Wednesday, November 12, 2014

Employee vs. Independent Contractor

It is important for companies to know the difference between what makes someone an employee vs. an independent contractor. Companies are responsible for paying social security taxes, medicare taxes and unemployment taxes on wages paid to an employee. Companies are not responsible for paying these taxes on money paid to an independent contractor. The independent contractor is responsible for paying the self-employment tax (15.3%) in addition to the ordinary tax. Companies may think they are coming out on top and saving money on taxes by misclassifying workers.  There can be tax and  legal trouble for a company if a  worker is misclassified.

Employees vs. Independent Contractors

  •  Employees are dictated by employer what hours to work and how to do the job.
  •  Independent contractors make their own schedules and have more flexibility in how they complete work projects. 
  •  Employees are paid by salary or hourly
  • Independent contractors are usually paid by project, not by hour. 
  •  Employees usually only work for one company.
  •  Independent contractors may work for various companies. 
  • Employees work expenses are covered largely by the company.
  • Independent contractors pay out of pocket for business expenses. 
  • Employees receives fringe benefits such as vacation, sick pay and health benefits
  • Independent contractors do not receive fringe benefits. 
  • Employees receive a W-2 at end of tax year.
  • Independent contractors receive a 1099 - MISC  
This is not an all- inclusive list of the differences between an employee and an independent contractor.

Please refer to the IRS website for further information on classifying workers.

Friday, June 6, 2014

Think taxes year round - Small Business Owners

To save  money in taxes, have a successful business and/or avoid an IRS agent from knocking at your door, think about taxes year round. This rings especially true for small business owners, business income is taxed at a higher tax rate.  Self- employment income is imposed the self-employment tax of 15.3% and the ordinary income tax rate.

Tax Tips for the Self- Employed

1. Car expenses- If you use your automobile for business , you may be able to write the expenses off.  Use either the actual expense or standard mileage method. Usually, the standard mileage method is more advantageous, depreciation is included in standard mileage rate. For TY 2013, the standard mileage rate is 56.5 cents per mile. If you drive 10,000 business miles , $ 5,650  can be  deducted from your business income, a huge tax savings.

2. Business use of home-   Taxpayers with  a  home office may be able to take the home office tax deduction.Calculate business use percentage by dividing the square footage of your home office by the square footage of your home.  Home expenses are ten multiplied by the business use percentage to figure deductible expenses. Utilities, home repairs, insurance, home mortgage interest,  rent , property taxes qualify for home office tax deductions.
  In order to take the deduction, the area must be exclusively used for business.  If you let an overnight guest sleep in your home office, you are no longer eligible for your tax deduction.

3. Depreciation - Depreciation for office equipment and business asset are tax -deductible expenses. Additionally, taxpayers with a home office can deduct home's depreciation based on the business use percentage.

4. Interest - Taxpayers who borrow money to finance a business may be able to claim a tax deduction for interest paid on the loan.

*Tax Charm blog is not to be used for legal or professional advice.

Thursday, June 5, 2014

Small Business Owners Tip - Personal Matters and Business don't mix

Congrats on your new journey as a business owner. The best times are ahead, challenges are also ahead. Start off on the right track by establishing a separate entity for your new venture. A LLC (limited liability company)  is  one option that creates a separate identity for your business.  Setting up a LLC can  protect your personal assets  from seizure  in the case your business is sued.

Establishing a LLC is  one step.  It's still your responsibility  to keep your personal income separate from your business entity and to keep up the tax filings and legal requirements of operating a LLC. One requirement of  a LLC iowner is maintaining a business bank account. The Business bank account should only be used for  Business income and expenditures.

To withdraw money from the business to pay yourself, you can take an owner's draw.

Commingling  business income and personal income will forfeit the protection the LLC provides for If you choose not to incorporate your business, it is still a great practice to differentiate your business income from personal income. The advantages include businesses' profit/losses are easier to compute,   less likelihood of an IRS audit,  and loans approval odds increase.

I recommend all new business owners and those thinking of going in business for themselves to seek help from cpa, lawyer ,and/or professional tax advisor. This will save you a lot of headaches in the end.

Being a successful business owner takes more than talent and creativity, it takes resources and tapping into a network of  professionals.

*TaxCharm blog is not legal advice.  It is meant for informational purposes only.*

Wednesday, March 5, 2014

Tax Office Marriages " I now pronounce you man and wife."

There are occasions when taxpayers in common-law marriage states, such as Texas, file Married Filing Jointly with live- in mates.

If you live in a common law state and file a joint tax return with your live in lover, you are are now married, whether you go throught the official proceeding or not. This will make it more may be difficult to walk away if you break up .You may have to seek a formal divorce and your former lover could possibly have rights to some of your assets. 

Legally, once a common law marriage has been established, there is no difference between a common law marriage and a ceremonial marriage.

Before you make an instant decision in a tax office that could change your life forever, ponder if you want to be married to this person and want them to have legal right to your assets

If you marry in the tax office, your  significant other may want a ring with your tax refund.

Places where common- law marriages can still be contracted: 9 states(Alabama, Colorado, Kansas, Rhode Island, South Carolina, Iowa, Montana, Utah and Texas) and the District of Columbia.

* Note: If you live in a common law state and  you and your live in lover introduce yourselves  as husband and wife, then you may legally be obligated to file tax return as married. You may be in violation of  IRS regulations if you file single or head of household after presenting yourself to be married.

Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.

Monday, March 3, 2014

Help! The IRS took our tax refund for my spouse's past due child support.

This is a common situation that is seen frequently in tax offices all across America.  Either, the spouse is  afraid to file with their significant other due to fear of refund being applied towards past due debt  or the spouses file together and neither  one gets any of the tax refund.

Most people tried to avoid this by filing Married Filing Separately. This is not  a good alternative.  Married Filing Separately  disallows you from claiming any tax credits. Tax Credits you may be missing out on are Earned Income Credit, Child Tax Credit, Education Credit, Child Care Credit, and Retirement Savings Contribution Credit.

Instead of robbing yourself of free money, you can file Married Filing Jointly then submit an Injured Spouse Allocation form. This way you can help pay off some of your spouse's debt and get your portion of the refund back from the IRS.

You may be entitled to injured spouse relief if you file a joint return and all or part of your refund is applied against your spouses’ past-due federal tax, state income tax, child or spousal support or federal nontax debt, such as a student loan.

 For the IRS to consider you an injured spouse, you must have made and reported tax payments, such as federal income tax withheld from wages or estimated tax payments, or claimed a refundable tax credit, and not be legally obligated to pay the past-due amount.

Please keep in mind that you are not entitled to Injured Spouse Relief if the amount owed is due to debt you are responsible for. It has to be only your spouse's debt.

Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.


Saturday, March 1, 2014

What are the filing requirements for Tax Year 2013?

  • If you made over $400 as self-employed person, you are required to file and pay self employment taxes. 
       You are self-employed if you are fall in any of the following groups: You are an independent contractor, a sole proprietor, a member of a partnership, or are in a business for yourself in any other way.)

  • Filing Requirements for most taxpayers.

Filing StatusMinimum Gross Income (under 65)Minimum Gross Income (65+)
Head of Household$12,850$14,350
Married Filing Jointly$20,000$21,200 (one spouse)
$22,400 (both spouses)
Married Filing Separately$3,900$3,900
Widow with Dependent Child$16,100$17,300

  • Church employees who are paid more than $108.28 in wages not subject to Social Security or Medicare taxes are also required to file.

  • Children and Dependents are required to file if they make m

    Tax Charm blog is not legal or professional advice.

    You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

    I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.

    ore than $1000 in unearned income (ie, interest, dividends) or $6100 in earned income.