There are a number of tax changes brewing, and we want to help keep you and your business in the loop. Small Business Taxes and Government Changes As the first year of a new President’s term is coming to an end, that means there are lots of potential changes on the horizon. According to the National Federation of Independent Business, new proposed tax plan changes will increase the corporate tax rate from 21% to 26.5%, which will negatively impact small businesses classified as C-corps. The good news is that only about 25% of small businesses are classified this way. However, many experts are saying that these changes would still impact small businesses in the coming tax year, if the plan gets approved. There are also changes coming in the form of increasing the top capital gains tax rate and changes to the estate tax, says the NFIB. 2021 Losses All non-corporate business taxpayers can deduct a net trade or business loss up to $262,000 (or $524,000 for joint returns). This includes Schedules C, E, and F business activities. Employee Retention Credit Your business may also be eligible for Employee Retention Credit (ERC). Though initially only applicable to wages paid from March 13, 2020, to December 31, 2020, the recently passed Consolidated Appropriations Act and American Rescue Plan Act have expanded this credit. For tax year 2021, eligible employers can claim the employer share of Social Security tax if it equals 70% of up to $10,000 in qualified wages paid per employee, per quarter. Maximum credits are $28,000 per employee for the year. Qualifying businesses must prove it fully or partially suspended operations due to the pandemic, had a 50% decline in 2020 gross receipts compared to the same quarter in 2019, or less than 80%of 2021 gross receipts when compared to the same 2019 quarter. Net Operating Loss Limits Are Back to Normal The CARES Act relaxed limits on net operating loss for tax years beginning in 2018. 2019, and 2020. But no such …
Growth of the Gig Economy
The growth of the gig economy is a big change-maker for lots of businesses across all industries. Why is Gig Work Growing? The gig economy is taking off for several reasons. Brodmin has an insightful case study about gig work. Though COVID-19 spurred a big wave of workers into the gig economy, favor with the freelance and independent contractor style of work has been growing for a number of years. The pros: flexible schedule, the ability to control your workload, extra income outside your traditional. All of these things align with the work-life balance and benefits that Millennials and Gen Z are looking for in their “dream job” scenarios. Some industries are growing their gig worker base because of new trends. Things like Uber and Airbnb have seen record growth recently, and that trajectory will continue in the coming years. Technology is Leading the Way Other growth areas in the gig economy are being led by technology. Web and graphic design, programming, and IT are at the top of the list of fields experiencing prominent growth in the number of freelancers and independent contractors making up the workforce. Also, with the rise in company use of collaboration tools and other remote-friendly technology, gig work has become more accessible. Computer work can be done from anywhere, and more people are taking advantage of that. What Gig Work Means for Your Taxes Gig economy growth means that your business will be more likely to interface with freelancers and independent contractors on a regular basis. Because gig workers aren’t classified as employees, the taxes associated with your business also differ. According to JustWorks.com, more than 3 million employees are misclassified as 1099 contractors every year. You can only classify the people you hire as gig workers if: They control when and how they do their work They use their own supplies and equipment to carry out the job They get paid directly by varying clients If the person …
Evaluating Withholding at Year-End
The last quarter of 2021 is a great time for evaluating withholding for the year. New Items for Tax Year 2021 This year, your tax prep schedule and operations – both for personal and for business taxes – looked very different from past years. There were some good parts and some not-so-good parts. And the tax process next year will likely also be abnormal. The best practice for that is to get started early. Here are some items of interest for the coming tax season. There are several COVID-related tax items, first and foremost. The American Rescue Plan Act (ARPA) expanded the Advance Child Tax Credit and updated certain qualifications and payment management procedures. As of October 9, 2021, there were still more than 7 million unprocessed individual tax returns, which include tax year 2020 returns with errors and other returns that require special handling. Under ARPA, employers are entitled to tax credits if they provide paid leave to employees who take time off related to COVID-19 vaccinations. You can find more information on that here. Tips for Evaluating Withholding The IRS has an Income Tax Withholding Assistant for Employers tool that can help small and medium-sized businesses determine the amounts they should be withholding. The tool is available in the form of an Excel spreadsheet. Everything from regular pay to commissions and vacation pay is subject to withholding standards. Regardless of the time of year, here are some of the main instances where your business should be evaluating withholding: Early in the year to set your business on the right track Late in the year to be sure you are still on target as you head into tax prep season When the tax law changes (like with the American Rescue Plan Act changes, and other COVID-related changes) When wages change When itemizing deductions or tax credits If your business has seen a change in the percentage of employees versus gig workers being hired Types of Taxes …
Tips for Financial Planning Month
What better way to celebrate Financial Planning Month than to focus on your financial health by implementing some helpful tips for October and beyond. Get a Head Start on Your Giving This Season If there are things you or your business have in excess or aren’t using, you can turn that excess into charitable donations. Not only is your generosity going to help those who need it, but if you donate to a 501(c)(3), you can often deduct at least part of the items’ worth on your taxes. The holiday season is just around the corner, and what better time to do a big inventory check of personal items like clothing, home furnishing, office supplies, and other equipment that many others may need in the new year. And the Tax Cuts and Jobs Act in 2020 also raised the standard deduction for charitable giving to $12,400 for individuals and $24,800 for married couples. Take Advantage of All the Ways You Can Reduce Income Tax Reducing your taxable income is a great way to decrease your tax responsibilities, but many of the ways in which you can reduce it can also help set you up for financial success in the future. Retirement accounts and plans are essential to your financial health as you transition away from the workplace. And that transition is much easier when you have spent your whole working life contributing to your retirement. 401(k), 403(b), and traditional IRA accounts all offer different avenues toward a relaxing future. So why not increase your contribution as we head into the end of the tax year 2021? Health savings accounts (HSAs) give you a multitude of tax benefits, including tax-deductible contributions, tax-free earnings, and tax-free withdrawals. Flexible Spending Accounts (FSAs) offer similar benefits to HSAs. Allocating some of your money here can help you two-fold: you can prepare for the inevitable health expenses while also foregoing taxes. If you are interested in continuing your education, 529 plans are a great choice. With one, you …
What Is a Contingent Worker and Why Should You Care?
There has been a shift from using language surrounding the “contracted worker,” because the explosion in freelance and independent work has meant a shift away from formal contracts and the emergence of freelance-promoting digital platforms, websites, and apps. What Is a Contingent Worker? According to the US Department of Labor, a contingent worker is an independent contractor or freelancer. Contingent workers are responsible for the business side of their taxes, whereas a full employee is not, the business which employs them is going to take care of those. The most common form of contingent workers includes freelance writers and editors, for example. But many companies hire contingent workers to round out their sales force. Contingent workers hold a lot more power and autonomy than regular employees. They can’t be told how to complete a project, because hiring a contingent worker means the business is more concentrated on achieving results than controlling the process. Pros of Hiring Contingent Workers The biggest advantage of hiring a contingent worker is that your company will not be responsible for collecting or paying quarterly taxes through paystubs. That saves your accounting team time and resources. All you need to do for contingent workers is to create and file 1099 forms, most often the 1099-NEC for non-employee compensation. You only need to do this for contingent workers who you have paid $600 or more in a calendar year. The other big pro of hiring contingent workers is the huge talent pool available. A survey from Glassdoor found that 63% of recruiters say talent shortage is their biggest problem, and gig work is becoming more and more popular. Another benefit of hiring contingent workers is the fact that many of them possess more specialized skills. Since they have more control over their business, the demand for specific products and services means each gig worker has to focus on specialization and differentiation in the …
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Tax Consequences of Misclassifying Workers
The classification of workers is growing and changing. Do you know what the consequences are of misclassifying employees and/or independent contractors? Let’s discuss. Factors for Classifying Employees In order to understand the classification criteria for workers, you have to know the factors that affect classification as defined by the IRS: Behavioral control – Who controls the work and how the worker completes the job? Financial control – Who controls the financial and business aspects of the work – including how the worker gets paid, how expenses are reimbursed, and who provides the tools, materials, or supplies? Relationship of the parties – Are there benefits like pension plans, insurance, vacation time? Will the relationship continue? Is the work being performed a key component of the business? Consequences of Misclassifying Workers Misclassifying workers as independent contractors come with a host of consequences: Violations of Wage Law Failing to pay overtime and minimum wage is a violation of the Fair Labor Standards Act (FLSA) and offending employers are subject to criminal penalties and liability for back wages. More than the penalties, though, the damage caused by damages and legal fees can put your business in a bad way as well. I-9 Violations Form I-9 is used to verify the identity and employment authorization of anyone hired for employment in the United States – citizens and noncitizens alike. Certain industries are less closely controlled, including construction, home healthcare, warehousing, and the like. I-9 violations include refusal to keep the proper paperwork on file and penalties include civil fines, criminal penalties, debarment from government contracts, back pay fines, and more. Legal Penalties There are many legal actions that can be taken when you misclassify workers. Stoke broke down the following legal penalties. Class-action lawsuits come from large numbers of employees seeking punitive damages, …
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