Income Tax Training School. Independent Contractors Taxation Mini-Course

Transcription

1 A & B Offic Incm Tax Training Schl Inpnnt ntractrs Taxatin Mini-urs This Mini-urs cntains a cmprhnsiv xampl f Schul an qustins an answrs that will strngthn yur knwlg. Larn Hw T: Diffrntiat Emply Frm Inpnnt ntractrs lassify Wrkrs rrctly hs Th rrct IRS Frms T Fil A Rturn Prvnt Run-Ins With Th IRS Prparr Sli Tax Rturns Intify rrctly Wh Is Slf-Emply Intify Th Misclassificatin f An Emply Us Schul (mmn Expnss) Intify a Statutry Emply Intify Passiv Activitis Affcting Yur Tax Rturn laim Hm Offic Expnss Us Optinal Mth Whn Paying Taxs Prgrammrs, Writrs, Dsignrs, Markting nsultants, Nurss, Janitrs, Tlmarktrs, Drivrs Etc. Shul B Hir As... An Much Mr... Issu: Spt 2013 Intractiv Slf-Stuy urs pyright 2013 A & B Offic, Incm Tax Schl. All Rights Rsrv Pag I f 154

2 Inpnnt ntractrs - Schul...3 Intructin...3 Slf-Emply r Emply?...3 Dtrmin Yur lassificatin...3 Dtrmining Whthr th Iniviuals Prviing Srvics ar Emplys r Inpnnt ntractrs...3 mmn Law Ruls...4 IRS Tst Fr Wrkr Status...5 Frm SS Emplymnt Tax Obligatins...6 Frms An Assciat Taxs Fr Inpnnt ntractrs...6 Frms An Assciat Taxs Fr Emplys Knw Wh Yu r Hiring...7 nsquncs f Misclassificatin f Inpnnt ntractrs...8 Rlif f Misclassificatin: Emply as An Inpnnt ntractr...8 Sl Prpritrship...12 Whn t Us Schul...12 Th Fllwing Factrs Gnrally Mak Wrkrs Emplys...12 Husban & Wif Businss...13 Singl-Mmbr LLs...13 Accunting Mths...13 What Is A Statutry Emply?...14 Intificatin Numbrs...15 Minimum Incm Rprting Rquirmnts fr Schul Filrs...16 Di Yu Matrially Participat in Th Businss?...17 Rntal Prprty Activitis...19 Frm 1099-Misc (Lin I)...19 Passiv Activity Opratin hart...19 Grss Incm & Rcipts...21 Nw Frm 1099-K...21 Installmnt Sals...21 Expnss...22 Lin 8, Avrtising...22 Lin 9, ar an Truck Expnss...22 Tw hics Fr Ducting Aut Expnss...22 Lasing a ar...25 Lin 11, ntract Labr...25 Lin 12, Dpltin...25 Lin 13, Dprciatin an Sctin 179 Expns Ductin...25 Whn T Attach Frm Lin 14, Emply Bnfit Prgrams...26 Slf-Emply Halth Insuranc Ductin...26 Ajustmnt On Lin Halth Insuranc In Th Nam f Th Iniviual...27 Emply-Spus Halth Insuranc...28 Th Halth ar Rfrm Act...28 An Ovrviw Of Th Nw Halth ar Law...29 Tabl Of ntnts Lin 15, Insuranc (Othr Than Halth)...30 Lins 16a an 16b, Intrst...30 Hw T Rprt...31 Lin 17, Lgal an Prfssinal Srvics...31 Lin 19, Pnsin an Prfit-Sharing Plans...31 Lin 20, Rnt r Las...32 Lin 21, Rpairs an Maintnanc...32 Lin 22, Supplis...32 Lin 23, Taxs an Licnss...32 Lin 24, Travl, Mals, an Entrtainmnt...34 Lin 25, Utilitis...36 Lin 26, Wags...36 Lin 30, Businss Us f Hm...36 Strag f Invntry r Pruct Sampls...37 Daycar Facilitis...37 Expnss Rlat t Tax-Exmpt Incm...38 What Frm t Us...38 Simplifi Optin...38 Rgular Mth...38 What Expnss an Yu Duct?...38 Prfits Limit Fr Ductins...39 alculating Th Prfit/Lss...40 Spcial ncrns fr Hmwnrs...41 IRS Rprting Rquirmnts...41 Whr T laim Th Expnss...42 Lin 31, Nt Prfit r Lss...42 Lin 32, At-Risk Qustin...43 Part III f Schul : st f Gs Sl...43 Lin 35, Invntry At Bginning Of Yar...43 Lin 36, Purchass, Lss st Of Itms Withrawn Fr Prsnal Us...43 Lin 37, st f Labr...44 Lin 38, Matrials an Supplis...44 Lin 39, Othr sts...44 Lin 41, Invntry at En Of Yar...44 Part IV f Schul : Infrmatin On Yur Vhicl...44 Part V f Schul : Othr Expnss...45 Slf-Emplymnt Tax...45 Slf-Emplymnt Tax Optinal Mth...46 alculatin f Slf-mplymnt Tax...47 Rviw Qustins...48 mplt Schul fr Karn Ellis...52 Slutin: Karn Ellis...52 Answrs t Rviw Qustins...56

3 Intructin Inpnnt ntractrs - Schul - Th IRS fins th Inpnnt ntractr as a ppl such as ctrs, ntists, vtrinarians, lawyrs, accuntants, cntractrs, subcntractrs, public stngraphrs, r auctinrs wh ar in an inpnnt tra, businss, r prfssin in which thy ffr thir srvics t th gnral public ar gnrally inpnnt cntractrs. Hwvr, whthr ths ppl ar inpnnt cntractrs r mplys pn n th facts in ach cas. Th gnral rul is that an iniviual is an inpnnt cntractr if th payr has th right t cntrl r irct nly th rsult f th wrk an nt what will b n an hw it will b n. Th arnings f a prsn wh is wrking as an inpnnt cntractr ar subjct t Slf-Emplymnt Tax. Yu ar nt an inpnnt cntractr if yu prfrm srvics that can b cntrll by an mplyr (what will b n an hw it will b n). This applis vn if yu ar givn frm f actin. What mattrs is that th mplyr has th lgal right t cntrl th tails f hw th srvics ar prfrm. If an mplyr-mply rlatinship xists (rgarlss f what th rlatinship is call), yu ar nt an inpnnt cntractr, an yur arnings ar gnrally nt subjct t Slf-Emplymnt Tax. Hwvr, yur arnings as an mply may b subjct t FIA (Scial Scurity tax an Micar) an incm tax withhling. Slf-Emply r Emply? It is critical that businss wnrs crrctly trmin whthr th iniviuals prviing srvics ar mplys r inpnnt cntractrs. Gnrally, yu must withhl incm taxs, withhl an pay Scial Scurity an Micar taxs, an pay unmplymnt tax n wags pai t an mply. Yu nt gnrally hav t withhl r pay any taxs n paymnts t inpnnt cntractrs. Dtrmin Yur lassificatin 1. I am an inpnnt cntractr r in businss fr myslf. If yu ar a businss wnr r cntractr wh prvis srvics t thr businsss, thn yu ar gnrally cnsir slf-mply. Fr mr infrmatin n yur tax bligatins if yu ar slf-mply (an inpnnt cntractr), s pag I hir r cntract with iniviuals t prvi srvics t my businss. If yu ar a businss wnr hiring r cntracting with thr iniviuals t prvi srvics, yu must trmin whthr th iniviuals prviing srvics ar mplys r inpnnt cntractrs. Dtrmining Whthr th Iniviuals Prviing Srvics ar Emplys r Inpnnt ntractrs (I) Bfr yu can trmin hw t trat paymnts yu mak fr srvics, yu must first knw th businss rlatinship that xists btwn yu an th prsn prfrming th srvics. Th prsn prfrming th srvics may b: 3

4 In a rlatinship f this kin whr Jay is clarly running his wn businss, it s virtually crtain that H-burgrs s nt hav th right t cntrl th way Jay prfrms his plumbing srvics. Its cntrl is limit t accpting r rjcting th final rsult. If H-burgrs sn t lik th wrk Jay has n, it can rfus t pay him. Th ifficulty in applying th right f cntrl tst is that cntrl isn t always asy t trmin. Gvrnmnt auitrs can t lk int yur min t s if yu ar cntrlling a wrkr. Thy rly insta n inirct r circumstantial vinc inicating cntrl r lack f it - fr xampl, whthr yu prvi a wrkr with tls an quipmnt, whr th wrk is prfrm, hw th wrkr is pai, an whthr yu can fir th wrkr. Th fllwing chart shws th primary factrs us by th IRS an mst thr gvrmnt agncis t trmin if yu hav th right t cntrl a wrkr. IRS Tst Fr Wrkr Status Bhaviral ntrl Financial ntrl Rlatinship Btwn Yu An Th Wrkr Wrkr Will Mr Likly B nsir I If: Yu nt giv thm instructins Yu nt prvi thm with training Thy hav significant invstmnt in quipmnt an facilitis. Thy pay businss n travl xpnss thmslvs. Thy mak thir srvics availabl t th public. Thy ar pai by th jb n. Thy hav pprtunity fr prfit r lss. Thy nt rciv mply bnfits such as halth insuranc. Thy sign a clint agrmnt with th payr. Thy can quit r b fir at will. Thy prfrm srvics that ar nt part f yur rgular businss activitis. Wrkr Will Mr Likly B nsir An Emply If: Yu giv thm instructins, thy must fllw abut hw t th wrk. Yu giv thm tail training. Yu prvi thm with quipmnt an facilitis fr f charg. Yu rimburs thir businss r travl xpnss. Thy mak n ffrt t markt thir srvic t th public. Yur pay thm by th hur r thr unit f tim. Thy hav n pprtunity fr prfit r lss - fr xampl, bcaus thy r pai by th hur an hav all xpnss rimburs. Thy rciv mply bnfits. Thy hav n writtn clint agrmnt. Thy can quit at any tim withut incurring any liability t th payr. Thy can b fir at any tim Thy prfrm srvics that ar part f yur cr businss. 5

5 Sl Prpritrship As th nam stats, a sl prpritr is smn wh wns a businss by himslf (nt incrprat). Hwvr, if th taxpayr is th sl mmbr f a mstic limit liability cmpany (LL), h is nt a sl prpritr if h lcts t trat th LL as a crpratin an a crprat tax rturn must b fil. A sl prpritr rprts th incm an xpnss frm his businss n a Schul, Prfit r Lss frm a Businss. On is slfmply if h/sh: nucts a tra r businss as a sl prpritr Is an inpnnc cntractr Is in businss fr him/hrslf many thr ways Whn t Us Schul Us Schul (Frm 1040) t rprt incm r lss frm a businss yu prat r a prfssin yu practic as a sl prpritr. An activity qualifis as a businss if yur primary purps fr ngaging in th activity is fr incm r prfit, an yu ar invlv in th activity with cntinuity an rgularity. Fr xampl, a spraic activity r a hbby s nt qualify as a businss. T rprt incm frm a nnbusinss activity, s th instructins fr Frm 1040, lin 21, r Frm 1040NR, lin 21. On wh wns a businss is an inpnnt cntractr. This status ntitls him t crtain favrabl tax bnfits (an full rspnsibility fr mplymnt taxs). Th inpnnt cntractr can itmiz all his businss xpnss, vn if h s nt itmiz his prsnal xpnss (Schul A). H s this n a Schul. His xpnss ar nt subjct t th 2% flr that mply businss xpnss must xc t b ligibl fr a uctin. In rr t b cnsir an inpnnt cntractr, th taxpayr shul st his wn hurs an wrk schul. Prbably b rspnsibl fr having his wn tls r quipmnt, an usually wrk fr mr than n iniviual r cmpany. If a taxpayr is an Inpnnt cntractr, h will nt fill ut a Frm W-4. Emply s Withhling Allwanc rtificat, fr iniviuals fr whm h wrks, nr will anything b withhl frm his paychcks. H is rspnsibl fr paying slf-mplymnt tax (Scial Scurity an Micar) an making stimat tax paymnts t cvr bth his slf-mplymnt tax an his incm tax. It is ftn har t trmin whthr smn is slf-mply r an mply. Th IRS has issu guilins fr trmining th catgry int which a taxpayr falls an if th mplyr cannt mak a trminatin, th IRS will trmin it fr him if s rqust. Th Fllwing Factrs Gnrally Mak Wrkrs Emplys 1. H must cmply with th mplyr s wrk instructins 2. Rcivs training frm th mplyr r th mplyr s sign 3. Prvis srvics which ar intgral t th mplyr s businss 4. Prvis srvics which ar prsnally rnr 5. Hirs pays an suprviss wrkrs fr th mplyr 6. Has an n-ging wrking rlatinship with th mplyr 7. Must fllw st hurs f wrk 8. Wrks full-tim fr th mplyr 9. Ds his wrk n th mplyr s prmiss 12

6 a qualifying small businss taxpayr (s th Part III instructins f Schul ), yu must us th accrual mth fr sals an purchass f invntry itms. Spcial ruls apply t lng-trm cntracts (s sctin 460 fr tails). If yu us th cash mth, shw all itms f taxabl incm actually r cnstructivly rciv uring th yar (in cash, prprty, r srvics). Incm is cnstructivly rciv whn it is crit t yur accunt r st asi fr yu t us. Als, shw amunts actually pai uring th yar fr uctibl xpnss. Hwvr, if th paymnt f an xpnitur crats an asst having a usful lif that xtns substantially byn th cls f th yar, it may nt b uctibl r may b uctibl nly in part fr th yar f th paymnt. S chaptr 1 f Pub Accrual accunting is cnsir t b th stanar accunting practic fr mst big an small cmpanis, with th xcptin f vry small pratins (slf-mply). This mth prvis a mr accurat pictur f th cmpany s currnt cnitin, but its rlativ cmplxity maks it mr xpnsiv t implmnt. This is th ppsit f cash accunting, which rcgnizs transactins nly whn thr is an xchang f cash. S Pub T chang yur accunting mth, yu gnrally must fil Frm Yu als may hav t mak an ajustmnt t prvnt amunts f incm r xpns frm bing uplicat r mitt. This is call a sctin 481(a) ajustmnt. A chang t an accru mth invlvs much mr bking tasks. Exampl: Yu chang t th cash mth f accunting an chs t accunt fr invntrial itms in th sam mannr as matrials an supplis that ar nt incintal. Yu accru sals in 2011 fr which yu rciv paymnt in Yu must rprt ths sals in bth yars as a rsult f changing yur accunting mth an must mak a sctin 481(a) ajustmnt t prvnt uplicatin f incm. A nt ngativ sctin 481(a) ajustmnt is takn int accunt ntirly in th yar f th chang. A nt psitiv sctin 481(a) ajustmnt is gnrally takn int accunt vr a pri f 4 yars. Inclu any nt psitiv sctin 481(a) ajustmnts n lin 6. If th nt sctin 481(a) ajustmnt is ngativ, rprt it in Part V. This tpic is ut f th scp f this mini-curs. b Emplyr intificatin numbr (EIN) a Emply s scial scurity numbr c Emplyr s nam, arss, an ZIP c What Is A Statutry Emply? OMB N Saf, accurat, FAST! Us Visit th IRS wbsit at 1 Wags, tips, thr cmpnsatin 2 Fral incm tax withhl If n qualifis as a statutry mply fr incm tax purpss, 7 Scial scurity th bx tips ntitl Statutry 8 Allcat tipsemply n Frm W-2, Wag an Tax Statmnt, will b chck. Incm an xpnss shul b rprt n Schul. ntrl numbr 9 10 Dpnnt car bnfits Businss uctins will nt b subjct t th 2% flr. Emply s first nam an initial Last nam Suff. 3 Scial scurity wags 4 Scial scurity tax withhl 5 Micar wags an tips 6 Micar tax withhl 11 Nnqualifi plans 12a S instructins fr bx Statutry mply 14 Othr f Emply s arss an ZIP c 15 Stat Emplyr s stat ID numbr 16 Stat wags, tips, tc. 17 Stat incm tax 18 Lcal wags, tips, tc. 19 Lcal incm tax 20 Lcality nam Rtirmnt plan Thir-party sick pay 12b 12c 12 Wag an Tax Frm W-2 py B T B Fil With Emply s FEDERAL Tax Rturn. This infrmatin is bing furnish t th Intrnal Rvnu Srvic. Statmnt 2013 Dpartmnt f th Trasury Intrnal Rvnu Srvic Th fllwing ccupatin grups qualify as statutry mplys: 1. Agnt rivrs r cmmissin rivrs - limit t ths wh istribut mat, vgtabls, fruit, bak gs, bvrags (thr than milk) pructs, launry r ry claning srvics. 14