Saturday, June 20, 2009

You and or your business may be liable for payroll taxes on independent contractors?

Payroll taxes that companies ought to pay may be getting dumped on independent contractors, but a case involving FedEx gives workers new ammunition.
Just before Christmas 2007, package-delivery company FedEx was slammed with a $319 million tax bill. The Internal Revenue Service ruled the company had misclassified about 13,000 drivers as independent contractors when, the IRS said, they really were employees.

For FedEx, this could get a lot more expensive. The penalties and back taxes are just for 2002. The IRS is still auditing FedEx for 2004 through 2006 (the status of 2003 is unclear). The Teamsters union, which has been pushing this fight, thinks it could ultimately cost FedEx $1 billion.

Perhaps. But FedEx plans to fight this ruling for as long as it takes.

What got the IRS and FedEx into a tussle was the package company’s assertion that drivers were contractors who operate their delivery routes as independent businesses, even though the drivers use FedEx equipment, wear FedEx uniforms and work under explicit FedEx rules.

This fight bears watching by employers and workers alike. Big money is at stake.

The government will argue that misclassified workers deprives it of billions of dollars of tax revenue annually. The Government Accountability Office has estimated the amount at $4.7 billion a year.

The bosses will argue that the ruling upsets precedents in place since the 1990s.

Workers will argue that employers have gone too far in pushing taxes and payroll costs onto them, effectively forcing workers to subsidize their bosses. If the IRS wins, you can bet many more workers classified as independent contractors will try to change their classifications.

If you’re an independent contractor, the company doesn’t pay state workers compensation or federal unemployment and disability taxes. It is released from matching your 7.65% Social Security and Medicare taxes; an independent contractor pays the full 15.3% load.

In addition, the employer is saved the burden and cost of income-tax withholding. The worker has to remit the appropriate payments.

Independent contractors don’t qualify under minimum-wage laws and have no government rights to a safe work environment. And they can’t qualify for employee benefits.

Microsoft (the publisher of MSN Money) suffered a stinging judicial slap several years ago when it misclassified employees as independent contractors and denied them benefits granted to other employees. It proved to be a $97 million lesson.

Contact the accounting and tax consulting firm of Robert C Olivieri, Jr. PC if you have any questions on this issue or are looking to have your corporate or payroll tax returns prepared.  Take advantage of our 30 plus years of Accounting and Tax Consulting experience to reduce or eliminate IRS payroll liabilities and avoid audits due to non compliance.  Non compliance is a very serious issue with the IRS.  If they believe your company has been negligent with certain tax regulations, they may be able to assess you additional tax, including penalties and interest.  You may not toss the blame into your current accountant; following tax regulations is your responsibility.  Feel free to call Bob, almost anytime, at 215.550.3636 for any questions you may have.  Is it not time you dealt with Accounting and Tax Professionals that are available at your convenience?

Posted by The IRS Tax Fighers in 20:40:05 | Permalink | Comments Off

Monday, February 9, 2009

Does your small business have bad debts or large accounts receivable on the street?

It is a bit of insult added to injury; small business owners who had non paying customers in 2008 are likely to find they can not take the bad debts as deductions on their income tax returns.

Tax laws limit the ability of many small businesses, among them service providers, to deduct the money that customers never paid. That means owners need to try other methods of capturing the funds and to be sure they don not get burned again.

What determines the deductibility of bad debts is the accounting method that a small business uses. Generally, service providers like auto mechanics, tax preparers, barbers, trainers and dentists use what is called cash basis accounting. Under that method, income is recognized when it is received and expenses are recognized when they are paid. So, income that is never received can not be recognized and it can not be deducted.

Companies that use what is known as the accrual method of accounting generally have an easier time deducting bad debts. Manufacturers and other companies with inventory tend to use accrual accounting. Under that system, income is recorded when a sale occurs or a debt is owed, not when payment is received. Expenses are recorded when they are owed, not when they are paid.

So, if a manufacturer ships goods, the income should be recorded when the sale occurs. If the customer never pays, the tax deduction effectively allows the income to be wiped out.

The company also gets to deduct the costs of manufacturing. Similarly, a service provider, say, a house painter, can deduct the cost of materials and supplies used in the job, but the business has to absorb the labor costs.

Companies can and should try to collect unpaid debts, starting with requests to the customer. If it is a customer that an owner does not want to lose, it might be a good idea to restructure the terms to make it easier for the customer to come up with the funds.

If all else fails, the next step might be a collection agency. Business is up at collection agencies; companies are turning to them for help, even though it means they might get just a fraction of what they are owed.y

Contact the accounting and tax consulting firm of Robert C Olivieri, Jr. PC if you have any questions on this issue or are looking to have your corporate or payroll tax returns prepared.  Take advantage of our 30 plus years of Accounting and Tax Consulting experience to reduce or eliminate IRS payroll liabilities and avoid audits due to non compliance.  Non compliance is a very serious issue with the IRS.  If they believe your company has been negligent with certain tax regulations, they may be able to assess you additional tax, including penalties and interest.  You may not toss the blame into your current accountant; following tax regulations is your responsibility.  Feel free to call Bob, almost anytime, at 215.943.3296 for any questions you may have.  Is it not time you dealt with Accounting and Tax Professionals that are available at your convenience?

Posted by The IRS Tax Fighers in 15:37:14 | Permalink | Comments Off

Friday, January 30, 2009

Do you drive a corporate owned or leased vehicle for commuting or personal useage?

IRS regulations require that if an employee has been assigned a motor vehicle, employers must include the value of automobile commuting and personal use in the employee’s gross income as reported on the employees’ W-2 and to withhold certain payroll taxes such as FICA and Medicare. 

Employees that have been assigned vehicles and who drive the vehicle to and from their residences are considered by the Internal Revenue Code to have received taxable income.  The Internal Revenue Code requires that employers withhold associated FICA and Medicare, which are then remitted to the IRS and reported on individual employees’ W-2 Forms.  Certain “qualified non-personal use vehicles” have been exempted by the IRS from reporting and taxation requirement. 

The amount of taxable income derived from the assignment of a vehicle is dependent on the status of the employee as defined by the Internal Revenue Code.  The following details the calculation for determining the amount of taxable income.

The IRS permits most employees to value each one way commute at $1.50 ($3.00 per round trip). The Internal Revenue Code requires that employees report the number of commuting trips in a calendar year they make to their employers. The $1.50 is multiplied by the number of trips and this amount is included in the employee’s wages. If more then one employee commutes in the vehicle this value applies to each employee.

Contact the accounting and tax consulting firm of Robert C Olivieri, Jr. PC if you have any questions on this issue or are looking to have your corporate or payroll tax returns prepared.  Take advantage of our 30 plus years of Accounting and Tax Consulting experience to reduce or eliminate IRS payroll liabilities and avoid audits due to non compliance.  Non compliance is a very serious issue with the IRS.  If they believe your company has been negligent with certain tax regulations, they may be able to assess you additional tax, including penalties and interest.  You may not toss the blame into your current accountant; following tax regulations is your responsibility.  Feel free to call Bob, almost anytime, at 215.943.3296 for any questions you may have.  Is it not time you dealt with Accounting and Tax Professionals that are available at your convenience?

Posted by The IRS Tax Fighers in 01:19:28 | Permalink | Comments Off