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Employee vs Independent Contractor – Tax Tip of the Week October 28, 2009

Posted by bradstreetblogger in : Tax Tip , add a comment

What every employer and potential worker needs to know about the Employee vs. Independent Contractor relationship.

Employers will be biased to treat a worker as an Independent Contractor as a means to avoid payroll taxes (FICA, Medicare, Workers Compensation, Unemployment Taxes, etc.).  As an Independent Contractor, the employer can also exclude them from health care and retirement plan benefits.

As a potential worker, you may agree to accept a position as an Independent Contractor but be aware that you will be subject to Self-Employment Taxes (SE Tax).  The SE tax rate is 15.3% in addition to your regular income tax obligations.  Also, you may not be eligible for Workers Compensation benefits if you are an Independent Contractor and get hurt on a job.

Lately, the IRS has been very aggressive in reclassifying Independent Contractors to Employees based on the following facts and circumstances:

Three characteristics are used by the IRS to determine the relationship between the employer and worker:  Behavioral Control, Financial Control, and the Type of Relationship:

  1. Behavioral Control covers whether the business has a right to direct or control how the work is done trough instructions, training or other means.
  2. Financial Control covers whether the business has a right to direct or control the financial and business aspects of the worker’s job.
  3. The Type of Relationship factor relates to how the worker and the business owner perceive their relationship.

If the employer has the right to control or direct not only what is to be done, but also how it is to done, then it is probably and Employee relationship.

If the employer can direct or control only the result of the work done—and not the means and methods of accomplishing the result—then you most likely have an Independent Contractor relationship.

Employers who misclassify workers as Independent Contractors can end up facing substantial tax bills and penalties.  Workers can avoid higher tax bills and lost benefits if they know their proper status.

Give us a call if you have any questions on this important issue.

Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.

…until next week.

Win at Gambling? The Taxing Consequences – Tax tip of the week October 21, 2009

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You may know when to hold ‘em and when to fold ‘em but do you how and when to report ‘em?  Here are the rules:

Special note:  Even though gambling losses are deductible on your federal return, there is no way to deduct them on your state or local return.  Also, if you do have state taxes withheld from a state other then Ohio, make sure you file a tax return with that state so that you don’t pay taxes on that income a second time on the Ohio return.

Good luck at the slots and tables but remember—the government always comes out a winner!

Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.

…until next week.

Do not open: IRS emails – Tax Tip of the Week October 14, 2009

Posted by bradstreetblogger in : Tax Tip , 1 comment so far

There is another round of bogus emails being sent that appear to be coming from the IRS.  One of the more prevalent ones has the subject line:  UNREPORTED/UNDERREPORTED INCOME.

Many of these emails are very official looking, but should never be opened.

The IRS has issued numerous press releases advising taxpayers that they will never initiate contact via email.

The IRS also requests that you forward any such emails you receive to http://www.phishing@irs.gov as they continue to try and thwart these scammers.

On the other hand, we hope you’ll add Bradstreet to your safe sender list so you continue to receive these pertinent weekly tax tips.

Questions? In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
…until next week.

2009 Required Minimum Distributions – Tax Tip of the Week October 7, 2009

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As you may or may not be aware, the requirement to take a Required Minimum Distribution (RMD) from an IRA or other qualified retirement plan was suspended for 2009.

In prior years, anyone over age 70 ½ was required to take an RMD each year.  There was a law passed late in 2008 that removed this requirement.  Because the law changed so late in the year, the IRS is aware that some plan administrators may not have had time to suspend some of the automatic distributions that were programmed into their systems.

Many times a taxpayer did not need, nor want, to include these RMDs in their taxable income each year, but they had no choice prior to 2009.

So if you, or anyone you know, received an RMD that they do not want included in their 2009 taxable income, you have until November 30, 2009 to rollover this distribution back into their IRA.

The IRS just made the announcement of this extended rollover provision so expect some confusion among plan administrators.  Reference them to IRS Notice 2009-82 for guidance.

Give us a call if you have any questions.  In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit www.bradstreetcpas.com.
…until next week.