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Independent Contractor vs. Employee Part 1

admin — Wed, 11 Aug 2010 12:00:56 +0000

Currently, the likelihood of your NYC small business being involved in a worker classification or employment tax audit is increased because the IRS is aggressively attempting to reduce the “tax gap,” which is the annual shortfall between taxes owed and taxes paid. Employment tax noncompliance is estimated by the IRS to account for approximately $54 billion of the tax gap. Under-reporting of FICA makes up $14 billion; under-reporting of self-employment tax accounts for $39 billion; and under-reporting of unemployment tax accounts for $1 billion in lost revenue. Our Manhattan S-corporation CPAs know that this may affect many LLCs, S-corps, and other Small Businesses in New York City.

As a result of the Questionable Employment Tax Practice (QETP) initiative, in 2007 the IRS entered into agreements with workforce agencies in 29 states to share the results of employment tax examinations. These agreements provide a centralized, uniform means for the IRS and state employment officials to encourage compliance with federal and state employment tax requirements. In addition, for the 2008 through 2010 tax years, the IRS plans to examine 6000 randomly selected employers’ Forms 941, Employer’s Quarterly Federal Tax Return, as part of the National Research Program (NRP). This means that now more than ever your New York small business needs CPA who specializes in S-corporations and LLCs in Manhattan.

Because the existing worker classification rules are complex and ambiguous, much uncertainty surrounds their interpretation and application. The lack of a single, definitive test for classifying workers as either employees or independent contractors contributes significantly to the worker classification problem, and this could very well affect your small business in New York.

Therefore, understanding the difference between an employee and an independent contractor is very important. If you are an employer, you are required to withhold and contribute a matching amount of FICA and Medicare taxes from your employee’s income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC (Miscellaneous Income). Our small business CPAs in Manhattan know that failing to make the right classification could cost your NYC s-corporation or LLC lots of money.

If you have workers who make substantial financial investments in tools, equipment, or a place to work, or undertake some entrepreneurial risks, they are probably independent contractors. However, when you control and direct the workers who perform services for you as to the end result and how it will be accomplished, you are probably involved in an employer-employee relationship.
Unless there is a reasonable basis for treating your employees as independent contractors, failing to withhold New York income and employment taxes from their wages can result in severe penalties and interest, in addition to the back taxes owed. Of course, penalties for intentional worker misclassifications are harsher than they are for inadvertent mistakes.

Your benefit plan may also be in jeopardy if any eligible employees have been misclassified as independent contractors. Since these employees have been excluded from plan participation, your retirement plan may lose its tax-favored status. The problem is compounded when excluded employees seek restitution for lost benefits not only due to their exclusion from the benefit plan, but also for health coverage and other employee benefits.

Since the potential liability is considerable, we feel that it would be beneficial for you to verify that your workers are properly classified by meeting with our team of S-corporation CPAs in Manhattan. It is also important that your employment tax records are in compliance with IRS guidelines, especially in the event of an audit. Please contact our team of small business CPAs in New York at your earliest convenience to make an appointment.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Small Business Tax Guidance on Small-Employer Health Care Credit in NYC

admin — Wed, 28 Jul 2010 12:00:49 +0000

Dear Client:
Our Manhattan CPAs want yo make sure that you are aware of the following development in NYC small business taxes: The IRS has released guidance on computing the health insurance tax credit for eligible New York small businesses that make nonelective contributions toward their employee’s health insurance premiums.

The Patient Protection and Affordable Care Act added a provision that allows eligible New York City small businesses a tax credit for nonelective contributions that pay for at least one-half of the cost of health insurance premiums for the coverage of participating employees. The amount of the NYC small business tax credit is equal to 35 percent of the lesser of:
1. The total amount of the nonelective contributions the employer makes on behalf of its employees during the tax year under a contribution arrangement for the payment of premiums for qualified health insurance coverage of its employees, or
2. The total amount of nonelective contributions that would have been made during the tax year if each employee taken into account in item (1) had enrolled in a qualified health plan that had a premium equal to the amount that the Secretary of Health and Human Services determines is the average premium for the small group market in the state in which the employer is offering health insurance coverage (or the area within the state that is specified by the Secretary of Health and Human Services).

An employer determines its status as an eligible New York small business each tax year. An employer is an eligible small employer if the following conditions are met:
•   it has 25 or fewer full-time equivalent (FTE) employees;
•   the average annual wages of these employees are not greater than twice the applicable dollar amount for the tax year ($25,000 in tax years beginning in 2010 through 2013); and
•   the employer has a qualified health care arrangement in effect.
Certain employees are excluded from the determination of FTEs. Excluded employees are sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S corporation, and any owners of more than 5 percent of other businesses. Family members of these owners and partners are also not taken into account as employees.

The IRS guidance clarifies, among other things, how employers calculate the credit, the types of coverage that are eligible for the credit, and the interaction of the federal tax credit with New York small business tax credits. In addition, the IRS provides the average premium for the small group market in each state for the 2010 tax year for purposes of computing the amount of the credit.

The health insurance tax credit for NYC small businesses is one of many provisions of the Patient Protection and Affordable Care Act that encourages the shared responsibility for health insurance coverage of all Americans. If you have any questions regarding your eligibility or the calculation of the credit, please call our Manhattan small business CPAs at your earliest convenience.
Sincerely yours,

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Know More about Amended Tax Returns NYC

admin — Fri, 26 Feb 2010 12:00:38 +0000

Know More about Amended Tax Returns NYC

First of all, what is an amended tax return? This is filed when you need to make any type of revisions on a return that you have already filed. The most common amendment that people make is their filing status. Most will change the status so they can claim more deductions that may have been missed when they originally filed.

When you need to make an amendment, you need Form 1040x. This will allow you to correct any information you need to when you filed your Form 1040 EZ, Form 1040A, or Form 1040.

If the amending tax returns request is due to some errors made on the calculations then you may not need to file an amendment because the electronic system used may correct these errors for you. The IRS uses a fool proof system to verify all the information on all returns before any checks are issued. If you notice a mistake in calculations you may want to contact your CPA to ask him or her, what you should do next.

If you need to file amended tax returns, you will have room to put your reason for filing this form. If it is due to a status change then you clearly want to state this. There are three different columns on Form 1040x. The first column or column A will allow you to place the information that was on your original form. The second column, or column B gives you room to explain why the change is needed. The third column, or column C gives you room to put the change needed to be made. When you fill out this form make sure that you place the year that you need amended at the top.

Make sure that you have the right documents that will verify your request to change your information before you send in the form. Because this can take weeks to get approved you don’t want to waste any time by not being prepared.

Before you send in the 1040x form you want to have a NYC CPA in Manhattan look over the information to verify the correction. The CPA in NYC can also help you mail it to the right IRS department. You cannot electronically submit this form, fax it, or call it in. You must mail this correction to the IRS.

You want to make sure that the information you provide is correct and then mail it out. If your change is significant the IRS may order an audit to look over your records further. If this is the case you will need the help of the CPA in New York you hired. Sometimes during an audit, the person being audited may feel intimidated by the IRS. A CPA knows the rules and the laws and can represent you during this audit. They can help you answer all the questions by the IRS and if necessary arrange to go over all your information to verify your tax returns.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NYC firm in downtown Manhattan serving the needs of Individuals & Small Businesses in New York City and throughout the nation. We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

We Fix Tax Returns

admin — Mon, 22 Feb 2010 12:00:33 +0000

We Fix Tax Returns

You filed your tax returns by the April 15 deadline. Now you can sit back and relax. Oh no! You just remembered that you put the wrong status on your tax return. Maybe you just got married at the end of the year or divorced and it just dawned on you that you put the wrong status on your form. Something as simple as your status can make a big difference in your return. So how do you change your information now? You can repair tax returns New York City or anywhere else by filing a 1040x form.

There are other reasons why you need to fix tax returns. It could be the total that you failed to report part of your income, credits that are due to you, deductions that you forgot to mention, or you miscounted the number of dependants that you can claim. If you think that you miscalculated something on your form you can actually relax because the IRS uses an electronic system that catches even the simplest mistakes and corrects them automatically. To be sure, you need to check with an accountant in New York City to make sure that you do not need to file. Don’t assume that the IRS will not notice the mistake. If it is noted, you could be audited and you may end up paying more in penalties as well as interest, depending on the mistake and how long it has been.

It doesn’t matter how you filed your tax papers the first time, you can still make changes to the form if it is incorrect. The IRS knows that sometimes mistakes can happen and it can affect the results of the return. Even though it is extra work for everyone, in the end, the change will be better then not saying anything at all. When you file your amendment, you will need to do it on paper and allow up to 12 weeks goes into effect. These changes need to be carefully corrected by an IRS agent personally.

You have up to three years to fix tax returns New York from the original date that you filed. Even if it is June when you realize the mistake, you need to report it immediately. Don’t wait until the next tax season to file the change. You may forget about it by then.

Filing an amendment is not free. You will need to pay extra for filing the form and any help you need from a CPA to file it correctly. However, it is worth the extra money to not have it to worry about anymore.

Filing the form is very simple and easy to do. You may feel better to have a CPA walk you through it or to verify everything that you put on the form to make sure that you filed it correctly. When you are in doubt as to whether you need to make any changes it is important to consult with a CPA.

About us: MEDOWS CPA, PLLC is a boutique New York City Certified Public Accountant firm (CPA NYC) working with serving the needs of Individuals & Small Businesses in New York City and throughout the nation. We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

How a CPA Can Help You, Instead of Jackson Hewitt/National Tax Chain

admin — Fri, 12 Feb 2010 12:00:31 +0000

How a CPA Can Help You, Instead of Jackson Hewitt/National Tax Chain

When tax time rolls around you may wonder if the larger tax preparation agencies can offer you more services then the individual CPAs. When you compare the larger agencies to the services offered by a NY CPA you may be happier with the results that a CPA can offer.

A Certified Public Accountant New York City can offer you personal support. If you need tax advice throughout the year, you want to be able to call someone who will remember your name. You want to know that you can trust that person to prepare your taxes every year at tax season and get you back the money that is due to you. A CPA can schedule time to sit down with you and listen to your tax concerns and go over all the details associated with your return.

A CPA takes responsibility for his or her own work, unlike the big agencies that do not know who to blame. You work one-on-one with the person who does your taxes. That way you know who is doing it and if they are doing it right.

The National tax chains, like Jackson Hewitt caters to a large clientele. A Tax Preparation Manhattan CPA caters more to a smaller group of clients. This makes a difference in every way. You get more personal customer service, from a NYC CPA that has been in business for years, and more affordable.

The fees for a Manhattan CPA are affordable. You will be able to have all your tax preparations done by one person and will still owe less then if you went to the larger chains.

H&R Block and other large chains spend a lot in advertising and means that the fees that they charge must be higher in order to compensate for their expenses. Sometimes bigger is not better and when it comes to getting money back you want to make sure that someone is actually looking out for you so you get every dime that you can.

A income tax NY CPA has extensive training in tax preparation and accounts. If you run your own business, you can hire a CPA to handle all your business needs. They can help you file the right paperwork to get your business registered and then they can help you pay your taxes accordingly. For a fee, they can help you keep track of every thing that has to do with your business though out the year so you can file your taxes without worrying about owing the state or the government.

Every taxes NY CPA offers something different so you will need to consider what you need before you find the right CPA for you. Don’t wait until your taxes are overdue before you try to find the CPA that is right for you. Sometimes when you make decisions when you are rushed, you end up not making the right decision in the long run. A CPA in New York will be helping you keep your business together so make sure that you carefully consider your options.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Disadvantages of using H&R Block and Jackson Hewitt

admin — Wed, 10 Feb 2010 12:00:00 +0000

Disadvantages of using H&R Block and Jackson Hewitt

If you have had bad experiences in the past with income tax preparers there could be a reason for that. Using big chains like H&R Block and Jackson Hewitt may give you more reasons to be satisfied then to be happy. When you prepare for tax preparations this year you need to weigh your options and decide which type of preparer is right for you.

The larger chains like H&R Block and Jackson Hewitt have more tax preparers working to handle a large clientele. They train their own preparers so they never have to go to school for their education. There are disadvantages to this because these preparers are not trained enough to handle the many different complications that arise in tax preparation. The course they offer touches base on all the basic types of tax preparation and the different types of forms so they can be familiar with each one of them. The alternative is to hire a Certified Public Accountant New York City for your tax preparation. The New York CPA’s go through college to earn their way to preparing taxes. They can also offer additional services like account management for those who run their own business.

The larger chains offer their services to too many people so there is no personal service. When you have your taxes prepared in NY you want to be more then just a number. Your tax preparer should know you by name. This makes paying them for their services so much easier because you feel more important, not just another number. A CPA can offer you this type of individual service. Find someone that you can trust year after year.

When you use the services from a larger chain you may not get an accurate tax refund. That is because they rush things along and do not take the time to double check their work. They rely completely on the accuracy of their software program to figure out how much you owe or how much you will get back. When you make an appointment with a tax preparer you want to be able to trust that they will prepare your taxes right the first time. Even one number off can make a big difference and have you owing money instead of getting any money back.

There are several disadvantages to using these larger chains. If you want more personalized service and tax preparation that is most accurate then you may be better off looking for a Certified Public Accountant New York City. They are educated and licensed to handle all your tax preparation needs.

If you have any questions during the year that you need answered regarding your tax refund, starting and running your own business, or a change in your employment you want to be able to contact a CPA for freelancers to handle these questions for you. You want someone you can trust with your money. You worked hard all year to get it and you don’t feel like having it taken away so hiring a NYC CPA makes sense.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Obama to Propose $5,000 New Hire Tax Credit

admin — Fri, 29 Jan 2010 18:12:45 +0000

Courtesy of http://www.foxbusiness.com/:

President Obama will propose Friday in Baltimore a new business tax credit worth up to $5,000 for every new worker hired this year.

Under the president’s plan, a business could claim a tax credit of up to $5,000 for every net new employee it adds to its workforce this year. If that business hires a worker and fires another, it would be ineligible for this credit.

Senior administration officials said they capped the total credits a business can claim at $500,000 to ensure their proposal mostly helps small businesses.

“The focus is really on small businesses,” said a senior administration official.

The president is also proposing the federal government reimburse businesses for the Social Security taxes they owe on increases in their payrolls this year.

If a small business with 50 employees raises wages by $1,000 for each employee, either through increased pay or hours, the business would receive a tax credit of $3,100 to cover higher Social Security payroll taxes, according to an administration fact sheet.

“It isn’t just about net new jobs, it’s about wages also,” said the official, who added the administration projects these credits will benefit a million businesses.

Provided congressional approval, businesses will be able to claim this credit on their 2010 taxes for any new hire they make during this year.

The tax credits will cost the government $33 billion dollars, according to the White House, citing a Treasury Department estimate.

The president and Congressional Democrats are wrestling with an economy struggling to create jobs, while trying to confront a massive federal deficit.

In this week alone, President Obama called for Congress to temporarily freeze some federal spending to save $250 billion over the next ten years, the Congressional Budget Office forecasted a $1.35-trillion federal deficit for this fiscal year and a $75-billion increase in the stimulus plan’s cost estimate, the Senate approved a measure to raise the debt ceiling by $1.9 trillion, and Democrats have been negotiating billions in new spending to try to catalyze a dormant job market.

While in Baltimore Friday, the president will also address House Republicans who are holding their retreat there.

A tax credit plan may be one of the president’s few economic proposals Republicans may support.

“The only bright spot in President Obama’s latest jobs plan is that his Administration finally acknowledges that lowering the tax burden on small businesses is the most effective way to reduce our nation’s unemployment,” said Rep. Scott Garrett, a New Jersey Republican. “Unfortunately, while this temporary wage subsidy may create a spike in employment, Americans need permanent relief through sustained growth.”

Strongly opposed to the president’s economic agenda, congressional Republicans have been blasting Democrats for their efforts to spend billions more on highway and rail projects.

“We’ve had enough,” said House Republican Whip Eric Cantor. “The $800-plus billion stimulus bill didn’t produce any jobs. Then the president says we’ve got to freeze domestic discretionary spending. But oh, by the way, let me go and propose $150 billion more before our freeze. None of that makes sense,” he said.

Meanwhile, Senate Democrats are moving ahead with negotiating the details of their latest economic bill. They say it will, along with the stimulus plan, jump-start hiring and upgrade aging transportation infrastructure.

“I think it’ll give the Republicans an opportunity to – to work with us,” said Senate Majority Leader Harry Reid. “It’ll be so glaringly apparent to the American people if we don’t get a few Republican votes to support us that they are not interested in any success to the American if they are continually going to say no.”

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Haiti Relief donations can now be claimed on 2009 Tax Returns

admin — Wed, 27 Jan 2010 12:00:20 +0000

Haiti Relief donations can now be claimed on 2009 Tax Returns

The acceleration of Income Tax Benefits for Charitable Cash Contributions for Relief of Victims of Earthquake in Haiti (P.L. 111-126 (H.R. 4462)) enacted on Friday, Jan 22, 2010, allows taxpayers who itemize deductions on their 2009 return to qualify for this special tax relief.

Any cash contribution made after Jan 11, 2010, and before Mar 1, 2010 for the relief of victims in areas affected by the Jan 12, 2010 earthquake in Haiti are eligible to claim the contribution as if they made it Dec 31, 2009.

The new law applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan 12 earthquake in Haiti.

Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns but not both.

Taxpayers donating to Haiti relief by using their cell phone text messaging service may use a telephone bill showing the name of the donee organization, the date of the contribution, and the amount of the contribution as meeting the recordkeeping requirements of Code section 170(f)(17).

More details can be found in the IRS news release IR-2010-12 issued on Jan 25, 2010.

About us: MEDOWS CPA, PLLC is a boutique New York CPA Firm in Manhattan serving the needs of Individuals & Small Businesses in New York City and throughout the nation. We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

WHY IT IS GOOD TO FILE TAXES EARLY

admin — Sun, 24 Jan 2010 22:19:57 +0000

WHY IT IS GOOD TO FILE TAXES EARLY

Many CPA firms including Medows CPA advise clients to file tax returns as early as possible. One principal reason is that filing early allows your CPA to sort through any potential complex tax issues so that the tax return can be completed as accurately as possible. All CPAs get very busy and inundated with work as April 15^th approaches, so it is best to work with your accounting firm earlier on for more personalized and relaxed attention. As a client, if you choose to file earlier on, you will certainly have less stress and will have one less task remaining on your to-do list.

Taxpayers can begin filing returns as early as January 1, 2010, but since employers and contractors have a deadline of January 31, 2010 for mailing out W2 and 1099 forms, it is most important to wait until all your paperwork is received from employers and contractors.

Filing early on in the year ensures that any refunds that are due to you will be processed more quickly. The IRS will be less occupied can review your returns much sooner.

In addition, if taxpayers wait until the last minute, in rushing to finish preparing the taxes it is easier to make mistakes. Taxpayers may also not be able to meet the April 15^th deadline by waiting until the last minute, since due to sickness, accidents, traffic, or other reasons, it may be impossible to get to the post office. There are definitely fees associated with late taxes filed not on extension, such as interest and fines. Filing early also lets you to choose your preferred method of filing and requesting a refund, if applicable.

About us: MEDOWS CPA, PLLC is a boutique New York City CPA Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation. We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC