by Website Administrator | Feb 19, 2024 | tax info
“If the IRS [ . . . ] contacts you”
There are numerous reasons why the Internal Revenue Service may contact you throughout the year, so if you receive an IRS missive in the mail, don’t panic. Instead, open the letter and deal with it straightaway. Whatever you do, don’t put it off.
Chances are you are receiving a computer-generated letter because the IRS thinks you owe it money. This is likely due to a mistake on your tax return, such as failing to include all your income. But the IRS is often NOT correct, so before you automatically pay the bill, do some investigation. It’s very possible that the income from one or more W-2s or 1099s is being credited to your account in error. Or they identified stock that you may have sold, and they assume that you had paid nothing for that stock, asking you for tax on what you sold it for.
Even if the income is yours, the amount is correct, and you really did leave it off your tax return, double-check the IRS’s work by adding the missing numbers to your return and recalculating your taxes. IRS and state computers often make mistakes and you might save some money.
The best piece of advice is seek out your preparer, enrolled agent, or CPA, particularly if it is an audit. What may appear to you as a daunting task can often be dealt with just a single letter, or an hour or two’s time with an IRS agent. And if the IRS should give you call on the phone, consult with your accountant before you talk with them. Often a seemingly innocent question and answer session can create a web of questions.
by Website Administrator | Feb 19, 2024 | tax info
“Employee vs subcontractor – Why the Federal rules are more important to know”
Previously, we explored New Hampshire’s rules for differentiating between an employee and a subcontractor.
As important as it is to know the state rules, oftentimes the bigger stick comes from the Federal government, since if the IRS were to challenge your decision to treat someone as a subcontractor, and successfully argue that he or she should be an employee, you could be looking at payroll taxes and penalties that could easily run up to as much one half of what you were paying that person to begin with!
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered. These fall into 3 categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
- For individuals that you treat as subcontractors make sure your relationship does not have your company essentially providing all of their work, income, and work hours.
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. [ . . . . ]
