Theresa Arndt, CPA

In my last post, I discussed some of the potential risks of misclassifying workers as independent contractors (IC).   If you are a company that hires independent contractors, now is a good time to do a self-audit of your worker classification and assess your worker misclassification exposure. A person is not an IC simply because the parties agree to that classification.   The common law rules determine the status of each worker. A number of courts have issued some interesting decisions in cases involving worker misclassification claims.   As a result, a multitude of tests have evolved for determining whether a worker is an employee or an IC.     Because federal and state agencies apply different tests to determine who is an employee versus an IC, it is possible for a worker to be an employee under one test and an IC under another. What test does the IRS and Missouri use? Historically, the IRS and Missouri used what has become known as the “Twenty Fact...

  If you are a small business and hire workers in your company, here is something that might concern you.   The U.S. Department of Labor (USDOL) and the Internal Revenue Service (IRS) are cracking down on companies that improperly treat employees as independent contractors .       I know we’ve heard about the worker classification issue for a long time but now it appears they mean business.   The USDOL is signing agreements to share information with the IRS and nine states and guess who one of those states is – Missouri.     Employee misclassification is an issue affecting companies across the United States.   The distinction between an employee and I/C can be difficult to determine.   One example is FedEx Ground, which claims its drivers are I/C’s because they own their trucks and sell their routes.   The attorney General of NY and several other states are investigating whether this is the correct classification.   Be...

Yesterday I attended a one day seminar on payroll law and how to protect a company from costly mistakes.     Why you ask would a CPA be interested in such a simple course?   Seriously, handling payroll is a simple proposition.   Employees work at a certain rate of pay.   You take out taxes and give them the rest of what they’ve earned.    You wish it was that simple. If you didn’t catch the title of the seminar, let me repeat it for you – Payroll Law 2012.   That should tell you something.   It’s highly regulated and like tax law has loopholes and gotcha’s.   Even an innocent mistake can cost your company a significant fine.   So if you don’t know what the law is you can easily find yourself in legal hot water - like Abercrombie & Fitch did.   They were fined $1 million for mere paperwork mistakes when they filed I-9’s for its workers and that was in the state of Michigan alone.   L So are you in compliance...

This time of year many of my clients are trying to figure out how the can reduce their tax liability for next year.   So while reading the news this week, I’m sure you can understand why this headline caught my attention:     A Solo 401K Plan Can Cut Your 2011 Tax Bill by $9,800.   But Need to Act Soon. Since this kind of tax savings would interest the majority of my clients, I thought today’s lesson should be all about the Solo 401K tax break.   What is a Solo 401K? Before we break out into the nuts and bolts of the solo 401K, let me give you three good reasons why you might want to learn more about it: significant tax savings, higher contribution limits, and tax-free loan option. In the past, 401k plans were typically offered by larger corporations. Employees could make pre-tax contributions by payroll deduction and the company would often times match a percentage of those contributions.   Investments grew tax-free until withdrawn at retirement. ...

Last week, a client called to let me know he was thinking about selling his business and asked what the tax consequences would be.   If there is one way to impress a CPA, this is how you do it.   We are CPA’s and part of what we do is help you make the right decision.   But once the decision is made, often times there is very little we can do except comfort the client in his distress. There were a number of ideas I brought to the table but the one I want to share with you is a little known and often overlooked step in selling a business:    Filing IRS Form 8594, “Asset Acquisition Statement.”     For those do it yourselfers out there, failure to pay attention to this part of the process can cost you thousands of dollars depending on the size of the sale. So if you are thinking about buying or selling a business or know of someone who is, here is some guidance that could help save you some money. What is the purpose of Form 8594? When buying ...

Last week I met with a new client who was eligible to claim a home office deduction but chose not to because she was afraid it would raise a red flag with the IRS and increase her chances of being audited.     Is she right? Well, IRS officials won't disclose details of how they pick which returns to audit or what percentage of those who claim the home-office deduction are audited.     But it does appear that historically they have been very interested in this deduction, mostly because it has a fairly high adjustment rate on an audit. Just because you work from home doesn’t mean you qualify to take this deduction.   Since the rules are complex a lot of people claim the deduction when they shouldn’t, but according to this WSJ article many more of you are eligible but choose to pass on it. Having said that, if you know the rules and do qualify, tax experts and other advisors say there is no reason to avoid it. So if you are a sole proprietor (file a sched...