TAX+BUSINESS ALERT
News for your business and your life. | Hawkins Ash CPAs
|
|
In this Edition
May 18, 2021
Providing Education Assistance to Employees? Follow These Rules
PODCAST: The Latest on Cryptocurrency
Help Ensure the IRS Doesn't Reclassify Independent Contractors as Employees
The Tax Treatment of Start-up Expenses
Appreciating the Helpful Balance of Bonds
|
|
|
Providing Education Assistance to Employees? Follow These Rules |
|
Many businesses provide education fringe benefits so their employees can improve their skills and gain additional knowledge. An employee can receive, on a tax-free basis, up to $5,250 each year from his or her employer for educational assistance under a “qualified educational assistance program.” For this purpose, “education” means any form of instruction or training that improves or develops an individual’s capabilities. It doesn’t matter if it’s job-related or part of a degree program. This includes employer-provided education assistance for graduate-level courses, including those normally taken by an individual pursuing a program leading to a business, medical, law or other advanced academic or professional degree.
Additional Requirements
The educational assistance must be provided under a separate written plan that’s publicized to your employees, and must meet a number of conditions, including nondiscrimination requirements. In other words, it can’t discriminate in favor of highly compensated employees. In addition, not more than 5% of the amounts paid or incurred by the employer for educational assistance during the year may be provided for individuals who (including their spouses or dependents) who own 5% or more of the business. No deduction or credit can be taken by the employee for any amount excluded from the employee’s income as an education assistance benefit.
Job-Related Education
If you pay more than $5,250 for educational benefits for an employee during the year, he or she must generally pay tax on the amount over $5,250. Your business should include the amount in income in the employee’s wages. However, in addition to, or instead of applying, the $5,250 exclusion, an employer can satisfy an employee’s educational expenses, on a nontaxable basis, if the educational assistance is job-related. To qualify as job-related, the educational assistance must: Maintain or improve skills required for the employee’s then-current job, or Comply with certain express employer-imposed conditions for continued employment. “Job-related” employer educational assistance isn’t subject to a dollar limit. To be job-related, the education can’t qualify the employee to meet the minimum educational requirements for qualification in his or her employment or other trade or business. Educational assistance meeting the above “job-related” rules is excludable from an employee’s income as a working condition fringe benefit.
Student Loans
In addition to education assistance, some employers offer student loan repayment assistance as a recruitment and retention tool. Recent COVID-19 relief laws may provide your employees with tax-free benefits. Contact us to learn more about setting up an education assistance or student loan repayment plan at your business.
|
|
Author: Aaron Boettcher, CPA
Direct: 920.337.4523
|
|
|
|
PODCAST
The Latest on Cryptocurrency
|
You can tell something is on the IRS radar when they actually put a question on the tax return to remind people to report the gains from such transactions. Beginning last year, the IRS asked a question on the first page of the Form 1040 to see if a taxpayer sold, sent, exchanged or otherwise acquired any interest in cryptocurrency or any other virtual currency. Learn more about the tax impact of cryptocurrency. |
|
Help Ensure the IRS Doesn't Reclassify Independent Contractors as Employees |
|
Many businesses use independent contractors to help keep their costs down. If you’re among them, make sure that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be a costly error. It can be complex to determine whether a worker is an independent contractor or an employee for federal income and employment tax purposes. If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax.
A business may also provide the worker with fringe benefits if it makes them available to other employees. In addition, there may be state tax obligations. On the other hand, if a worker is an independent contractor, these obligations don’t apply. In that case, the business simply sends the contractor a Form 1099-NEC for the year showing the amount paid (if it’s $600 or more).
What Are the Factors the IRS Considers? Who Is an “Employee?”
Unfortunately, there’s no uniform definition of the term. The IRS and courts have generally ruled that individuals are employees if the organization they work for has the right to control and direct them in the jobs they’re performing. Otherwise, the individuals are generally independent contractors. But other factors are also taken into account including who provides tools and who pays expenses.
Some employers that have misclassified workers as independent contractors may get some relief from employment tax liabilities under Section 530. This protection generally applies only if an employer meets certain requirements. For example, the employer must file all federal returns consistent with its treatment of a worker as a contractor and it must treat all similarly situated workers as contractors. Note: Section 530 doesn’t apply to certain types of workers.
Should You Ask the IRS to Decide?
Be aware that you can ask the IRS (on Form SS-8) to rule on whether a worker is an independent contractor or employee. However, be aware that the IRS has a history of classifying workers as employees rather than independent contractors. Businesses should consult with us before filing Form SS-8 because it may alert the IRS that your business has worker classification issues — and it may unintentionally trigger an employment tax audit. It may be better to properly treat a worker as an independent contractor so that the relationship complies with the tax rules.
Workers who want an official determination of their status can also file Form SS-8. Disgruntled independent contractors may do so because they feel entitled to employee benefits and want to eliminate self-employment tax liabilities. If a worker files Form SS-8, the IRS will notify the business with a letter. It identifies the worker and includes a blank Form SS-8. The business is asked to complete and return the form to the IRS, which will render a classification decision.
These are the basic tax rules. In addition, the U.S. Labor Department has recently withdrawn a non-tax rule introduced under the Trump administration that would make it easier for businesses to classify workers as independent contractors. Contact us if you’d like to discuss how to classify workers at your business. We can help make sure that your workers are properly classified.
|
|
|
|
Contact: Kyle Hundt, EA
Phone: 608.793.3152
|
|
The Tax Treatment of Start-up Expenses |
|
With the economy expected to improve in the months or quarters ahead, many business owners and entrepreneurs may decide to launch new enterprises. If you’re among them, be aware that the way you handle some of your initial expenses can make a large difference in your tax bill.
General Rules
Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one. Under the Internal Revenue Code, taxpayers can deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the business begins.
As you know, $5,000 doesn’t get you very far today! And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
In addition, no deductions or amortization deductions are allowed until the year when “active conduct” of your new business begins. Generally, that means the year when the business has all the pieces in place to begin earning revenue. To determine whether a taxpayer meets this test, the IRS and courts generally ask questions such as: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Did the activity actually begin?
Applicable Expenses
In general, start-up expenses include all amounts you spend to investigate creating or acquiring a business, launching the enterprise, or engaging in a for-profit activity while anticipating the activity will become an active business.
To be eligible for the election, an expense also must be one that would be deductible if it were incurred after a business began. One example is money you spend analyzing potential markets for a new product or service.
To qualify as an “organization expense,” the expenditure must be related to creating a corporation or partnership. Some examples of organization expenses are legal and accounting fees for services related to organizing a new business and filing fees paid to the state of incorporation.
Thinking Ahead
If you have start-up expenses that you’d like to deduct this year, you need to decide whether to take the elections described above. Recordkeeping is critical. Contact us about your start-up plans. We can help with the tax and other aspects of your new business.
|
|
|
|
Contact: Nicole Malueg, CPA
Phone: 920.684.2523
|
|
Appreciating the Helpful Balance of Bonds |
|
Stock market swings may bring fortune or fear, so investors shouldn’t forget about the helpful balance of bonds. Perhaps the most “user friendly” is a U.S. government savings bond. Buying one means you’re essentially lending the federal government money at a certain interest rate in exchange for a future return. U.S. savings bonds don’t offer as high a yield as other investment instruments, but they’re highly stable. Interest on U.S. government bonds is taxable on federal income tax returns, but it’s often exempt on state and local returns.
Another government investment option is a Treasury bill. These are short-term government securities with maturities ranging from a few days to 52 weeks. For a more long-term option, look into Treasury notes. These government securities are generally issued with maturities of two, three, five, seven and 10 years and pay interest every six months.
If you’re looking to preserve capital while generating some tax-free income, consider a tax-exempt state or municipal bond. Here you lend money to a more localized government entity in exchange for regular payments. Keep in mind that interest may be taxable on state and local returns.
There are corporate bonds as well. These generally offer a higher yield than their federal or municipal counterparts, but there’s greater risk in terms of price fluctuation because of market interest rate changes and even default by the issuer. Plus, you’ll need to anticipate the tax implications. Interest from corporate bonds is subject to federal and state income tax. Plus, as with other types of bonds, you could incur capital gains if you sell the bond at a profit before it matures.
|
|
|
|
Contact: Matt Eckelberg, CPA
Phone: 715.384.1995
|
|
More Resources from CPA-HQ |
|
Restaurant Revitalization Fund: Registration Open
This program will provide restaurants with funding equal to their pandemic-related revenue loss up to $10 million per business and no more than $5 million per physical location.
|
|
The Biden Administration Proposes Far-Reaching Tax Overhaul
These plans propose major investments in various domestic initiatives, such as expanded tax credits for families, offset with tax increases on high-income individual taxpayers and corporations.
|
|
QuickBooks Connect How-To Series
Register today to participate in our upcoming QuickBooks Connect event on June 8th. During this call-in session, our conversation will center around customizing desktop preferences in QuickBooks.
|
|
|
|
|
|
|
