Worker Classification: Pay Attention

It isn’t easy deciding whether a worker should be treated as an employee or an independent contractor. But the IRS auditors will look at the distinction closely.

Tax Obligations

For an employee, a business generally must withhold income and FICA (Social Security and Medicare) taxes from the employee’s pay and remit those taxes to the government. Additionally, the employer must pay FICA taxes for the employee (currently 7.65% of earnings up to $137,700).*

The business must also pay unemployment taxes for the worker. In contrast, for an independent contractor, a business is not required to withhold income or FICA taxes. The contractor is fully liable for his or her own self-employment taxes, and FICA and federal unemployment taxes do not apply.

Employees Versus Independent Contractors

To determine whether a worker is an independent contractor or employee, the IRS examines factors in three categories:

  • Behavioral control — the extent to which the business controls how the work is done, whether through instructions, training, or otherwise.
  • Financial control — the extent to which the worker has the ability to control the economic aspects of the job. Factors considered include the worker’s investment and whether he or she may realize a profit or loss.
  • Type of relationship — whether the worker’s services are essential to the business, the expected length of the relationship, and whether the business provides the worker with employee-type benefits, such as insurance, vacation pay, or sick pay, etc.

In certain cases where a taxpayer has a reasonable basis for treating an individual as a non-employee (such as a prior IRS ruling), non-employee treatment may be allowed regardless of the three-prong test.

If the proper classification is unclear, the business or the worker may obtain an official IRS determination by filing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Year-End Statements

Generally, if a business has made payments of $600 or more to an independent contractor, it must file an information return (Form 1099-MISC) with the IRS and send a corresponding statement to the independent contractor.

Consequences of Misclassification

Where the employer misclassifies the employee as an independent contractor, the IRS may impose penalties for failure to deduct and withhold the employee’s income and/or FICA taxes. Penalties may be doubled if the employer also failed to file a Form 1099-MISC, though the lower penalty will apply if the failure was due to reasonable cause and not willful neglect.

Correcting Mistakes

Employers with misclassified workers may be able to correct their mistakes through the IRS’s Voluntary Classification Settlement Program (VCSP). For employers that meet the program’s eligibility requirements, the VCSP provides the following benefits:

  • Workers improperly classified as independent contractors are treated as employees going forward.
  • The employer pays 10% of the most recent tax year’s employment tax liability for the identified workers, determined under reduced rates (but no interest or penalties).
  • The government agrees not to raise the issue of the workers’ classification for prior years in an employment-tax audit.

Your tax advisor can help you sort through the IRS rules and fulfill your tax reporting obligations. *Internal Revenue Service. For 2020, the Social Security tax rate is 6.2% and is applied to earnings up to $137,700. The Medicare tax rate is 1.45% on the first $200,000 and 2.35% above $200,000.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

As a Corporation You Need to Follow the Rules

When you started your business, you may have formed a corporation to protect your personal assets from lawsuits against your company. However, you must also operate your business like a corporation — or risk losing the liability protection you expect to have, a good tip will be to have legal advice from experts such as NJ Legal.

No matter how long you’ve been in business, always treat your corporation as a separate legal entity. The corporation’s name should appear on company letterhead, checks, and invoices. Contracts should be made in the corporation’s name, not yours or another individual’s.

Avoid mixing your personal affairs and your corporation’s business. Maintain separate bank accounts and credit cards, and keep careful records of corporate transactions. File tax returns and pay any corporate taxes due on time.

Meet and Document

Hold shareholder and director meetings according to a regular schedule and keep official minutes of those meetings. Corporate minutes provide documentation of key financial and legal decisions, such as

  • Authorization for a substantial loan to or from the corporation as many local business owners in Darwin have done.
  • Adoption of a retirement plan or approval to make a contribution to an existing plan (e.g., a profit sharing contribution)
  •  Issuance of stock
  •  Purchase of real property or approval of a long-term lease

By observing the formalities, you can protect yourself and have the records you may need if the IRS, a creditor, or a company insider challenges critical decisions that were made.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Working with Contractors in QuickBooks Online

It’s a gig economy. QuickBooks Online makes it easy to track and pay independent contractors.

In days past we used to call it “moonlighting” – taking on a second, part-time job for extra money. And we saw how prevalent this became was when millions of people had to resort to side gigs to keep afloat during the economic downturn of a decade ago. Some who had lost full-time employment even turned one or more of these part-time passions into a small business and became independent contractors for other companies.

If you’re thinking of hiring a freelancer to do some of your work, you’ll find that QuickBooks Online can accommodate your accounting needs for them nicely. Since they’re not W-2 workers, your paperwork needs are minimal. They’ll simply fill out an IRS Form W-9 and you’ll pay them for services provided, dispatching 1099-MISCs after the first of each year so they can pay their taxes.Criminal Record Checks?  This tactic is known as screen-scraping and can lead to old or dismissed charges being reported to an employer, Rapid Screening offers the services, you can call today! The more effective way to get the complete picture of your applicant is to have people on the ground, combing through actual records to make sure they have the right person and the final outcome in any criminal case.

Here’s how it works.

Creating Contractor Records

Warning: Be sure that any independent contractor you hire cannot be considered an actual employee. The IRS spells out the differences very clearly and takes this distinction very seriously. If you have any doubts, we can help you determine your new worker’s status.


You can either let a new contractor complete his or her own profile or do so yourself.

Like you would with anyone you employ, you’ll need to create records for contractors in QuickBooks Online. Click on Workers in the left navigation pane, then Contractors | Add a contractor. In the window that opens, enter the individual’s name and email address. If you want the contractor to complete his or her own profile, click on the box in front of Email this contractor…

Your contractor will receive an email with an invitation to create an Intuit account and enter W-9 information, which will be transmitted to your QuickBooks Online company account. This will make it easy to process 1099s when tax season arrives. He or she will also be able to use QuickBooks Self-Employed, an Intuit website designed for freelancers. We can walk you through how this works.

If you’d rather enter the worker’s contact details yourself, leave the box blank. A vertical panel containing fields for this information will slide out from the right.

Contractors are also considered vendors. So when you create a record for a contractor, it will also appear in your Vendors list in QuickBooks Online. In fact, you can complete a contractor profile by clicking Expenses in the left vertical pane, then Vendors. Click New Vendor in the upper right and fill in the relevant fields there. Be sure to check the box in front of Track payments for 1099. An abbreviated version of your new record will also be available on the Contractors screen as the two are synchronized.


When you create a Vendor record for an independent contractor, be sure to check the Track payments for 1099 box.

Working with Contractors

You’ll notice in the screenshot above that Brenda Cooper had an Opening balance of $2,450 when you created her record. That’s money you already owed her, and for which she had probably sent you an invoice. QuickBooks Online turned that into an Accounts Payable item that you could find in multiple reports and on both the Vendors and Expenses screens. It will be listed as a Bill in reports, though you haven’t actually created one yet.

You have three options here. You can create a Bill and fill in any missing details if you don’t plan to pay Brenda immediately. If you want to send her the money right away, you can either enter an Expense or write a Check. There are many places in QuickBooks Online where you can do the latter two. We think it’s easiest to return to the Contractors screen since you can accomplish all three from there.


The Contractors screen contains links to the three ways you can handle compensation due to a contractor.

Whenever you receive an invoice from a contractor, you can visit this same screen and choose one of the three options.

You’ll have to select a Category for your payment from the list provided in each of these three types of transactions. The Chart of Accounts contains one called Subcontractors, which may or may not work for your purposes.

We strongly encourage you to consult with us as you begin the process of managing independent contractor compensation to deal with this issue as well as others. QuickBooks Online offers multiple ways to get to the same end result, and it can be confusing. Contact us, and we can schedule a consultation.

Social media posts

Hiring independent contractors? Be sure they should be classified as such, and not employees. We can help you determine how to do this.

QuickBooks Online offers many ways to do the same tasks when you’re working with independent contractors. Here is how we can help you figure this out.

There are three ways to record financial obligations to independent contractors: bill, check, and expense. Do you know the differences? We can help you figure this out.

Though you don’t have the same payroll requirements for contractors as you do employees, it’s very important to get it right. Here are a few ways we can help you with this.

ST Louis Vehicle Law and Deductions for Long-Term Care Insurance

Many people are taking a closer look at buying long-term care insurance to protect themselves and their families — just in case. If you are thinking about buying bear river insurance, you’ll be interested to know that, within limits, premiums paid for qualified policies are deductible as an itemized medical expense. Medical expenses can be very expensive and even more with surgery mistakes, that’s why you can talk with a Houston surgical error lawyer and prevent that from happening. For 2019, premiums for qualified policies are tax-deductible to the extent that they, along with other unreimbursed medical expenses, exceed 10% of your adjusted gross income.

The typical long-term care insurance policy will pay for the nursing home, home care, or other long-term care arrangements after a waiting period has expired, reimbursing expenses up to a maximum limit specified in the policy, you better check with a Contractor Cover professional indemnity insurance expert to make sure if everything is on track. Eligibility for reimbursement usually hinges on the covered individual’s inability to perform several activities of daily living, such as bathing and dressing.

Premiums are eligible for a deduction only up to a specific dollar amount (adjusted for inflation) that varies depending upon the age of the covered individual. The IRS limits for 2019 are:

Long-Term Care Insurance Premium Deduction Limits, 2019
Age Premium Limit
40 or under $420
41-50 $790
51-60 $1,580
61-70 $4,220
Over 70 $5,270

Source: Internal Revenue Service

These limits apply on a per-person basis. If you plan on applying this on a mortgage, I’ve found a mortgage site here that’ll help you with it. For example, a married couple over age 70 filing a joint tax return could potentially deduct up to $10,540 ($5,270 × 2). Keep in mind, however, that, for individuals under age 65, itemized medical expenses are deductible only to the extent that they, in total, exceed 10% of adjusted gross income (AGI).

IRS rules and exceptions abound, but there are some questions we can answer simply.

Next to your home, your car is probably the most expensive investment you make. And the costs of paying for and maintaining it can be considerable. Can you recoup some of your investment by claiming vehicle expenses on your tax return, it also depends where you have purchased the car since many people do car deals and the car is not in the best condition

 

Sometimes. The IRS has many restrictions on the business use of a vehicle, and those restrictions have many exceptions. Better to know these upfront than to have to correct a tax return after you’ve filed it. 

Here are some questions and answers that may help you decide whether you’re eligible.

How does the IRS identify a “vehicle”?
A car, van, pickup, or panel truck.

What are transportation expenses?
These are “ordinary and necessary expenses” incurred when you, for example:

  • Visit customers,
  • Attend a business meeting held at a location other than your regular workplace, or
  • Go from home to a temporary workplace that is not your company’s principal location.

The daily commute to and from your regular office is not deductible. The IRS considers this personal commuting expenses.

What if I’m on an overnight business trip away from home?
The IRS considers these travel expenses, and they’re reported differently. Your car expense deduction, though, is calculated the same way in both situations.

What if I use my car for both business and personal purposes?
You’ll calculate the expenses incurred for each by determining how many miles you drive for business and how many you drive for personal reasons.

I work in a home office. Can I deduct any driving expenses?
Yes, you can deduct the cost of driving to “another work location in the same trade or business.”

How do I calculate my deductible expenses?
There are two options. Using the standard mileage rate, you can claim 54 cents per mile (2016 tax year figure). You are required to use this method for the first year you use the vehicle for business purposes. After that initial year, you can choose between the standard mileage rate and actual car expenses. These include depreciation, oil and gas, insurance, and repairs.

Depreciation? Isn’t that difficult to calculate?
Yes, especially for cars. If you plan to take this kind of deduction, please let us handle your tax preparation for you. Depreciation is very, very complex, and sometimes requires more than one calculation method.

Can I take a Section 179 deduction for my vehicle?
Possibly, if you use the car for business more than 50 percent of the time — and only for the first year.

What kind of vehicle expense records do I need to maintain?
You know the drill here. If the IRS ever wants to examine your return, it will expect evidence like receipts, cancelled checks, and credit card statements. You’ll need to document the date and location where you incurred the expense. You’ll need accurate mileage records (milesdriven, purpose of trip, etc.).

These requirements scream for some kind of organized computer log or written diary, along with a safe place for any paper receipts, bills, etc. There are numerous mobile apps that can help you with this task. We can steer you in the right direction.

If you’re planning to deduct car expenses, it’s important that you keep careful paper or electronic records.

Where will I be reporting transportation expenses?
If you are self-employed, you will report business-related vehicle expenses on Schedule C or Schedule C-EZ (Form 1040). Farmers should use Schedule F (Form 1040). You’ll also want to complete a Form 4562, which is used to report depreciation and the Section 179 deduction.

If you cause a wreck in your personal vehicle, you are liable for your damages and the other party or parties’ damages.

However, if you were driving as part of a work-related task at the time of the accident, your employer might also have liability. That does not take away your liability, however.

After any car accident, no matter who is at fault and whether you were driving for work or personal business, you should speak with an attorney. A car accident lawyer can advise you of your rights, help shield you from liability, and work with you to pursue compensation for your damages;

When Is My Employer Liable for My Car Accident Damages?

Under certain circumstances, your employer has vicarious liability for your actions behind the wheel, meaning that if you cause damages to another person or property, whether you were negligent or not, your employer may be liable alongside you.

The circumstances under which your employer could have vicarious liability for your car accident damage are as follows:

  • You were on the job and onthe clock when the accident occurred.
  • You were driving as part of a work-related task.
  • You were driving tocarry out a task your boss or employer asked you to do.
  • You took part in an activityfrom which your employer stood to benefit.

In other words, if you were on the clock, completing an activity that your employer asked you to do, then your employer probably has vicarious liability for your car accident.

Not only that, but your employer could be liable for your injuries — even if the car accident were your fault. If you sustain injuries doing anything work-related, you might be able to file a workers’ compensation claim and pursue damages from your employer. Your personal injury attorney can review your situation and offer advice on this process.

Maintaining accurate records for car and truck expenses is time consuming and detail intensive. And that’s once you understand all of the IRS’s rules and exceptions surrounding this deduction. To avoid having to fix completed tax documents that the IRS has questioned, talk to us before you put a vehicle into business use. We’ll be happy to evaluate your transportation situation and guide you through the process.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Stock images courtesy of FreeDigitalPhotos.net

As everyone’s situation is different, consider contacting your tax and legal professionals to discuss your personal circumstances.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Will You have to Pay Taxes on Your Annuities?

Typically, at least a portion of an annuity payment is taxable.* Taxpayers should be careful to distinguish between the portion that represents a nontaxable return of the amount paid for the annuity and the taxable portion.

General Rule

To do this, the taxpayer generally divides the original, after-tax contribution by the expected return on the date the annuity begins. The cost/payout ratio, or “exclusion ratio,” is then multiplied by each installment payment to determine the nontaxable amount.

Example. Mary paid $10,800 for an annuity that will pay her $100 per month for 20 years. Mary’s expected return is $24,000. The exclusion ratio is 45% ($10,800/$24,000). For each $100 installment, $45 will be nontaxable, and the remaining $55 will be taxable.

Note that the expected returns on annuities may vary with the amount and the measuring term. Where the measuring term is someone’s lifetime or joint lifetimes, the IRS has tables for determining the expected return.

With variable annuities, the payout may vary based on such things as investment performance or changes in a particular index. Generally, the exclusion ratio is calculated by dividing the cost of the annuity contract by the total number of anticipated payments. However, if the nontaxable portion exceeds the actual payment, the taxpayer may elect to recompute the exclusion ratio for later years.

“Qualified” Annuities

Individuals sometimes receive all or a portion of the money in their qualified retirement plan accounts as an annuity. Such annuities are referred to as “qualified” annuities, and the method for calculating the exclusion ratio is similar to those described above. Note, however, that if the account assets consist entirely of pretax salary contributions (and earnings on those contributions), the exclusion ratio will be zero, and each installment will be fully taxable.

For more information about investments and taxes, give our tax professional a call today.

* Different rules apply to withdrawals, dividends, and loans from annuity contracts.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Keeping Up With Your IRA: Tax Season Checklist

If you’re one of the millions of American households who own either a traditional individual retirement account (IRA) or a Roth IRA, then the onset of tax season should serve as a reminder to review your retirement savings strategies and make any changes that will enhance your prospects for long-term financial security. It’s also a good time to start an IRA if you don’t already have one. The IRS allows you to contribute to an IRA up to April 15, 2019, for the 2018 tax year.

This checklist will provide you with information to help you make informed decisions and implement a long-term retirement income strategy.

Which Account: Roth IRA or Traditional IRA?

There are two types of IRAs available: the traditional IRA and the Roth IRA. The primary difference between them is the tax treatment of contributions and distributions (withdrawals). Traditional IRAs may allow a tax deduction based on the amount of a contribution, depending on your income level. Any account earnings compound on a tax-deferred basis and distributions are taxable at the time of withdrawal at then-current income tax rates. Roth IRAs do not allow a deduction for contributions, but account earnings and qualified withdrawals are tax-free .1

In choosing between a traditional and a Roth IRA, you should weigh the immediate tax benefits of a tax deduction this year against the benefits of tax-deferred or tax-free distributions in retirement.

If you need the immediate deduction this year — and if you qualify for it — then you may wish to opt for a traditional IRA. If you don’t qualify for the deduction, then it’s almost certainly a better idea to fund a Roth IRA.

Case in point: Your ability to deduct traditional IRA contributions may be limited not only by income but by your participation in an employer-sponsored retirement plan. (See callout box below.) If that’s the case, a Roth IRA is likely to be the better solution.

On the other hand, if you expect your tax bracket to drop significantly after retirement, you may be better off with a traditional IRA if you qualify for the deduction. You could claim an immediate deduction now and pay taxes at the lower rate later. Nonetheless, if your anticipated holding period is long, a Roth IRA might still make more sense. That’s because a prolonged period of tax-free compounded earnings could more than makeup for the lack of a deduction.

Traditional IRA Deductible Contribution Phase-Outs
Your ability to deduct contributions to a traditional IRA is affected by whether you are covered by a workplace retirement plan.

If you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross income (MAGI) is:

  • Between $101,000 and $121,000 for a married couple filing a joint return for the 2018 tax year.
  • Between $63,000 and $73,000 for a single individual or head of the household for the 2018 tax year.

If you are not covered by a retirement plan at work but your spouse is covered, your 2017 deduction for contributions to a traditional IRA will be reduced if your MAGI is between $189,000 and $199,000.

If your MAGI is higher than the phase-out ceilings listed above for your filing status, you cannot claim the deduction.

Roth IRA Contribution Phase-Outs
Your ability to contribute to a Roth IRA is affected by your MAGI. Contributions to a Roth IRA will be phased out if your MAGI is:

  • Between $189,000 and $199,000 for a married couple filing a joint return for the 2018 tax year.
  • Between $120,000 and $135,000 for a single individual or head of the household for the 2018 tax year.

If your MAGI is higher than the phase-out ceilings listed above for your filing status, you cannot make a contribution.

Should You Convert to Roth?

The IRS allows you to convert — or change the designation of — a traditional IRA to a Roth IRA, regardless of your income level. As part of the conversion, you must pay taxes on any investment growth in — and on the amount of any deductible contributions previously made to — the traditional IRA. The withdrawal from your traditional IRA will not affect your eligibility for a Roth IRA or trigger the 10% additional federal tax normally imposed on early withdrawals.

The decision to convert or not ultimately depends on your timing and tax status. If you are near retirement and find yourself in the top income tax bracket this year, now may not be the time to convert. On the other hand, if your income is unusually low and you still have many years to retirement, you may want to convert.

Maximize Contributions

If possible, try to contribute the maximum amount allowed by the IRS: $5,500 per individual, plus an additional $1,000 annually for those age 50 and older for the 2018 tax year. Those limits are per individual, not per IRA.

Of course, not everyone can afford to contribute the maximum to an IRA, especially if they’re also contributing to an employer-sponsored retirement plan. If your workplace retirement plan offers an employer’s matching contribution, that additional money may be more valuable than the amount of your deduction. As a result, it might make sense to maximize plan contributions first and then try to maximize IRA contributions.

Review Distribution Strategies

If you’re ready to start making withdrawals from an IRA, you’ll need to choose the distribution strategy to use: a lump-sum distribution or periodic distributions. If you are at least age 70½ and own a traditional IRA, you may need to take required minimum distributions every year, according to IRS rules.

Don’t forget that your distribution strategy may have significant tax-time implications if you own a traditional IRA because taxes will be due at the time of withdrawal. As a result, taking a lump-sum distribution will result in a much heftier tax bill this year than taking a minimum distribution.

The April filing deadline is never that far away, so don’t hesitate to use the remaining time to shore up the IRA strategies you’ll rely on to live comfortably in retirement.

Source/Disclaimer:

1Early withdrawals (before age 59½) from a traditional IRA may be subject to a 10% additional federal tax. Nonqualified withdrawals from a Roth IRA may be subject to ordinary income tax as well as the 10% additional tax.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Beware of the Tax Liability that Comes with Being on a Non-Profit Board

If you are a volunteer board member for a nonprofit organization, one specific issue to keep in mind is the IRS’s trust fund recovery penalty. If any entity — nonprofit or for-profit — fails to properly remit Social Security taxes and/or income taxes withheld from employees’ wages, the IRS will directly approach the organization’s “responsible persons” for the tax payments and a potential 100% penalty… Learn about nonprofit bookkeeping at this Dave Burton article.

In general, the penalty will not be imposed on any unpaid, volunteer member of the board of a tax-exempt organization if the member: (1) is solely serving in an honorary capacity, (2) does not participate in the day-to-day operations of the organization, (3) does not participate in the financial operations of the organization, and (4) does not have actual knowledge of the failure on which the penalty is based if needed to know check the investigationhotline.org website.

However, for an active member who has governing responsibilities, it is still important to ask questions about who is handling these tax payments (a staff member, the executive director, a payroll service, an accountant?) and what checks and balances are in effect to make sure no problems arise, this is why it is very handy to have a tax problems lawyer helping you out. Annual reviews or audits may also be helpful to verify compliance.

To learn more about non-profit compliance issues, give us a call today. We look forward to helping your non-profit grow.

 

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Famed Hedge Fund Manager Makes History with Billion Dollar Bet

It was one of the greatest financial bets of all time. Hedge fund manager John Paulson bet big against subprime mortgages ahead of last decade’s financial crisis, earning billions in profits for his funds. It was a gamble that, in the long run, didn’t pay off.

Along with the $4 billion he earned for himself, he nailed a second record-breaking honor when he was slapped with one of the largest personal tax bills in history.

According to people close to the firm, Paulson used installment loans available at the time to hedge fund managers. After deferring the bulk of taxes on the profits, Paulson’s personal tax bill came due on April 17th when he was required to pay about a billion dollars. This is on top of $500,000 he paid late the year before.

Only one problem.

The sum of his payment surpasses the maximum amount allowable by the IRS for payment by a single taxpayer with a single check. That amount is $99,999,999.

Like many investment managers, Hedge fund managers profit from fees amounting to a percentage of gains generated for their clients. In the case of Paulson & Co. that percentage is 20%.

For years—decades actually—tax authorities allowed hedge funds to defer receipt of this type of income. The reason the IRS permits this deferment of compensation by executives is that it tends to lower the company’s compensation costs, forcing them to pay higher taxes on profits. This offsets income taxes not paid right away by the employees.

Sounds like a win-win situation, right?

Well, maybe not this time.

In the case of offshore hedge funds that don’t pay offsetting U.S. taxes, such as some of those operated by Paulson, the treasury was not on the winning team.

A tax change mandated by Congress in 2008 gave hedge fund managers like Paulson until April 17, 2018 to pay taxes on money accumulated before the law changed. People close to the firm say Paulson turned to his Credit Opportunities fund, which is one of several he operates.

Word has it this fund held about $3.5 billion in assets late last year. The bulk was represented by Paulson’s own interests. He made an initial tax payment late last year by pulling funds from this account. He pulled another $1 billion from the fund and used it for the money due on April 17th.

Guess who was said to be the largest investor in the fund?

Right.

The government wants its money, but paying Paulson’s bill might not be easy. He could wire it if he wanted but might prefer paying by check if he’ll earn interest on the money until authorities cash the check. If so, he might have to submit multiple payments because the IRS will only accept a payment of less than $100 million.

He could do that if he can get past the most common problem: fitting such huge numbers onto the appropriate line on a check.

We should all have such problems….

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Deducting Business Expenses: Your Motor-home or Recreational Vehicle

Here’s an idea: Why not purchase a motorhome or recreational vehicle and deduct it as a business expense?

As long as you use it for business this could be a really sweet deal. And if you just happen to use it for pleasure once or twice, that’s no big deal, right?

You won’t be the first person to think of this and if you don’t follow the IRS rules, you won’t be the last to experience the consequences. The courts and the IRS have battled this discussion out several times. Both have been challenged trying to confirm when the motor home is a business vehicle and when it is a business lodging facility.

Does it matter?

It does. The business aspects of owning a motorhome will qualify for tax deductions, but this comes with a set of rules.

Bear this in mind: if you travel for business and plan to deduct your motorhome as a lodging facility, be sure to count the number of nights you use it for business purposes and use that to measure the number of permissible deductions.

On the other hand, if you use your motor home or RV as a second home, you would deduct the business percentage of its use for business travel without having to consider Section 280A impediments.

It can be complicated, so be sure you understand the guidelines.

Before you can deduct the business expenses associated with your motorhome you need to determine what it actually costs to operate the business-related usage. Along with depreciation and interest or lease payments, be sure to add insurance to the equation.

Take into consideration all of the expenses associated with maintaining your RV. Here are a few other expenses to include in your calculation:

  • Motor oil
  • Gas
  • Car Washes
  • Tires
  • Licensing Fees
  • Property Tax
  • Parking
  • Tolls

Of course, you’ll only be limited to deducting your business-related expenses. Will painting or wrapping your recreational vehicle with advertisements qualify when deducting personal miles?

You know the answer….

It will not.

Maintain Good Records

The best way to ensure you maximize your allowable deductions on your motorhome or RV is to keep impeccable records. Keep a mileage log and record every single trip—business and pleasure. Make sure you have accrued more than 50 percent business nights.

Even if you think you have a great memory, don’t store this information in your head. Record every single night you use your motorhome for business or personal lodging.

Last but certainly not least, keep IRS Section 280(f)(4) top of mind. This section says the use of your motorhome for overnight business lodging produces deductions for business travel and that business travel is not subject to the vacation home rules.

For a clear explanation of tax deductions for motorhomes or RVs, contact one of our tax professionals. Better to plan ahead than to clean up a mess after the fact.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

California Courts Put the Squeeze on Statewide Hiring Practices

In an effort to even the playing field, a unanimous decision by the California Supreme Court recently put business owners across the state in somewhat of a chokehold. With a ruling that could change the workplace status of people across the state, they’ve made it harder to classify workers as independent contractors.

Class-Action Lawsuit

The ruling came as a result of a class-action lawsuit against Dynamex Operations West, Inc. The suit charged that Dynamex, a package, and document delivery company, misclassified its delivery drivers, calling them independent contractors when they were actually employees.

If they did misclassify, they are not the only company doing the same thing. The ruling has implications for the expanding gig economy, an environment in which organizations contract with independent workers for short-term engagements.

Companies such as Uber and Lyft are also being targeted but it could extend to other business models. Hiring independent contractors versus employees is a swiftly growing trend.

The trend is popular in part because it makes good financial sense for businesses. With employment overhead rising over the last couple of decades, employers are backing away from the would-be money-suck and instead of hiring independent contractors for the jobs once held by full-time and part-time employees.

In recent years, the trend toward hiring independent contractors instead of employees has gone through the roof. A 2016 study by economists at Harvard and Princeton universities estimated 8.4% of the U.S. workforce is classified as independent contractors.

That’s 12.5 million people.

It’s a no-brainer really. Companies that hire independent contractors are not bound by the rules governing employment.

The Advantages?

No workers comp.

No deductions.

No piles of paperwork.

No minimum wage or overtime pay.

A 1099 at the end of the year does it, and they’re good to go. Contractors are in charge of managing their own responsibilities to the IRS and state governments.

End of story.

But the story doesn’t always have a happy ending.

If workers are misclassified, the business doing the hiring faces stiff fines. Employment lawyers at this page say many are questioning whether it would be best to reclassify before someone waves a red flag in their direction.

What is an Independent Contractor?

According to the court ruling, independent contractors:

  • Perform work outside of the hirer’s core business
  • Engage in an independently established trade, occupation or business.
  • Would not reasonably be viewed as working for the hiring business.

The court says businesses that hire workers must show that the workers are working in their own established businesses, free from the control and direction of the employer. That means no established hours or expectations as would be expected of an employee.

The aforementioned ruling did not resolve the Dynamex case, but it did help define independent contractors for lower courts grappling with the dispute. The court said wage and hour laws were adopted to enable people to earn a subsistence standard of living and to protect workers’ health and safety. The laws also shield the public from having to assume financial responsibility for workers earning substandard wages or working in unhealthy or unsafe conditions, the court noted.

“This is an effort to level the unequal playing field — misclassified workers have been taken advantage of for decades,” said Gutman Dickinson, a partner at Bush Gottlieb.

The risk of misclassifying workers—intentionally or otherwise—is substantial. A worker may be denied the status of employee “only if the worker is the type of traditional independent contractor — such as an independent plumber or electrician — who would not reasonably be viewed as working in the hiring business,” the court said.

Examples of Independent Contractors:

    • Plumber
    • Electrician
    • Hairdresser
    • Copywriter
    • Computer Tech

As long as the worker is temporarily hired he or she would be classified as an independent contractor. But a cake decorator who works on a regular basis custom-designing cake—even from home—would be an employee.

This discussion is significant on many levels, not the least of which concerns the California Labor Commission. According to their website, the misclassification of workers as independent contractors costs the state roughly $7 billion in lost payroll taxes each year.

To follow these changes and others, connect with one of our tax experts.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v