Do you have a babysitter, nanny, maid, health care provider, or other domestic worker? If so, they may be your employee. The worker is generally your employee if you can control not only what work is done, but also how the work is done. Whereas, if the worker controls how the work is done, the worker is generally not an employee. For example, a self-employed worker who provides their own tools and offers services to the general public is usually an independent contractor, not an employee. It does not matter whether the work is full-time or part-time, or that you hired them through an agency or from a list provided by an agency. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job. For more information see IRS Publication 926.
So, you have determined you have a household employee. What should you be aware of?
Are they being paid a salary? Household employees are classified in the Fair Labor Standards Act as non-exempt workers. This means their payroll should be set up on an hourly rate for every hour worked. If they will be working a set number of hours each week, you can offer a weekly “salary,” but you should translate the amount into an hourly rate in their employment contract so fluctuations in their hours can easily be calculated and detailed on paystubs. As a non-exempt employee, they also must be paid overtime if they work more than 40 hours in a seven-day workweek. Overtime is paid at least 1.5 times the regular hourly rate and should be spelled out in the employment contract. Be aware of your specific state requirements regarding live-in employees. Federal law exempts household employers from paying overtime to live-in employees, but they must be paid for every hour they work.
Perhaps discuss with your employee the amount that will end up in their bank account during compensation discussions to avoid surprises on the first payday. It’s important the employee understands how tax withholding works. You may want to show them a few payroll scenarios to illustrate the difference between gross wages and net pay.
Think about paid time off. While federal law does not currently require you to provide paid time off for vacations, holidays or sick time, it is an important benefit if you want to attract and retain a high-quality employee. Be aware of any specific paid time off requirements of your state.
This may seem like “tax stuff” that can wait until “tax time”; however, don’t procrastinate. Employers must withhold FICA taxes from the employee or you will become liable for them. Many states also have wage reporting obligations throughout the year. Waiting until tax season to address tax issues and labor law issues may well result in additional expenses that would be cheaper and easier to handle at the time of hire.
By Pamela Wheeler, EAPosted on March 26 2015 by admin
Everyone seems to have their own mobile apps these days and the IRS is no exception. This free app for your electronic devices will let you check your refund status and more. It is available on Google Play and at the App Store for your Android and Apple devices. Launched a few years ago, at last check Google Play showed there were over a million downloads of this popular little app.
Referred to as IRS2GO, to check on the status of your federal income tax refund, you simply enter your social security number, which will be masked and encrypted for security purposes, then select your filing status and enter the amount of your anticipated refund from your tax return. A status tracker will tell you where your tax return is in the process. If you filed electronically, you can check your refund status within 24 hours after doing so. If you paper filed, you will need to wait about four weeks to check your refund status. So all the more reason to file electronically.
Other features of this app include the ability to request your tax return or transcript which they then promise to mail to you within several business days. In addition, the app will help you locate help in preparing your tax return via the IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) Program. By entering your zip code and selecting a mileage range, the app will find you the closest location for this assistance.
By Dale F. Jensen, CPAPosted on March 25 2015 by admin
Have children around the age of 18?
There is one thing you are probably unaware of that could save you thousands of dollars and a headache.
Once individuals reach the age of majority—18 in most states—their parents are no longer entitled to see their medical and financial records and make decisions on their behalf. As a result, it is important for young adults to set up an estate plan that appoints trusted individuals to make medical and financial decisions in the event they are unable to do so.
Very few 18-year-olds even realize that their parents do not have the same rights to their personal information as they did when they were 17 and younger. You cannot assume as a parent, that because you are paying for their college or they are still living with you that you have the right to make legal decisions on their behalf. Once individuals reach 18, the law classifies them as adults, with the legal right to privacy and to govern their own lives.
While not every 18-year-old needs a will, all should appoint a trusted friend or relative to serve as their health-care proxy. This person has the authority to make medical decisions in the event the patient is unable to. The child’s doctors and proxy should receive a copy of the form, which can be drafted by an estate-planning attorney or downloaded from the Internet. (Search for “health-care proxy” and the child’s state of residence.)
It is also important to designate a financial power of attorney. Most lawyers recommend that young adults sign a general power of attorney. In contrast to a “springing” power of attorney, this allows the appointee—frequently, a parent—to access the child’s financial accounts at any time, rather than only if he or she is declared incompetent.
With such a document, a parent can pay a child’s bills, speak to his or her landlord, or replace a lost debit card whether the child is incapacitated or simply away at college. This document must be updated every couple of years or financial institutions may not accept it.
Life Care Planning documents are available at no cost from the Office of the Arizona Attorney General in one of four ways:
- They are available at the Phoenix and Tucson main offices as well as numerous Satellite Offices located throughout the State.
- They are downloadable below.
- They are available at community events where the Attorney General’s Fraud Fighters are staffing information booths. Please check our Community Events page.
- They are available by filling out a Life Care Planning request form and one will be mailed to you. Please do not request one unless you have tried the three previous options.
Where do I find the “General Durable Power of Attorney,” or other financial documents?
- Power of attorney designations, wills and trusts are powerful legal instruments. It is recommended that you contact a private attorney for assistance with these and other serious legal matters.
Make sure you are aware of these issues and the unplanned problems they could create for you financially.
For more information visit: Life Care Planning
By Michael WillettPosted on March 24 2015 by admin
For some reason CPAs are not known for a great sense of humor. So it’s refreshing to see the Minnesota Society of Certified Public Accountants (MNCPA) release an annual list of the most outrageous tax deductions clients tried to take on their tax returns.
“Creativity is rewarded in many parts of society, but not by the IRS,” said MNCPA Chair Bob Sannerud. “While there can be some exceptions, many of the deductions our members identified would’ve raised red flags from the IRS. A CPA can best advise clients on whether a deduction should be removed from their tax returns.”
While it is sometimes hard to apply the tax law, these deductions from their list would seem over the top!
- A daughter’s wedding: Sure, weddings are entertaining. But deducting the full cost as an entertainment expense does not make for a good relationship with the IRS.
- The cost of speeding tickets: Even if it’s because you were late for a business meeting, speeding tickets are fines and therefore, not deductible on your tax return.
- Misinterpretations of charitable donation: Charity can take on many forms. But for one CPA’s client, a vehicle that was impounded by the police was not deemed a qualifying deduction.
- Boats: Want smooth sailing on your tax return? Then you should not deduct your boat as a “water computer,” as one CPA had to inform their client.
- A fur coat worn to promote a cleaning business: As one tax filer learned, you’ll never outfox the IRS. And, we can’t help but wonder, what would the fox say?
- A wedding ring: A diamond is forever, and so is a taxpayer’s inability to deduct the cost of a wedding ring.
- An ATV as a medical deduction for stress relief: No doubt, it’s fun to go out and let ‘er rip on the trails. But, the CPA and the IRS weren’t buying the ATV as a medical deduction in this case.
- Infant “employee”: Sure, you can bring your children into the family business and count them as employees. But, as one business owner discovered, children who can’t yet walk or talk rarely qualify. Plus, they want everything handed to them.
- School lunches as a business expense: As one business owner learned, unless her child is closing business deals with other first-graders at the school, these lunches aren’t deductible.
Contact your CPA for the best advice on deductions allowed under the law!
By Melinda Nelson, CPAPosted on March 19 2015 by admin
March is that sports time of the year when Major League Baseball is gearing up, the PGA, the National Hockey League is still at it, as is the NBA. It’s also that tax time of year when it’s time for all of us to settle our accounts with Uncle Sam including professional athletes.
As states have struggled with their budgets the last number of years, there has been a trend towards targeting additional sources of revenue either by additional tax legislation or by more aggressive enforcement of rules already on the books. As the well publicized salaries of professional athletes have skyrocketed, it’s been hard for states to ignore a desire to get a piece of that action to help get their budgets balanced.
Many states have enacted, for lack of a better term, a so-called Jock Tax policy of targeting professional athletes and going after them for non-resident state income tax. Even going so far as to track team schedules and rosters every year. Non-resident athletes playing a game in a particular state can make in one day, more in earnings than most make in a year. That makes for a lot of revenue being earned in the course of a season at a busy ballpark, golf course, ice rink, or arena. A story goes that after the 1991 NBA finals in which Chicago beat Los Angeles, California notified Michael Jordan that he would owe taxes for the days he spent in Los Angeles. Soon after Illinois passed a bill famously knows as “Michael Jordan’s Revenge” imposing income taxes on athletes from California and any other state that imposed a tax on their residents. All I can say is, Go Diamondbacks!!
By Dale F. Jensen, CPAPosted on March 17 2015 by admin
There are various circumstances where a taxpayer could be making payments on a mortgage, but not hold legal title to the property. One example could be, the child of a taxpayer that could not obtain financing, so mom and dad hold legal title, but the child makes all payments and lives in the residence. Whatever the situation, the taxpayers should be careful to be sure they can qualify for the mortgage interest deduction.
In a recent Tax Court Summary Opinion, it has been decided that a taxpayer can claim home interest deductions for making payments on a mortgage even though the mortgage was not legally owned by the taxpayer. In order for the taxpayer to claim the home interest deduction, there has to be an oral agreement granting the taxpayer an interest in the home in return for paying the mortgage and property expenses, along with the taxpayers’ name ultimately being added to the legal title. This will result in the taxpayer becoming an equitable owner of the property.
According to the IRS code, a taxpayer is allowed a deduction for interest paid or accrued on qualified residence interest, which includes interest paid on acquisition debt with respect to any qualifying residence of the taxpayer. A taxpayer may report a home interest deduction if the interest he paid is on a mortgage on real estate of which he is the legal or equitable owner, even though he is not directly liable on the bond or note secured by the mortgage.
Here are a few factors that can help you determine whether benefits and burdens of ownership have been transferred to a taxpayer:
- The taxpayer has a right to possess the property and to enjoy the use, rents, or profits thereof.
- The taxpayer has a duty to maintain the property.
- The taxpayer is responsible for insuring the property.
- The taxpayer bears the property’s risk of loss.
- The taxpayer is obligated to pay property taxes, assessments, or charges.
- The taxpayer has the right to improve the property without the owner’s consent.
- The taxpayer has the right to obtain legal title at any time by paying the balance of the purchase price.
No matter what your situation, the presumption is that the taxpayer with legal title is also the beneficial owner of the home. This presumption may be rebutted, but you’ll need to be sure to have clear and convincing proof. Be sure to document your understanding and agreement!
By Daniel BlackwellPosted on March 12 2015 by admin
You get a letter from the Internal Revenue Service and right away you don’t have a very good feeling about it. You open it up, read it, and then panic hits. You owe them $10,000! No. Fortunately, it doesn’t tell you that (I hope!). It tells you that your long-trusted CPA whom you’ve come to know and love (we hope, right?) and have worked with for many years will “no longer be representing you”. That’s when a whole lot of thoughts can come into your mind. Did my CPA retire? Lose their license to practice? Doesn’t want to work with me anymore? Was run over by a truck? Fortunately for us both, the answer is NO when you get a letter like this.
You may get a letter like this when, at some point in time, – it could be four months or four years ago – your CPA executed a Power of Attorney to represent you on a tax matter that required him/her to contact IRS directly on your behalf. This wouldn’t have happened without your approval and signature on the Power of Attorney on file with the agency. If it was on a tax matter from years ago, you may have completely forgotten about it by now. What most don’t realize, is that the Power of Attorney can stay on file with the IRS and be active for many years, even well after the tax issue on hand at the time was resolved. This can result in correspondence going to your CPA from the IRS indefinitely for the time period(s) covered by the original P.O.A. And, it’s possible that such future correspondence could be on matters that you and/or your CPA never intended involvement with. This can happen even in situations where you no longer work with the CPA originally on the P.O.A.
Periodically, and for reasons mentioned above, either at your discretion or at the discretion of the CPA (or the firm they work for), a request can be made to the IRS to revoke a previously filed Power of Attorney. When such a request is made, once processed by the IRS, a letter is sent to the taxpayer informing him or her of the revocation though in their words, “no longer be representing you”. Be assured that this only applies to a specific tax matter that was probably long ago resolved and does not mean that your CPA is no longer working for you. Shew!
By Dale F. Jensen, CPAPosted on March 11 2015 by admin
On June 26, 2013, the U.S. Supreme Court, in the Windsor case, struck down Section 3 of the federal Defense of Marriage Act (DOMA) as unconstitutional. As a result, the federal government is required to recognize marriages between same-sex couples as long as the marriage was validly performed and recognized by the couple’s state of residency. Since then, several states have legalized same-sex marriage, including Arizona on October 27, 2014. Currently, 36 states plus the District of Columbia recognize marriages between spouses of the same sex. Still the question of whether or not a couple is married is not always an easy one to answer.
A number of states had brief windows of time where same-sex marriages were performed legally, then ceased. For example, Utah issued marriage licenses from December 20, 2013 through January 6, 2014. Issuance was halted from January 6, 2014 until October 6, 2014 following the resolution of a lawsuit challenging the state’s ban on same-sex marriage. The U.S. Supreme Court refused to hear an appeal from the state of Utah on October 6, 2014, and the state began issuing licenses again. There are several states with similar scenarios.
In addition, many states that now have marriage equality previously had civil unions or domestic partner registrations. The federal government has stated that they will only recognize marriage, but some states may recognize a marital-like status that is not marriage but has many of the rights and responsibilities of marriage. California and New Jersey have both marriage and civil unions or registrations. Massachusetts recognizes civil unions as marriages. Thus a couple who entered into a civil union in Vermont will be treated as married for purposes of Massachusetts law, whether or not they intended to enter into marriage. In Connecticut and Washington, civil unions were automatically converted to marriages unless the couple “opted out.”
The tumultuous state of same-sex marriage in the United States over the past several years has led to some interesting issues when determining a couple’s marital status. Some couples living in states that did not allow same-sex marriage would, either for fun or as a political statement, hop on a plane to another state that did allow civil unions or marriage and perform a ceremony. Returning home to a state that did not recognize the marriage, in a country that did not afford them any of the rights and responsibilities of a legal marriage, the couple may or may not have realized their vows would carry legal weight in the future.
To illustrate: James and John were residents of Arizona when Connecticut enacted a civil union law in 2005. They visited Connecticut in 2006 and had a civil union ceremony performed. Returning home to Arizona, their civil union was not recognized by their home state or the federal government. They are unaware that their Connecticut civil union was given a “free upgrade” to marriage in 2010. The couple split up in 2011. Even if they were aware that they were then considered married by the state of Connecticut, they couldn’t file for divorce in Arizona because their marriage was not recognized here. They couldn’t file for divorce in Connecticut because that state had a twelve month residency requirement. In 2015, James wants to marry his partner of three years, Peter. Hopefully James can track down John and get a divorce first; otherwise he’ll be committing bigamy. In addition, James and John will probably need to get in touch with their CPA to file amended tax returns for the past several years, because they most likely filed using a Single status when they should have been filing Married Filing Joint or Married Filing Separately.
By Janet Berry-Johnson, CPAPosted on March 10 2015 by admin
The IRS suggests you use their online services to find tax information:
- Where’s My Refund? – This allows you to track the status of your refund. You can use the “Where’s My Refund?” tool within 24 hours after you e-file or 4 weeks after you file by paper. The tool is updated no more than once every 24 hours.
- Make A Payment – You can pay a variety of ways including directly from your bank account or by credit or debit card. Or find information regarding requesting an installment agreement to pay your taxes.
- Get Transcript Online – You can view your transcript online. You must have a Social Security number (SSN) to use this service.
- Get Transcript By Mail – If you can’t view your transcript online because, for example, you have an ITIN, you can order your transcript to arrive by mail. Transcripts by mail may take 5 to 10 calendar days.
- For questions related to individual taxes, call 1.800.829.1040 during business hours (M–F, 7:00 a.m.–7:00 p.m., local time). You may be on hold for an extended period.
- For questions related to business taxes, call 1.800.829.4933 during business hours (M–F, 7:00 a.m.–7:00 p.m., local time). You may be on hold for an extended period.
- For automated refund service, call 1.800.829.1954. The line is open 24 hours.
- For forms and publications, call 1.800.829.3676 (M–F, 7:00 a.m.–7:00 p.m., local time). You can find out more about how to get paper forms here.
- The IRS offers limited in person assistance at Taxpayer Assistance Centers across the country. To find a location near you, click here.
By Melinda Nelson, CPAPosted on March 5 2015 by admin
It’s a worthy goal; one that most all business owners would like to achieve – growing your business while at the same time saving on taxes. It can be done and the IRS gives us some amount of incentive.
Consider investing in new equipment. More, better, newer, more efficient, perhaps? Sooner or later, it’s likely that your business will need to invest in new equipment if it’s going to grow. Through 2014, via IRS code section 179, most businesses could utilize a flat out tax deduction of up to $500,000 for purchase of qualified new equipment. While that $500K limit is reduced to $25,000 for tax year 2015, don’t count out a retroactive restoration of a higher limit as Congress has been known to do with this and other tax provisions. Keep your ears open on this one.
While investing in hard assets is often necessary to grow your business, so is investing in your human capital. After all, what good is your new equipment without the right people to operate it? A good employee benefits program set up right can help you invest in and retain quality employees essential to growing your business, while at the same time providing tax benefits for your business. Learn about the multitude of qualified retirement plans, deferred compensation plans, Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), Health Reimbursement Accounts (HRAs), and other Fringe benefits the IRS allows deductions and tax credits for.
Finally, here’s one that’s right on point. The New Markets Tax Credit Program provides an incentive for business owners to grow their businesses into low income communities and claim up to 39% of the initial investment as tax credits.
By Dale F. Jensen, CPA-- Older Entries »
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- Do you have a household employee?
- The IRS Now has a Mobile App for You
- The Benefits of an Estate Plan for Your College-Age Children
- Minnesota CPAs’ List of Outrageous Tax Deductions
- Taxation of Professional Athletes: The Jock Tax
- Home Interest Deduction – Even When It’s Not in Your Name
- The IRS Says You’re No Longer Represented by Your CPA
- Marital Status? For Some LGBTQ Couples, It’s Complicated
- Need Help with Finding Tax Information?
- Save on Taxes While Growing Your Business