor employee status, while others favor independent contractor status. For example, an employee may exclude from gross income employer-provided benefits such as pension, health, and group-term life insurance benefits. On the other hand, an independent contractor can establish his or her own pension plan and deduct contributions to the plan. An independent contractor also has greater ability to deduct work related expenses.
Under present law, the determination of whether a worker is an employee or an independent contractor is generally made under a facts and circumstances test that seeks to determine whether the worker is subject to the control of the service recipient, not only as to the nature of the work performed, but the circumstances under which it is performed. Under a special safe harbor rule (sec. 530 of the Revenue Act of 1978), a service recipient may treat a worker as an independent contractor for employment tax purposes even though the worker is in fact an employee if the service recipient has a reasonable basis for treating the worker as an independent contractor and certain other requirements are met. In some cases, the treatment of a worker as an employee or independent contractor is specified by statute.
Significant tax consequences also result if a worker was misclassified and is subsequently reclassified, e.g., as a result of an audit. For the service recipient, such consequences may include liability for withholding taxes for a number of years, interest and penalties, and potential disqualification of employee benefit plans. For the worker, such consequences may include liability for self-employment taxes and denial of certain business-related deductions.
Eliminating unnecessary expenses can be one of the fastest ways to add profits to the bottom line. This is because while only a percentage of any additional sales is available to increase the bottom line, depending on the direct costs of the services or products you sell, every dollar of any reduction or elimination of an expense goes right to the bottom-line — increasing profits.
For example, if you sell an additional
product for $100.00 and have a margin of 50%, then $50.00 is the most that can
go to the bottom line. But reduce your monthly bills by $100.00 and $100.00
goes to the bottom-line month after month.
5 things you can do to increase your bottom line.
1) Review your bank and credit card statements to
ensure there are no recurring payments for services you are no longer using.
2) Review the fees being charged by your business
account; if they seem out of line check with your bank on ways to reduce your
bank charges. If your bank will not work with you shop other banks.
3) Review credit card processing fees and other
charges. Are you paying to rent a credit card processing terminal you
could easily buy for a fraction on the annual rent you are paying?
4) Eliminate unnecessary overtime. Getting on top of
your payroll and employee hours worked to ensure that unnecessarily clocking in
early and out late don’t result in a few hours of overtime each week.
5) Review pricing of your products or services. Small
increases can often have large results as the additional revenue feeds right in
to the bottom line.
finding additional way to increase your profitability? We can help, just give
us a call.
It has happened again; I got a call from someone that wanted to know if we could get their S-Corporate return done by Monday, as the “person I have been working with just stopped returning my calls and emails.” When I asked if they went by the person’s office to ask what was going on, they said: “as far as I know they, don’t have an office, and the only time I met them it was at Denny’s.”
It’s never a good idea to do business
with an accountant, or any other business, that does not have or will not tell
you where their business office is located. This sounds like another case of somebody
doing accounting and tax work while they are looking for a job, and leaving
their clients high and dry when that job comes along.
This “cheap” tax return is now going to
cost a lot more – as it’s a rush job, that is, IF we can get all the
information, and complete it by close of business on Monday.
Don’t be fooled into using an accountant
that has no office so he comes to you and works out of his home or a PO box, in
the end, cheap services always end up costing more than using a true
The state of
Illinois signed SB 1515 into law on August
26, 2019. It repeals the previous law pertaining to state individual income tax
withholding requirements for out-of-state residents. Now, nonresidents who spend
30 days or more working in Illinois during the calendar year are considered to
have been compensated in the state and are subject to Illinois income tax.
requires employers with nonresident employees working in the state to:
Maintain record of the number of days worked in-state
by their nonresident employees, or
Have the nonresident employees submit a written
statement that includes the number of days that they reasonably expect to
spend working in the state during the year.
This law will be applicable to tax years
ending on or after December 31, 2020.
United States Tax Court ruled in the case of Denise Celeste McMillan v. Commissioner of Internal Revenue on August 26, 2019. That her horse business no longer existed with the death of her last horse. Ms. McMillan challenged the IRS on disallowing her deductions for her horse showing/breeding business. Ms. McMillan was self-employed, both as a horse breeder and trainer and as an independent IT professional. During the 2010 tax year, she claimed a deduction for her horse business, which functionally no longer existed due to the death of her last horse. Proving that not only can you not beat a dead horse but also that a horse business lives and dies with the horses.
For the complete decision see T.C. Memo.
Question: “Does it make sense to convert my IRA to a ROTH IRA?”
Answer: We need a lot more information to answer that question. The answer will depend on your marginal projected tax rate for the year, along with your projected marginal tax rate at retirement. It also depends on how long you project between conversion and beginning withdrawals. While Roth IRAs can be a great choice, the conversion should not be done without fully understanding the tax ramification and what your plans and needs will be for the money in the account. If you know that you will be in a low tax bracket this year due to being out of work or having deductible business losses it can make a lot of sense to convert some or all or your IRA to a Roth IRA. Just how much to convert depends on your projected income and how much you can get in at the projected lower marginal rate.
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