Employee or Independent Contractor--Which is it?

This question comes up with my business clients every year.  Making the wrong decision can be very costly in terms of tax, interest and penalties.   Please review the following guidelines and then call our office if you have any questions.

Why It Matters

The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. They do this because independent contractors are not covered by unemployment and workers' compensation, or by federal and state wage, hour, anti-discrimination, and labor laws. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors.

Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker (even the workers share of the employment taxes), plus a penalties.

The Difference Between Employees and Independent Contractors

Independent Contractors are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Employees provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.

Independent Contractor Qualification Checklist

The IRS, workers' compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is though their means of categorizing workers as independent contractors are similar.

One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS, which considers the following:

1. What instructions the employer gives the worker about when, where, and how to work. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee.
2. What training the employer gives the worker. Independent contractors generally do not receive training from an employer.
3. The extent to which the worker has business expenses that are not reimbursed. Independent contractors are more likely to have unreimbursed expenses.
4. The extent of the worker's investment in the worker's own business. Independent contractors typically invest their own money in equipment or facilities.
5. The extent to which the worker makes services available to other employers. Independent contractors are more likely to make their services available to other employers.
6. How the business pays the worker. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job. (Not always though)
7. The extent to which the worker can make a profit or incur a loss. An independent contractor can make a profit or loss, but an employee does not.
8. Whether there are written contracts describing the relationship the parties intended to create. Independent contractors generally sign written contracts stating that they are independent contractors and setting forth the terms of their employment.
9. Whether the business provides the worker with employee benefits, such as insurance, a pension plan, vacation pay, or sick pay. Independent contractors generally do not get benefits.
10. The terms of the working relationship. An employee generally is employed at will (meaning the relationship can be terminated by either party at any time). An independent contractor is usually hired for a set period.
11. Whether the worker's services are a key aspect of the company's regular business. If the services are necessary for regular business activity, it is more likely that the employer has the right to direct and control the worker's activities. The more control an employer exerts over a worker, the more likely it is that the worker will be considered an employee.

Minimize the Risk of Misclassification

If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS.

Sometimes the issue comes up when a terminated worker files for unemployment benefits and it's unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge.

There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:

• Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.
• Document relationships with your workers and vendors. Although it won't always save you, it helps to have a written contract stating the terms of employment.

If you have any questions about how to classify workers, please call our office:

Gurr CPA LLC            801-225-9411              info@gurrcpa.com

Utah Drought-Stricken Farmers and Ranchers Have More Time to Replace Livestock

PHOENIX - - Utah farmers and ranchers who previously were forced to sell livestock due to drought, like the drought currently affecting much of the nation, have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales, the Internal Revenue Service announced today.

Utah farmers and ranchers who due to drought sell more livestock than they normally would may defer tax on the extra gains from those sales. To qualify, the livestock generally must be replaced within a four-year period. The IRS is authorized to extend this period if the drought continues.

The one-year extension of the replacement period announced today generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes due to drought. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, and poultry are not eligible.

The IRS is providing this relief to any farm located in a county, parish, city, or district, listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center (NDMC), during any weekly period between Sept. 1, 2015, and Aug. 31, 2016. All or part of 37 states and Puerto Rico are listed. Any county contiguous to a county listed by the NDMC also qualifies for this relief.

Per Notice 2016-60, the following Utah Counties qualify: Beaver, Box Elder, Carbon, Davis, Duchesne, Juab, Millard, Piute, Salt Lake, Sanpete, Sevier, Summit, Tooele, Utah, Wasatch and Weber.

As a result, Utah farmers and ranchers in these areas whose drought sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2016, in most cases, will now have until the end of their next tax year. Because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2012. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2012 are also affected. Additional extensions will be granted if severe drought conditions persist.

Details on this relief, including a list of NDMC-designated counties, are available in Notice 2016-60, posted today on IRS.gov. Details on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, also available on the IRS web site.

If you have questions about whether you qualify for this tax relief or how you report this on your 2016 tax returns, please give our office a call today for a free consultation.

Phone:  801-225-9411 or email us at info@gurrcpa.com

How To Protect Yourself from Identity Theft



I was reminded today how important it is to keep a vigilant watch on your bank and credit card information.  As I reviewed my personal bank statement today online, I noted an unrecognized debit charge on my credit card.  It stood out to me, because I rarely use my bank debit card.  I use it to get cash from the ATM and once in awhile I may use it our local grocery store when I want to get some cash back.  Sure enough it was a fraudulent charge!  

There were over 13.1 million identity-theft cases in 2014 amounting to $18 billion in losses.  It is real, you have to be vigilant to stay ahead of the "crooks."

Here are Ten Things You Can Do To Protect Yourself from Identity Theft.



1. LOCK UP ALL IMPORTANT DOCUMENTS at home (birth certificates, passports, credit cards when not in use etc.)   Use a secure safe that is fireproof and is heavy enough it would be hard to steal from your home.
2. DO NOT REVEAL non financial information online (facebook, twitter, etc.).  Examples - never list your full birth date on facebook or any other social networking site.  Don't lisT your home address or telephone number on any website you use for personal or business reasons - including job-search sites.
3. BE CAREFUL WITH SNAIL MAIL.  Never place mail in your mailbox for pickup - take it directly to the post office.  Get your bank and credit card statements online.  Don't have checks delivered to your mail box (I know - most of the under 35 crowd are asking - what is a check?)
4. REVIEW ALL BANK AND CREDIT CARD STATEMENTS WEEKLY !!!!!!!!!!!!!!!!!  This is a must.   Also, set fraud alerts on your credit and debit cards so you will receive an alert if unusual charges are made.  These are free to setup from the bank and credit card companies
5. DON'T USE ATM'S IN STORES OR GAS STATIONS.   Use Bank ATM's as they are usually more secure and monitored 7X24.
6. DO NOT USE DEBIT CARDS WHEN YOU TRAVEL - ONLY USE  CREDIT CARDS.  Credit cards provide the most protection if a there is fraud on your card, and the money does not automatically get debited from your bank account.
7. NEVER USE DEBIT CARDS TO PURCHASE GOODS OR SERVICES ONLINE.  Credit cards have more liability protection and you do not risk large sums being withdrawn from your bank account.
8. LIMIT THE NUMBER OF CREDIT CARDS YOU HAVE.  More credit cards expose you to more risk of identity theft, may negatively impact your credit score, and it just gives you more to manage.  I use one credit card for business and one credit card for personal.  I use only one debit card for personal.
9.   DO NOT SET UP YOUR CREDIT/DEBIT CARD FOR REOCCURRING CHARGES.  Reoccurring charges can be forgotten and are pain to fix if you have to cancel your card.  I also do not recommend storing your credit card information on any website for future use - enter your card information each time you buy online.
10. CANCEL YOU CARD IMMEDIATELY IF IT HAS BEEN COMPROMISED or even if you "think" there is potential that it has been compromised.  It is easy to cancel and get new cards and you will sleep better at night and you will stay ahead of the "bad guys." 

We are all use our debit/credit cards like currency.  We need to treat it just like currency and protect it from the identity thieves that are lurking everyone (online and peeking over our shoulder).  

 

Let me know how you protect your credit/debit cards from the "bad guys."

 

Eric Gurr CPA

 

 

Yearend Payroll Checklist - Check this out

Gurr CPA LLC
1156 S State Suite 202
Orem,  UT  84097

801-255-9411/email:info@gurrcpa.com

 

Payroll Newsletter:  Issue 1 -122014

 

 HR Year-End Checklist:

Start the New Year on the Right Foot

The start of a New Year is a great time to do some HR housekeeping. We’ve compiled a checklist of suggested year-end best practices to help your business prepare for 2015:

Review Policies

In 2014, a number of new employment laws were enacted, with additional requirements scheduled to take effect in 2015. Review workplace policies to confirm that they comply with applicable employment laws and reflect your company’s current benefits and practices.  We will be providing a list of the most important payroll changes in our January Payroll Newsletter.

 

Update Posters and Forms

Many workplace posters and forms, including minimum wage notices and the IRS Form W-4, have been updated for 2015. If you need updated Workplace posters, please contact Debbie Levin at our office to order these.

Distribute Annual Notices

Some states require that employers provide employees with certain notices concerning pay or other information annually. Review your state laws to ensure you have distributed, or are prepared to distribute, all required notices.  We are not aware of any notices required by Utah that would need to provide.

Maintain OSHA Logs

The Occupational Safety and Health Administration (OSHA) requires many employers to keep records of work-related injuries and illnesses and to post OSHA Form 300-A in the workplace from February 1 to April 30 every year. If you require these forms or records, please see below information how to retrieve it from our website portal.

Carryover Vacation, If Required

Although Utah does not require employers to carry over employees’ unused vacation and paid time off from year to year, your Company policy may have these requirements.. Review your carryover requirements in your Company handbook and let us know if there are any changes we need to make.

Update Job Descriptions

Review and update job descriptions and exempt vs. non-exempt classifications to make sure they accurately reflect current job duties. This is critical for ensuring proper pay practices, since an employee’s classification status determines their eligibility for overtime.

Create a Holiday Calendar

Create a calendar of company-observed holidays for 2015 and distribute it to employees before the end of 2014. Remind employees of your policy on holidays. 

Pay Issues

 

Although private companies are not required to provide paid holidays & personal time off (PTO), if your Company policy is to provide paid holidays, they need to consistently apply for all employees.  Be clear in your policies regarding holidays and PTO.  We can track your paid holidays and PTO on your employee’s paychecks to avoid discrepancy.  Please give us a call if you have any questions.

Managing Time-Off Requests

Strategies. The holidays are a popular time for employees to request time off. To help maintain an adequate staffing level, consider granting time off based on seniority, a first-come first-served basis, scheduling needs, or a combination of these factors. Alternatively, consider establishing blackout periods when employees may not take vacation, or provide employees with incentives to take time off during less desirable times of the year. Whatever strategy you use, train supervisors and apply your policy consistently.

Reasonable accommodations. Under federal law, employers with 15 or more employees are generally required to provide reasonable accommodations for employees' sincerely held religious beliefs and practices, unless doing so would impose an undue hardship. This may include providing unpaid time off. The Equal Employment Opportunity Commission's Compliance Manual suggests best practices for providing religious accommodations, such as facilitating voluntary shift swaps and permitting flexible scheduling.  

Human Resources – Current Forms, and Other Resources 

We have setup a Public Portal for Human Resources & Payroll information on our website at www.gurrcpa.com.  You will be able to find current forms, schedules, newsletters that you can use for your Company in helping you to manage your employees more efficiently and keep compliant with payroll rules and regulations.  Here is the link to setup your account. 

https://portal.secure256.com/Public/SignIn.aspx?intDomainID=4697&loc=vault 

We will also be emailing this newsletter out to you on monthly basis.

 

YEAREND TAX PLANNING FOR 2014 - IT IS NOT TOO LATE!!!!!!!

1. Review itemized deductions.    If 2015 income is going to be more, defer deductions to 2014.  if 2015 income is going to be less, accelerate deductions into 2014.
2. Be Charitable.  You can donate cash, autos, used items to charity.  Remember a cash donation of over $250.00 must be documented as well as noncash gifts of more than $500.00
3. Be Even More Charitable.   If you have appreciated stock or mutual funds, consider gifting the appreciated stock or mutual funds.  Full deduction for the appreciated gain.
   
   
4. Charity after 70 1/2.  If you are over 70 1/2 and have an IRA, consider using an IRA to make your charitable contribution.  Contribution would be tax-free and still count as RMD.
5. Gifts to Family.   You (and spouse) can gift up to $14,000 per year to every family member and the gift is nontaxable to the family member and is not subject to gift tax.
6. Contribute to 401k.  If you have a 401k, if you can, contribute up to the maximum for 2014 which is $17,500, if older than 50 you can contribute $23,000.
7. Roth Conversion.  If you think taxes are going up (who doesn't?) than convert your IRA to a Roth and pay tax at lower rates.  When you take money from your Roth later there is no tax.
8. Reduce that Refund.  Don't give the Government an interest free loan.  If you are getting a large refund year after year, complete and file new W-4 with your employer and decrease your exemptions.  Keep your hard money and invest it somewhere else.
9. Be Prepared - Forecast those taxes.  Don't go to your tax preparer not knowing what your estimated taxes will be.  Use our free tax calculators to estimate your 2014 tax liabilities.  Here is the link:  http://www.cpasitesolutions.com/content/calcs/index.php?id=20&category=Taxation
10. Don't Be Afraid to Ask?    Call your tax professional if you have questions. We will take any call, client or nonclient, between now and the end of the year and will address your questions and questions absolutely free of charge.  We may ask you to sign up for our free newsletter, but that is it.  We are here to help.

On December 15th, we will provide our top ten business yearend tax tips.  Please don't miss it.

 

Gurr CPA LLC

1156 S State Suite, 202, Orem, UT  84097

Ph: 801-225-9411  Fx: 801-225-4318

email:  info@gurrcpa.com

website:  www.gurrcpa.com

 



 

Backup Your Computer Data!!!, Did I Say Backup!!, Backup!! Backup!!

This last week my firm experienced first hand how important it is to backup your computer data. We lost our Network Server and our external backup hard drive all in the same week!!  Fortunately we were able to replace the backup external drive a mere two (2) days before the network server went down.  Also, we we doing daily backups so although we lost access to our company data on the hard drives, we were able to restore all data almost to the very hour we saved our last file to our internal hard drives. 

Also, because many of  our business functions and revenue sources are derived by applications that are cloud based, even with the Network Server down, we could still continue in business without little or no impact to my customers and clients.  In fact, without this blog, our customers would have no idea that our firm had such issues this past week.

With competition as keen as it is today, most businesses today would not survive long if they do not have a strong and viable data recovery plan in place. 

Here is our recommendations:

Critical Backup Recovery Plan (CBRP)

• Critical computer hardware components (computer networks etc) should be changed out at least every 5 years.  Computer hardware does wear out.   If you are nearing the 5 year mark, budget new hardware and software. This includes external hard drives - they wear out! 
• Use only quality hardware for you key computer components. The old adage is true - "you get what you pay for!"  For Computer networking hardware, use a true networking computer solution - hardware and software.  
• Use a reliable backup battery system for your key computer hardware 
• All your sensitive computer data should be backed up regularly - in my business, we backed up our data files daily.  All computer data backup software automates the backup function, it is just as easy to setup auto backup on a daily basis as it is weekly, monthly etc.  Do it daily.
• Use both onsite and offsite backup.  Your onsite backup can be an external hard drive.  Your offsite backup can be through a reliable third-party backup service. We are using Mosy, since there focus is on business.  At home, we use MY PC Backup.  There are many third-parties that provide onsite backup.  Offsite backup also ensures protection of your data in case of a disaster that destroys your place of business (fire, burglary etc...)  I had a customer whose successful business was destroyed by a fire started in one of the neighboring businesses, because he lost all his customer, inventory, and manufacturing data, - he lost his business to competitors because of the time it took for him to try and recover data and information that he gathered over many years of being in business.  He never recovered.
• Contract with a reliable IT consultant.   Don't just hire anyone for IT consulting. (e.g. your neighbor, friend, family member because he/she is "good" with computers and is less expensive - Again, you get what you pay for!!.  Ask around, find out who is a competent, reliable IT consultant and is in the business full time.  We have several IT consultants we work with in our business and our clients, if you need a recommendation - send me an email - we can recommend some very good IT consultants.
• Use Cloud based solutions.   We use Google for email, blogging, calendaring, file sharing and etc.  We have a third-party host our website which provides secure file vaults, email marketing etc.  We do not recommend you put you use your Network Server as your email and website server.  When our office server went down, there was not effect on our email or website.  If your email or website goes dark, even for a few days, you will lose current and future customers.  We have even moved our financial accounting to Cloud Based solutions using Quickbooks online. Because our business financials are Cloud Based, invoicing and billing of customers went out as normal and on time.  No affect on cash flow.

 The costs to put a strong CBRP in place for your business is immaterial compared to the cost of having a major loss of data and downtime in your business. 

If you are interested in a review of your CBRP for your business and a plan to ensure your business has a strong CBRP going forward, please contact our office.

Preparing your 2013 Tax Returns - Key Changes That May Impact You!

 

Welcome to the New Year, now that the celebrating is over, let start thinking about - Taxes!!  Sorry to put a "damper" on your new year celebrations.  

Tax filing season will officially begin January 31, 2014 - the date the IRS has announced that they will be ready to start accepting paper and electronically filed tax returns.

 

The following is a summary of the key provision of changes in the 2013 tax law which may have an impact on your 2013 taxes.  Although in many cases you may not be able to do anything now to reduce your 2013 taxes, you should use this as an opportunity to plan for 2014 and future years.\

Here is the summary............................................... 

A Tax Increase on the Highest Incomes in 2013.  Taxpayers (including those who receive income through partnerships and S corporations) who earn more than $400,000 ($450,000 for married taxpayers filing jointly) have a marginal tax rate of 39.6%. All other existing rates remain the same.

Higher Capital Gains Rates for Top Earners. The same individuals who are subject to the new 39.6% top rate on income now face a 20% rate on capital gains and dividends, up from 15%. Taxpayers in the 10% and 15% income brackets have a zero capital gains rate and those in the middle will continue to pay 15%.

·        Higher Personal Exemptions Phase-out Levels. The phase-out levels for personal exemptions and itemized deduction have been raised to $300,000 for married couples and surviving spouses and $250,000 for individuals. 

·       Permanent AMT Inflation Indexing (Finally!!). The alternative minimum tax originally was intended to prevent high-income individuals from avoiding taxes. In the absence of a patch for last year, more than 60 million middle-income taxpayers might have been subject to the AMT on their 2012 income. After years of last-minute AMT “patches,” the new law permanently indexes the AMT to inflation starting in tax year 2012. For income you earned in 2012, the exemptions are $50,600 for individuals and $78,750 for married taxpayers filing jointly. 

·        Clarity on Estate and Gift Taxes. After years of uncertainty in this area, the new law holds the estate and gift-tax exclusion at $5 million, indexed for inflation -  $5.2 million in 2013.   The top tax rate jumped to 40% from 35% as of Jan. 1, 2013, but without this change, it would have soared to 55% with a $1 million exclusion amount. The act made permanent the estate tax portability election, which allows a surviving spouse to use a deceased spouse’s unused exemption amount. 

·         Marriage Penalty Relief Retained. Certain taxpayers filing jointly will no longer have to worry about paying more than if they filed as single taxpayers; joint filers also will enjoy a larger standard deduction. 

·        Education Tax Benefits Extended. Most deductions for education expenses will remain in place under the new law. For example, the law extends the deduction for qualified education expenses through 2013.

·        Conversions to Roth Retirement Plans. The new law allows participants in an employer-sponsored 401(k) to transfer any amount to a Roth 401(k) — the funds will be taxed upon conversion.  

·        Tax Relief for Mortgage Loan Modifications. Taxpayers struggling to pay their mortgages, or whose home values have fallen below their purchase price, were given another year of tax relief on any qualifying “indebtedness income” they may receive as a result of a loan modification or short sale on their principal residence.

Net Investment Income Tax.  Taxpayers who have net investment income in 2013 will face a 3.8% surtax on categories of certain unearned income, potentially increasing the total tax rate to 43.4%. This tax is part of the health care reform act. 

 Supreme Court Ruling on DOMA.  The Supreme overturned DOMA during the summer of 2013.  As a result,  Same Sex Married couples (SSM) can now file joint tax returns for federal.  In Utah, we are waiting for word from the Utah State Tax Commission as to whether SSM couples can file a joint tax return for Utah based on the recent ruling by Judge Shelby - unconstitutionality of Amendment 3.  Currently on Appeal to the U.S. Supreme Court.

 

Tax planning should be done in conjunction with preparation of your 2013 tax returns.  For example, if you are currently using an S Corporation for your business and you are in the 39.3% bracket, it may be a good tax planning move to convert your S Corporation to a C Corporation since the top rate in a  C Corporation is 35%.  Of course there are other reasons why you may want to keep using your S Corporation. 

 

 The bottom line here - prepare for 2013, but plan for 2014!!!