The IRS encourages all businesses and business owners to know the rules when
it comes to classifying a worker as an employee or an independent contractor.
An employer must withhold income taxes and pay Social Security, Medicare
taxes and unemployment tax on wages paid to an employee. Employers normally do
not have to withhold or pay any taxes on payments to independent contractors.
Here are two key points for small business owners to keep in mind when it
comes to classifying workers:
1. Control.
The relationship between a worker and a business is important. If the business
controls what work is accomplished and directs how it is done, it exerts
behavioral control. If the business directs or controls financial and certain
relevant aspects of a worker’s job, it exercises financial control. This
includes:
- The extent of the
worker's investment in the facilities or tools used in performing services
- The extent to which the
worker makes his or her services available to the relevant market
- How the business pays
the worker, and
- The extent to which the
worker can realize a profit or incur a loss
2. Relationship.
How the employer and worker perceive their relationship is also important for
determining worker status. Key topics to think about include:
- Written contracts
describing the relationship the parties intended to create
- Whether the business
provides the worker with employee-type benefits, such as insurance, a
pension plan, vacation or sick pay
- The permanency of the
relationship, and
- The extent to which
services performed by the worker are a key aspect of the regular business
of the company
- The extent to which the
worker has unreimbursed business expenses
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit
that encourages employers to hire designated categories of workers who face
significant barriers to employment. The credit, usually claimed on Form
5884, is generally based on wages paid to eligible workers during the first
two years of employment.
To qualify for the credit, an employer must first request certification by
filing IRS Form
8850 with the state workforce agency within 28 days after the eligible
worker begins work.
There are now 10 categories of WOTC-eligible workers. The newest category,
added effective Jan. 1, 2016, is for long-term unemployment recipients who had
been unemployed for a period of at least 27 weeks and received state or federal
unemployment benefits during part or all of that time. The other categories
include certain veterans and recipients of various kinds of public assistance,
among others.
The 10 categories are:
- Qualified IV-A Temporary
Assistance for Needy Families (TANF) recipients
- Unemployed veterans,
including disabled veterans
- Ex-felons
- Designated community
residents living in Empowerment Zones or Rural Renewal Counties
- Vocational
rehabilitation referrals
- Summer youth employees
living in Empowerment Zones
- Food stamp (SNAP)
recipients
- Supplemental Security
Income (SSI) recipients
- Long-term family
assistance recipients
- Qualified long-term
unemployment recipients.
Eligible businesses claim the WOTC on their income tax return. The credit is
first figured on Form 5884 and then becomes a part of the general business
credit claimed on Form
3800.
Though the credit is not available to tax-exempt organizations for most
categories of new hires, a special rule allows them to get the WOTC for hiring
qualified veterans. These organizations claim the credit on Form
5884-C.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
Millions of people enjoy hobbies that are also a source of income. From
catering to cupcake baking, crafting homemade jewelry to glass blowing -- no
matter what a person’s passion, the Internal Revenue Service offers some tips
on hobbies.
Taxpayers must report on their tax return the income earned from hobbies.
The rules for how to report the income and expenses depend on whether the
activity is a hobby or a business. There are special rules and limits for
deductions taxpayers can claim for hobbies. Here are five tax tips to consider:
Is
it a Business or a Hobby? A key feature of a business is that people do it
to make a profit. People engage in a hobby for sport or recreation, not to
make a profit. Consider nine
factors when determining whether an activity is a hobby. Make sure to
base the determination on all the facts and circumstances.
You must generally consider these factors to establish that an activity is a business engaged in making a profit:
- Whether you carry on the activity in a businesslike manner.
- Whether the time and effort you put into the activity indicate you intend to make it profitable.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
- Whether you change your methods of operation in an attempt to improve profitability.
- Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
- Whether you were successful in making a profit in similar activities in the past.
- Whether the activity makes a profit in some years and how much profit it makes.
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
Allowable
Hobby Deductions. Within certain limits, taxpayers can usually deduct
ordinary and necessary hobby expenses. An ordinary expense is one that is
common and accepted for the activity. A necessary expense is one that is
appropriate for the activity.
Limits
on Hobby Expenses. Generally, taxpayers can only deduct hobby expenses up
to the amount of hobby income. If hobby expenses are more than its income,
taxpayers have a loss from the activity. However, a hobby loss can’t be
deducted from other income.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
