Contributed by Elite Bookkeeping & Tax Services
Whenever a business starts there is always the question of how the people that provide services for the business will be paid. Will those services be performed by employees or will independent contractors be used?
Before the business can determine how to treat payments they need to know and make clear the business relationship. It is important to establish this relationship because an employee has taxes withheld, social security and medicare matched by the employer, unemployment insurance paid, workers compensation insurance paid and often benefits provided. An independent contractor just gets paid. It is a big expense difference.
To determine whether an individual is an employee or and independent contractor, the relationship of the business and worker must be examined. It comes down to does the business have control over what and how a job will be done or do they just control the results of the job. The determination falls into three categories: behavior control, financial control, and type of relationship.
Behavioral Control
Employees are generally subject to instructions about when, where, and how to work. The employer controls when and where the work is performed and what hours the person will be at the job. The person is told what tools and equipment to use, who else can be hired to assist with the work and where to purchase supplies and services. They are told what work is to be performed by a specific individual and what order or sequence to follow. Employees also may be required to receive training by the employer.
Independent Contractors can be hired to do a certain job in a certain place and be completed by a certain time. However, how the job is done is up to the contractor. When the work is performed, what equipment is used, who is hired to assist and where materials and supplies are purchased are up to the Independent Contractor. They also obtain and pay for their own training.
Financial Control
An employee is generally guaranteed a regular wage amount for an hourly, weekly or other period of time, even if the wage or salary is connected with a commission. They may be paid whether work is being performed or not. An employee generally does not have an investment in the company unless there are stock options available. They usually have any expenses they incur for things such as travel, phone, or equipment reimbursed.
An Independent Contractor is not reimbursed for any expenses. They generally have a business of their own or a significant investment in the facilities and equipment used to perform the work. An Independent Contractor is free to offer services to the general public and can take on jobs for other companies or individuals. They generally advertise their services and maintain a home office or visible business location. They generally get hired and paid by the job, usually a flat fee. Although some jobs can be billed hourly. An Independent Contractor can make a profit or loss on the job.
Type of Relationship
An Employee generally signs a employee contract. The employee is generally provided benefits such as insurance, pension plan, vacation and sick pay. Employee's are engaged for an indefinite period of time. They perform activities that are a regular daily part of the business. They fill out an IRS W-4 form that tells the employer how much taxes to withhold. They are not free to do business for other companies and in fact some companies have penalties if they do.
Independent Contractors have job by job contracts or for specific project or periods of time that state they are responsible for their own taxes. They are not provided with any benefits. They fill out an IRS W-9 form telling the IRS that no taxes are required to be withheld.
It is important to determine what kind of relationship from the beginning of your business. If you treat an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that person. Also, if you pay an individual as an Independent Contractor, they do not qualify for unemployment of workers compensation so if they try to collect it, you will want to be ready to verify they are not an employee.
For assistance with bookkeeping or tax services, contact Elite Bookkeeping directly at (800) 416-3820. Visit their web site at http:www.elitebookkeeping.biz
Find out more about the Business Achievement Center at our web site http://www.BusinessAchievementCenter.com. Our group of Strategic Partners are here to help businesses from start-up to expansion with our experience and expertise.
Showing posts with label Tax Tips. Show all posts
Showing posts with label Tax Tips. Show all posts
Oct 10, 2012
Winning the Tax Game- End of the Season Tax Tips
Contributed by Robyn Yelton, EA
Elite Bookkeeping & Tax Services Inc.
If you think gridlock is a football term, you may not be too far out of bounds. Tax cuts, tax increases and tax provisions are being passed back and forth in Washington, D. C. and whoever fumbles, loses. That can be bad news for taxpayers.
Look at what hangs in the balance: Lower tax rates, the 15% capital gains rate on long-term investments, the 2% payroll tax cut, the 35% maximum estate and gift tax rates, direct IRA payouts to charity, higher alternative minimum tax exemptions, the deduction for state sales taxes and even the $250 deduction for out-of-pocket teacher supplies. And you thought the potential for a 2012 catastrophe was only a Mayan myth.
Although we may be down to the final quarter of the year, there is still time before the two-minute warning, to take a look at your tax situation and see if you can save a few tax dollars.
• The American Opportunity Tax Credit expanded the Hope Credit, providing a credit of up to $2,500 of the cost of qualified tuition and related expenses. Up to $1,000 of the credit can be returned to a taxpayer as a refund. The credit was supposed to end in 2010, but it was extended through 2012. This could be the credit's last year if Congress is looking for ways to cut the federal deficit.
• If you’re in the top tax bracket of 35%, you may want to accelerate income into 2012, if possible. If Congress doesn't act, the highest tax rate will rise to 39.6% in 2013.
• Along with the possibility of higher ordinary income tax rates, there's the possibility of higher capital gains rates on investment income in 2013. The top capital gains rate for investments held for more than a year is 15% for most taxpayers through 2012, and zero capital gains tax for investors in the 10% and 15% tax brackets. If your crystal ball says capital gains taxes are going up next year, you may want to consider locking in profits on long-term investments before the end of this year.
• Giving to charity can help reduce your tax bill if you are able to itemize deductions. In addition to contributions made by cash, check or credit card, the crisp fall air may provide the energy, while the potential of a lower tax bill may provide the incentive to clean out closets looking for items in good condition, that you can donate to a qualified charitable organization. Remember to make a list of the items and determine their fair market value. Clip the list to the door hangar or receipt that you receive from the organization and keep with your tax return documents for your records.
• If you believe that charity begins at home and you want to give away your estate's assets while you're still around to get thanks, you can give up to $13,000 each to as many individuals as you wish without any tax costs to you or your gift recipients in 2012.
• Sometimes, a major life change is thrown your way and you may not think of it as a tax deduction. If you found yourself looking for a new job, agency fees, resume expenses, career counseling costs and travel related to the job search may be deductible even if the job search was unsuccessful.
If you moved because of a change in job location, the cost of moving your household goods and family members may be deductible.
Unreimbursed travel expenses for military reservists, including the National Guard, may be deductible.
The fee that you pay for renting a safe-deposit box, the cost of having your taxes prepared, the advisory or management fees you pay a firm to manage your investments may also be overlooked deductions.
Some of these tax breaks require you to itemize. Others are available even if you claim the standard deduction. Naturally, there may be eligibility requirements to meet and in some cases, there will be extra worksheets, forms or schedules. And you will always need to have documentation for these often-overlooked deductions.
• Even if you’re thinking you’ll never be able to retire, putting money into a retirement account can save you tax dollars. Employees should contribute as much as they can to their 401(k) or similar plans at work.
If you’re eligible, you may want to contribute to an Individual Retirement Account (IRA). Although Roth IRA contributions are not deductible, traditional IRA contributions may be, depending on your income and whether or not you are covered by an employer’s plan.
Self-employed folks also have a variety of retirement plans from which to choose: SEP (Simplified Employee Pension) IRA, or Solo 401(k) or SIMPLE (Savings Incentive Match Plan for Employees) IRA. Some taxpayers may be able to contribute to a Traditional IRA.
For 2012, remember Roth IRA conversion taxes! If you converted a traditional IRA to a Roth IRA in 2010, you were allowed to span the taxes due on the converted amounts equally over the 2011 and 2012 tax years. Your first Roth conversion tax bill was included on your 2011 return, but make sure you plan for the 2012 conversion bill.
Along those lines, it is not too late to adjust the amount of Federal or state tax withheld from your paycheck. If you owed taxes last year, or received a larger refund than expected, you may want to take a look at adjusting your withholding. Remember: the goal is to pay the least amount of taxes. The final quarter of the year is the perfect time to talk to your Enrolled Agent to make sure the game plan you discussed at the beginning of the year still applies, and you’ll surely be the winner at tax time.
For assistance with your bookkeeping and tax needs, contact Elite Bookkeeping & Tax Services directly at (800) 416-3820.
Find out more about the Business Achievement Center at our web site http://www.BusinessAchievementCenter.com. Our group of Strategic Partners are here to help businesses from start-up to expansion with our experience and expertise.
Elite Bookkeeping & Tax Services Inc.
If you think gridlock is a football term, you may not be too far out of bounds. Tax cuts, tax increases and tax provisions are being passed back and forth in Washington, D. C. and whoever fumbles, loses. That can be bad news for taxpayers.
Look at what hangs in the balance: Lower tax rates, the 15% capital gains rate on long-term investments, the 2% payroll tax cut, the 35% maximum estate and gift tax rates, direct IRA payouts to charity, higher alternative minimum tax exemptions, the deduction for state sales taxes and even the $250 deduction for out-of-pocket teacher supplies. And you thought the potential for a 2012 catastrophe was only a Mayan myth.
Although we may be down to the final quarter of the year, there is still time before the two-minute warning, to take a look at your tax situation and see if you can save a few tax dollars.
• The American Opportunity Tax Credit expanded the Hope Credit, providing a credit of up to $2,500 of the cost of qualified tuition and related expenses. Up to $1,000 of the credit can be returned to a taxpayer as a refund. The credit was supposed to end in 2010, but it was extended through 2012. This could be the credit's last year if Congress is looking for ways to cut the federal deficit.
• If you’re in the top tax bracket of 35%, you may want to accelerate income into 2012, if possible. If Congress doesn't act, the highest tax rate will rise to 39.6% in 2013.
• Along with the possibility of higher ordinary income tax rates, there's the possibility of higher capital gains rates on investment income in 2013. The top capital gains rate for investments held for more than a year is 15% for most taxpayers through 2012, and zero capital gains tax for investors in the 10% and 15% tax brackets. If your crystal ball says capital gains taxes are going up next year, you may want to consider locking in profits on long-term investments before the end of this year.
• Giving to charity can help reduce your tax bill if you are able to itemize deductions. In addition to contributions made by cash, check or credit card, the crisp fall air may provide the energy, while the potential of a lower tax bill may provide the incentive to clean out closets looking for items in good condition, that you can donate to a qualified charitable organization. Remember to make a list of the items and determine their fair market value. Clip the list to the door hangar or receipt that you receive from the organization and keep with your tax return documents for your records.
• If you believe that charity begins at home and you want to give away your estate's assets while you're still around to get thanks, you can give up to $13,000 each to as many individuals as you wish without any tax costs to you or your gift recipients in 2012.
• Sometimes, a major life change is thrown your way and you may not think of it as a tax deduction. If you found yourself looking for a new job, agency fees, resume expenses, career counseling costs and travel related to the job search may be deductible even if the job search was unsuccessful.
If you moved because of a change in job location, the cost of moving your household goods and family members may be deductible.
Unreimbursed travel expenses for military reservists, including the National Guard, may be deductible.
The fee that you pay for renting a safe-deposit box, the cost of having your taxes prepared, the advisory or management fees you pay a firm to manage your investments may also be overlooked deductions.
Some of these tax breaks require you to itemize. Others are available even if you claim the standard deduction. Naturally, there may be eligibility requirements to meet and in some cases, there will be extra worksheets, forms or schedules. And you will always need to have documentation for these often-overlooked deductions.
• Even if you’re thinking you’ll never be able to retire, putting money into a retirement account can save you tax dollars. Employees should contribute as much as they can to their 401(k) or similar plans at work.
If you’re eligible, you may want to contribute to an Individual Retirement Account (IRA). Although Roth IRA contributions are not deductible, traditional IRA contributions may be, depending on your income and whether or not you are covered by an employer’s plan.
Self-employed folks also have a variety of retirement plans from which to choose: SEP (Simplified Employee Pension) IRA, or Solo 401(k) or SIMPLE (Savings Incentive Match Plan for Employees) IRA. Some taxpayers may be able to contribute to a Traditional IRA.
For 2012, remember Roth IRA conversion taxes! If you converted a traditional IRA to a Roth IRA in 2010, you were allowed to span the taxes due on the converted amounts equally over the 2011 and 2012 tax years. Your first Roth conversion tax bill was included on your 2011 return, but make sure you plan for the 2012 conversion bill.
Along those lines, it is not too late to adjust the amount of Federal or state tax withheld from your paycheck. If you owed taxes last year, or received a larger refund than expected, you may want to take a look at adjusting your withholding. Remember: the goal is to pay the least amount of taxes. The final quarter of the year is the perfect time to talk to your Enrolled Agent to make sure the game plan you discussed at the beginning of the year still applies, and you’ll surely be the winner at tax time.
For assistance with your bookkeeping and tax needs, contact Elite Bookkeeping & Tax Services directly at (800) 416-3820.
Find out more about the Business Achievement Center at our web site http://www.BusinessAchievementCenter.com. Our group of Strategic Partners are here to help businesses from start-up to expansion with our experience and expertise.
Subscribe to:
Posts (Atom)