Vista Professional Services, Inc.

Employee or Independent Contractor?

Linda Silva — Wed, 17 Mar 2010 22:02:00 +0000

More and more individuals are working as freelancers and independent contractors these days—and the IRS is not particularly happy with that.

The problem is that it is sometimes difficult to determine whether an individual is an employee or an independent contractor—and this can lead to disputes with the IRS. Regardless of what label you put on a relationship, the key issue as far as taxes are concerned is control—the more control a company has over the work, the greater the chance the worker should be classified as an employee instead of an independent contractor.

Some things for you to consider:

Does the worker only perform services for your company or does this person perform similar services for other companies?
Does the company set the work schedule?
Does the worker meet the criteria of a business? Does your company receive an invoice for services received? Does the worker provide his own tools? Are relevant business expenses included in the amount billed and not paid by nor reimbursed by your company? Is there a dedicated business telephone number?

When you determine an individual or a company is an independent contractor, you must have a W-9 on file unless the independent contractor is a corporation.

The courts have considered many factors in deciding whether an individual is an independent contractor or an employee. These factors fall into three main categories: behavioral control, financial control, and relationship of the parties. In each case, it is very important to consider all the factors – no single one provides the answer.

Behavioral control. An individual is an employee when the business has the right to direct and control the individual. For example, if the worker receives extensive instructions on how work is to be done, this suggests that he is an employee.
Financial control. Who controls the dollars-and-cents part of the work arrangement? For example, if the worker has a significant investment in the work, this tends to favor an independent contractor status. On the other hand, if the company reimburses the worker for business expenses, this may indicate an employer-employee relationship.
Relationship of the parties. How does the worker perceive the relationship? How does the company perceive the relationship? For example, if the worker receives paid leave or benefits, this favors an employee status.

The IRS would generally prefer workers be classified as employees.

As an employee, the employer is responsible for payment of taxes. The employer withholds income taxes and the employee share of Social Security and Medicare taxes from wages. Independent contractors are considered self-employed for tax purposes and are responsible for their own tax payments.
Employees can deduct out-of-pocket business expenses only if they itemize deductions and, even then, the deduction is limited. An independent contractor can deduct business expenses in full.
Employees can deduct what they spend on medical insurance only if they itemize and only to the extent that their total medical expenses exceed 10% of their adjusted gross income. For an independent contractor, medical insurance premiums are deductible in full.

Parts of this article excerpted from Doing the Cleanup When a Client Loses Independent Contractor Status by Terence M. Myers, J.D. and Dorinda D. DeScherer, J.D.

What You Need to Know About Tip Reporting

Linda Silva — Fri, 12 Feb 2010 12:19:55 +0000

The IRS is working hard to find lost revenue. Non-reported or under reported income by restaurant workers is under scrutiny. Restaurants owners have the critical tasks of keeping records on tips received and compelling employees to report tips.

All employees receiving $20.00 or more a month in tips must report 100% of their tips to their employer and are required to pay taxes on all their wages including tips.

From the Employers perspective here are the three basic things that you need to know if you employ tipped workers:

You are required to receive a tip report from each employee once a month. It must include the name of the employer, the employee’s name, address, social security number, the date of the report, period covered in the report and the report must be signed by the employee. In practice, you should receive a tip report for every payroll period, otherwise you cannot correctly report the employee’s total wages or accurately calculate taxes.
You need to withhold Income and FICA tax from each paycheck, report each employee’s tips to the IRS and pay your share of FICA tax. Employee tip information will also be included on your “Employers Quarterly Payroll Tax Return” (Form 941), “Wage and Tax Statement” (Form W2), “Employer’s Annual Federal Unemployment (FUTA) Tax Return” (form 940) and generally on your state income and unemployment reporting forms. In certain cases you may need to “allocate” additional wages for an employee if he or she has failed to report sufficient tip income.
You need to file IRS Form 8027 at the end of each year if your business is fits the IRS’s definition of a “large food or beverage establishment.” Form 8027 summarizes the restaurants total sales, charged sales, charged tips and total reported tips.

A large food or beverage establishment is defined as one to which all of the following apply:

Food or beverage is provided for consumption on the premises.
Tipping is a customary practice.
More than 10 employees who work more than 80 hours were normally employed on a typical business day during the preceding calendar year.

How to determine whether to File Form 8027 (IRS requirements for 2009)

Complete the information below to determine if you had more than 10 employees on a typical business day during 2008 and, therefore, must file Form 8027 for 2009. The filing requirement (more than 10 employees) is based on the total of all employees who provided services in connection with the provision of food and beverages at the establishment, not just the number of directly tipped employees. Include employees such as wait staff, bussers, bartenders, seat persons, wine stewards, cooks, and kitchen help. It is the average number of employee hours worked on a typical business day that determines whether or not you employed more than 10 employees.

Enter one-half of the total employee hours worked during the month in 2008 with the greatest aggregate gross receipts from food and beverages
Enter the number of days opened for business during the month shown in line 1
Enter one-half of the total employee hours worked during the month in 2008 with the least aggregate
Enter the number of days opened for business during the month shown in line 3
Divide line 1 by line 2
Divide line 3 by line 4
Add lines 5 and 6. If line 7 is greater than 80 (hours), you must file Form 8027 for 2009

A person who owns 50% or more in value of the stock of a corporation that runs the establishment is not considered an employee when determining whether the establishment normally employs more than 10 individuals.

Pit Falls

Form 8027 is organized in such a way as to highlight any shortfall of reported tips below 8% of gross receipts from food and beverage sales. Don’t be misled by the 8% figure. Just because this is the “threshold” number that the form uses to require you to allocate additional tip income does not mean that this is all you need to report to be safe from an IRS audit. The law requires your employees to report 100% of tip income and the 8% threshold is only one way that the IRS monitors compliance in reporting restaurants. This line item is red flag to the IRS indicating that your employees may not be reporting all their tips. In fact, if your total reported tips are less than 8% of total food and beverage sales, then you must allocate additional tip income to the W2 of every tipped employee that reported less than 8% of their respective sales, so that their total reported income reflects this minimum 8% allocation.

Tip Allocation

There are three methods of allocating additional employee tips: hours worked, gross receipts, or a good faith agreement.

The Hours Worked method applies only to restaurants which employ fewer than 25 full time employees during a payroll period, and it allocates any tip shortfall (below 8% of total sales) by spreading it among under reporting servers based on their percentage of total hours worked as compared to all the other servers. This method is the least accurate as it does not take into account the fact that servers work shifts with different tipping patterns.

The Gross Receipts method can be used by any restaurant and usually results in a more accurate and fair allocation. It determines the amount that each server should have reported in tips to reach the 8% minimum threshold by comparing the server’s gross receipts as a percentage of the total restaurant receipts. If the server’s actual reported tips are less than the percentage calculated as above then a prorate portion of the total shortfall is allocated to that employees W2.

The Good Faith Agreement method is rarely used.

For a detailed explanation of each method go to: http://www.irs.gov/pub/irs-pdf/i8027.pdf.

More Families Qualify for EITC

Linda Silva — Wed, 03 Feb 2010 12:26:12 +0000

According to Texas Comptroller Susan Combs a slow economy means more Texas families may qualify to claim the Earned Income Tax Credit (EITC) on their federal income tax.

EITC refunds are based on family size and income. For 2009:

Families that earned less than $48,279 and have three or more children may qualify for a tax credit up to $5,657
Families with two children and income less than $45,295, may qualify for a tax credit up to $5,028
Families with one child and an income less than $40,463 may qualify for a tax credit up to $3,043
Families with no children and earning less than $18,440, may qualify for a tax credit up to $457

More information about the EITC, printable materials for businesses and community organizations to distribute can be found on the Comptroller’s Web site at http://www.window.state.tx.us/taxinfo/eitc/.

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Do I Need To Turn Off My Computer?

Chuck Silva — Fri, 22 Jan 2010 22:46:26 +0000

Just put it to sleep

Back in the “olden” days of computers, say around the turn of the century, the most likely time for your computer system to fail was around the moment you hit the power button to turn it on. The very act of turning on your computer put a strain on the memory, the processor, the hard drives and most of the other components in your system. In those days, the best was to avoid the possible repercussions of power surges during power on were to just let the system run. You’d turn off your monitor and peripherals and only turn off the system itself when necessary.

Computers have come a long way in the last decade. Prices are down and manufacturers can’t afford to sell computers that fail. And, advances in “Energy Star” technology has significantly decreased the number of watts it takes to run your PC and peripherals. With newer systems, according to the Microsoft Small Business Center’s article “Do You Need to Shut Off Your PC at Night?,” there is no reason to shut down your computer overnight. In fact, you may save as much as $90 a year in energy costs if you place your computer into the “hibernate” or “sleep” mode instead of turning it off or letting it run in normal operations mode.

Even when it’s shut down, you computer still uses electricity. Putting your system into “hibernate” or “sleep” mode will save just as much energy as shutting it down.

Using a screen saver doesn’t save electricity. Having the monitor turn off after a period of time will.

Turning your computer on and off isn’t going to wear it out. Newer systems are capable of handling some 40,000 on/off cycles. The biggest advantage to “sleep” or “hibernate” modes is the time you save over having to go through the Windows boot cycle.

You can modify the power savings settings on your computer and set them to automatically enter “hibernate” or “sleep Mode” after a specified period of idle time. Many computers also have a keyboard button that will put your computer into a “hibernate” or “sleep” mode when pressed.

If your computer is not currently set to automatically conserve energy, check Windows Help and search for “power”, “hibernate,” or “sleep.”

When Is It Time To Buy A New Computer?

When Is It Time To Buy A New Computer?

Chuck Silva — Thu, 21 Jan 2010 22:35:30 +0000

Might be time for an upgrade

The short answer is three years and applies to any computer you own or use.

The longer answer is…well…longer. These days computers are becoming more like automobiles and television sets. They tend to last longer. A decent PC can last for years. Mostly gone are the days of bad memory, fried hard drives, on/off switches that break and other ailments that were common in the dawn of the PC age. Computer technology is still advancing at a rate that is so fast that your new PC is essentially obsolete by the time you purchase it.

Couple that with the fact that operating systems and business applications are constantly being upgraded and expanded (not to mention your favorite games and entertainment software) and sooner or later the system you have now just isn’t going to handle the load.

If your computer is more than three years old, it’s very likely running slower than when you first purchased it. The problem is not that the computer has slowed down, it is that all the software that you are using and been upgrading now requires more memory and resources in order to run effectively. It’s that updated Windows you installed along with the updated antivirus software and the latest Microsoft Office and all those new widgets and gadgets that are really cool but take up even more system resources than they did when you got the computer just three years ago.

As your computer gets older you end up spending more time making things work properly and end up spending more money for enhancements. You could spend $150 to add more memory to your computer and $100 to upgrade your hard drive. If you do both, you’ve spent $250. You can buy a new faster computer with the memory and hard drive space that you need for around $400. Now you’ll have a computer with more memory, more drive space AND a faster processor.

Also note, that according to Hewlett Packard, a new computer will run three times faster and use half the electricity and is more environmentally friendly than your old computer. You can see the HP statistics at:

http://www.hp.com/united-states/windows7/small-medium-business.html?dimid=116247560

and read more about energy savings from Mr. Electricity at:

http://michaelbluejay.com/electricity/computers.html

It’s a good bet that while your new computer is going to cost you around $1 per day, that same system is likely to save you about 50 cents per day in electricity along with another 50 cents per day in efficiency. Essentially, your new computer is FREE.

If your computer has a problem and it’s over 3 years old, it’s time to get rid of it. If your computer has a problem and is less than 3 years old, you should look at the cost of repair before replacing it.

If your computer is 5 years old running just fine and runs the software that you need it to run then follow the old adage, “if it ain’t broke, don’t fix it.”

If you have an older computer that is running slow and has room for more RAM memory, then you can add extra memory for about a $100. That extra memory can speed up your computer significantly.

Do I Need To Turn Off My Computer?

QuickBooks Now Signs Your Checks!

Linda Silva — Tue, 22 Sep 2009 07:46:16 +0000

Intuit Payroll has added a new check-signing feature in QuickBooks to make issuing checks more efficient. Instead of signing each check, you can now scan your signature once, save the image, and then use it in QuickBooks when you print checks on your preprinted check stock.

The signature works for all check transaction types, including paychecks, liability checks, bill payment checks, sales tax payment checks, and standard banking checks. You can print your signature on both voucher checks (one to a page) and non-voucher checks (three to a page). Note: The signature will not work on wallet-sized checks.

Source : QuickBooks Payroll Bulletin, September 2009, Editor: Lise Quintana

QuickBooks and Dept of Labor Reports

Linda Silva — Thu, 17 Sep 2009 08:54:00 +0000

Projects that are publicly funded typically require the contractor to pay a prevailing wage rate for workers on the job. Then, for each payroll period, the contractor must create a Certified Payroll Report that shows the wages paid to each worker.

QuickBooks 2009 and 2010 include a new Certified Payroll Report in Excel. You can use this feature to compile the information needed for the U.S. Department of Labor’s WH-347 and WH-348 forms required for Davis-Bacon Act payroll certification compliance.

The federal government allows businesses to use substitute formats for these Certified Payroll filings. The reports produced in QuickBooks contain all of the required information on the WH-347 and WH-348. You can then print and sign the Excel-based reports just as you would the standard forms.

Source : QuickBooks Payroll Bulletin, September 2009, Editor:Lise Quintana

Record Retention Guide: What You Need to Keep

Linda Silva — Wed, 16 Sep 2009 06:43:48 +0000

What records do you need to keep and for how long? This matrix shows you.

Item	Retention Period	Item	Retention Period
Accident reports/claims (settled cases)	7 years	Journals	Permanently
Accounts payable ledgers and schedules	7 years	Minute books of directors, stockholders, bylaws, and charter	Permanently
Accounts receivable ledgers and schedules	7 years	Notes receivable ledges and schedules	7 years
Audit reports	Permanently	Option records-expired	7 years
Backup of computer data	1 year	Patents and related papers	Permanently
Bank reconciliations	3 years	Payroll records and summaries	7 years
Bank statements	3 years	Personnel files-former employees	7 years
Capital stock and bonds records; ledgers, transfer registers, stubs showing issues, records of interest coupons, options, etc.	Permanently	Petty cash vouchers	3 years
Cash books	Permanently	Physical inventory tags	3 years
Charts of accounts	Permanently	Plant cost ledgers	7 years
Checks-cancelled (see exception below)	7 years	Property appraisals by outside appraisers	Permanently
Checks-cancelled (for important payments, i.e. taxes, purchases of property, special contracts, etc. Checks should be filed with the papers pertaining to the underlying transaction.)	Permanently	Property records, including costs, depreciation reserves, year-end trial balances, depreciation schedules. Blueprints, and plans	Permanently
Contracts, mortgages, notes, and leases-expired	7 years	Purchase orders-except purchasing department copy	1 year
Contracts, mortgages, notes, and leases still in effect	While in effect	Purchase orders-purchasing department copy	7 years
Correspondence-general	2 years	Receiving sheets	1 year
Correspondence-legal and important matters only	Permanently	Retirement and pension records	Permanently
Correspondence-routine (customers and vendors)	2 years	Requisitions	1 year
Deeds, mortgages, and bills of sale	Permanently	Sales commission reports	3 years
Depreciation schedules	Permanently	Sales records	7 years
Duplicate deposit slips	2 years	Scrap and salvage records (inventories, sales, etc.)	7 years
Employee manuals	Permanently	Stock and bond certificates-cancelled	7 years
Employment applications	3 years	Stockroom withdrawal forms	1 year
Expense analyses/expense distribution schedules	7 years	Subsidiary ledgers	7 years
Financial statements-year-end	Permanently	Tax returns and worksheets, revenue agents’ reports, and other documents relating to determination of income tax liability	Permanently
Garnishments	7 years	Time cards/records	7 years
General/private ledgers, year-end trial balance	Permanently	Trademark registrations and copyrights	Permanently
Insurance policies-expired	3 years	Training manuals	Permanently
Insurance records, current accident reports, claims, policies, etc.	Permanently	Union agreements	Permanently
Internal audit reports (longer retention periods may be desirable)	3 years	Voucher register and schedules	7 years
Internal reports-miscellaneous	3 years	Vouchers for payments to vendors, employees, etc. (includes allowances and reimbursement of employees, officers, etc. for travel and entertainment expenses)	7 years
Inventories of products, materials, and supplies	7 years	Withholding tax statements	7 years

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Credit Cards: Top 10 Spending Habits That Will Get You Noticed

Chuck Silva — Wed, 09 Sep 2009 22:27:40 +0000

Santa Claus may not be watching you. But the Credit Card companies are.

Credit card companies are profiling you and certain types of purchases can be red flags to the card companies that are looking for signs of consumers with questionable finances.

Not too long ago, the Federal Trade Commission filed a suit against CompuCredit, which marketed the Visa Aspire card. Reilly Dolan was on the FTC’s litigation team. Mr. Dolan says, “Compucredit was reviewing how consumers used the credit card, and it would lower the available credit to consumers based on their transactional history.”

So, what were the things that branded card-users as risky? Going to a bar, a marriage counselor, buyng retread tires, buying products sold via an infomercial…and others.

We’ve listed the top 10, according to Robert Manning, author of “Credit Card Nation,” below.

Traffic tickets: Makes you look reckless. Not to mention that tickets can push up insurance rates, which could put a strain on your finances, which could make it harder for you to pay your bills. Statistically speaking, a lot of people who have charged traffic tickets have defaulted on their cards.

Retread tires: A lot of people buy them because they’re cheap. But if you’ve always bought new and now you start buying retreads it can look like a desperate move. Credit card companies don’t like desperation.

Bargain binges: If you haven’t been using that credit card at the dollar store, you don’t want to start now. Downgrading to lower-cost retailers — or shopping at stores that attract financially pinched shoppers — tells the credit card companies that you’re worried about your finances or about your job. AmEx has been accused of cutting people’s credit because they shopped at Wal-Mart.

Adult Playthings: This ain’t about you — it’s about your purchases. Card companies see porn is seen as escapism and guess what they’re thinking you’re trying to escape from? Fiscal problems. Same for strip clubs. Use cash.

Marriage Counseling and Therapy: Money is at the root of many psychological issues and all kinds of relationship issues. The kind of issues that can lead to divorce. Divorce could destroy your finances, thereby destroying your ability to pay a card company. Needing therapy may also make you look unstable.

Lottery Tickets: Sorry, but lottery tickets don’t count as a sound financial plan and there’s not a card company out there that thinks they do. And, if you’re planning a trip to Vegas — cash.

Cash Advances: Cash Advances used to be a great love of the card companies because of the interest charges. But if you’re tapping your card for cash, now, or using a credit-card check to pay other bills it doesn’t look good.

Personal pampering: If you’re not a spa regular you may want to reconsider charging that visit on your card. The card company may assume you’re trying to relax because you’re worried about money. Or, you stressed out thinking you may lose your job, or you’re prettying yourself up for a job search.

Income Taxes: If you’re robbing Peter to pay Paul, it could be your debts and bills are overwhelming you.

Booze: Tossing that card out there for too many drinks may be a sign of job stress, financial stress, or relationship stress. And charging booze several days in a row will make it seem like your bar binge was not a fluke. Use cash, especially if you’re out for more than one consecutive day.

Source: Marketplace

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Tax Law Changes You Need to Know

Linda Silva — Thu, 20 Aug 2009 23:13:48 +0000

The 81^st Legislature made significant changes to Texas tax laws.

The changes include the following:

a new exemption from state and local sales and use taxes for certain school supplies during the annual August Sales Tax Holiday
revisions to the collection and allocation of local sales and use taxes
a new exemption for crude oil and natural gas taxes
a new method for calculating the tax on tobacco products other than cigars
a revised payment process for losses covered by the Texas Windstorm Insurance Association
a revision to the motor vehicle orthopedic handicap exemption
a new Prepaid 9-1-1 Emergency Service Fee

For more information about these changes to Texas tax laws and how they may affect you, please see the Legislative Update at www.window.state.tx.us/taxinfo/taxpubs/st_update.html

Qualifying for the New Sales Tax Deduction for Automobiles