Employee vs Independent Contractor

If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees.
1. Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.
2. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
3. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
4. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
5. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
6. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
7. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
8. Workers can avoid higher tax bills and lost benefits if they know their proper status.
9. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.

Tax Increase in the Near Future

Are you worried about your income taxes going up? Worried that our politicians will increase our taxes? Have you ever hear the term deficit neutral? Well, honestly, deficit neutral is a "hidden term" for tax increase. Will taxes go up, and the definite answer is YES. Former President Bush passed a 1.35 trillion dollar tax cut in 2001, this tax cut is set to "sunset" or go away at the end of next year. If this happens, your tax rates will go up by several percentage points. We have several credits that will either expire, or be reduced as well. If they expire as scheduled, taxes will go up...

What is next? Prepare yourself; make sure that you are taking all of the legal deductions possible. Plan, Plan, Plan...make sure you know where you are going, and how to get there. Focus on what you do best, get people in your corner that compliment your weaknesses. Make your business the priority and make it more profitable. Remember, it is better to make the money and pay the taxes than it is not to make the money at all. From a wealth perspective, it is better…maybe not a reduction of tax perspective, but lets look at the big picture.

Mistakes NOT to make in a Down Economy

Managing is not easy when business is good, but it can be especially difficult when times are tough. Struggling to keep the business afloat, supervisors sometimes make assumptions about how they should manage that end up working against them. Here are a few common missteps managers make in a down economy:

• Thinking employees are just lucky to have their jobs
• Hiding bad news
• Blaming others for troubles.
• Asking for the impossible from your employees
• Creating bottlenecks in workload
• Playing it safe
• Postponing recruiting
• Forgetting to say 'thank you'

Finally, as you reconsider your management strategies, take into account your overall attitude about the business. If you look for opportunity in challenge, your staff is likely to do the same. Give your employees credit for being able to handle a downturn. They are your best defense and the only way you will meet the challenges you face. Making the workplace environment as positive as possible can help ensure your best performers stay with you when conditions begin to improve.

First-Time Homebuyer Credit Fraud

IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud

The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla., tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”
Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.
First-Time Homebuyer Credit

The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.