Archive for the ‘Small Business Tips & Tricks’ Category

Unless the worker is an independent contractor, the answer is always!

There are specific criteria to determine if a worker is an employee or an independent contractor. The key word in that sentence is “independent.”  The most important factor is who is in control.  This is covered in more detail in our March 2010 article Employee or Independent Contractor?

But there are several other issues that can also trip you up.

Do you hate paperwork? Almost everyone does, but when it come to dealing with the Internal Revenue Service, you need to have all the proper paperwork and have all the i’s dotted and the t’s crossed.

When you operate as a corporation, the corporation is a separate legal entity from you, so you should have a corporate paper trail that clearly reflects intent and action. One area that can really be a minefield is accounting for monies paid to corporate officers, other than payroll.

Is it a Loan or a Dividend?

In one scenario, William H. Bruecher III paid more than $27,000 in taxes on money his corporation supposedly loaned to him. Instead of receiving a salary, the corporation paid his personal expenses, classifying the payments as advances.

In an audit, the IRS will check to see if such advances are loans or dividends. If repayment by the owner and collection by the corporation seem assured, the advance is a loan.

To decide whether there is intent to repay, the following are factors:

• Is there a promissory notes or other written promises to repay the advance?
• Is the interest charged on the advance?
• Is there collateral to ensure repayment?
• Is there a history of repayment?

Neither Mr. Bruecher nor his corporation could produce documentation of any of these factors; therefore, the advances were taxable dividends.

E-filing returns is faster and helps eliminate mistakes.  Whether you e-file returns directly on an Internal Revenue Service site or through a software program like QuickBooks©, be sure to keep paper copies for your files and for your CPA. The IRS e-system often gives IRS auditors an incomplete view of the return. As a result, auditors often begin by asking taxpayers for hard copies of information they already provided to the IRS. To avoid problems, keep hard copies.

If you are a small business owner there could be many financial benefits to hiring your child. If your business is a sole proprietorship, you pay no payroll taxes on your child’s wages if that child is under age 18.  Your child could pay no payroll taxes and no federal income taxes if wages do not exceed the 2010 standard deduction of $5,700 for a single taxpayer.

Record keeping is crucial. You need accurate records showing hours works and tasks performed.  The wages must be reasonable – what would you pay someone else? Keep records showing the wages were actually paid to your child.

Be sure to check with your CPA before hiring your child to understand the implications for all federal and state taxes you and your child may incur. Other rules govern corporations, partnerships and limited liability companies (LLCs).

The Georgetown Chamber of Commerce reported in this week’s Chamber Link that Workforce Solutions is looking for businesses to train entry level youth participating in a summer work program. Workforce Solutions will provide entry level wages to youth based on individual jobsite positions. They will also pay the cost of Worker’s Compensation Insurance. Business will: Provide job training and supervision based on entry level job description; Maintain time and attendance records for youth’s wage payments; and Communicate with Workforce Solutions on youth’s progress.

For additional information contact: J.R. Alavrez at 512-244-2207×1027 or claro.alvarez@ruralcapital.net