Archives for September 2013

Proper tax planning and tax preparation considerations need to be addressed by many business owners because of an IRS ruling. Effective January 1, 2014, if a business adds service charges to customers’ bills which it distributes to its employees, the amounts distributed to the employees will no longer be considered tips.

What is a “service charge” or “auto-gratuity”? By way of example, these are the automatic tip charges for large parties (used by restaurants), a bottle service charge (restaurants and night-clubs), room service charge (hotels and resorts), a contracted luggage assistance charge (hotels and resorts), or a mandated delivery charge (pizza, Chinese restaurants and other retailers).

This change is causing some restaurants to rethink the practice of adding automatic tips to the tabs of large parties. Why? Because the IRS will begin classifying those automatic gratuities [Read more…] about WHEN A TIP LEFT AT A RESTAURANT IS NOT A TIP

Proper tax planning and tax preparation considerations are not found when using a commercial tax preparation software package. Just imagine if you could be taxed at long-term capital gain rates rather than ordinary income tax rates on distributions from your employer’s 401(k) plan.

What typically happens when an employee retires or changes jobs? The employee rolls over the 401(k) funds into an IRA. The rollover to an IRA is a non-taxable event and the employee will eventually be taxed at ordinary income tax rates when the employee takes distributions from the IRA. However, this standard practice of rolling over a lump-sum distribution into an IRA to postpone immediate tax liability could prove to be a very expensive mistake.  Why? [Read more…] about LUMP-SUM DISTRIBUTION OF APPRECIATED EMPLOYER SECURITIES FROM A 401(K) PLAN

Whether you are an employer hiring independent contractors, or you are an independent contractor working for a business, you need to understand the tax planning implications of a worker classified as an employee (receives a W-2) or an independent contractor (receives a Form 1099-MISC).

Employers often mistakenly believe that they determine how a worker is to be classified. Some employers realizing that there are incentives to classify their workers as independent contractors will ignore the common law tests of determining whether a worker is an employee or a contractor. The tests tend to look at who controls the worker. If the employer controls the worker, the worker will be classified as an employee. If the worker controls his or her duties, the worker is an independent contractor. For further IRS tests, see Rev. Rul. 87-41.

Employers who ignore the rules do so to avoid paying employment taxes and costly employee benefits, or comply with a myriad of employer rules. One of those myriad of employer rules that may further motivate employers to improperly classify workers as independent contractors is the [Read more…] about TAX PLANNING NEEDED – EMPLOYEE VS. INDEPENDENT CONTRACTOR