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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How the American Rescue Plan Changes Your Taxes
On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law with the goal of providing economic relief to promote family, state, and local recovery from the COVID-19 pandemic. Let’s talk about how that changes your taxes for 2021. Economic Impact Payments The third round of economic impact (or stimulus) payments went out in the spring of 2021. The first two rounds went onto your 2020 taxes and brought lots of confusion with it. Your last economic impact statement isn’t taxable because it isn’t income. It is classified as an advance payment of a tax credit, so it won’t change your taxes this year at all. If you didn’t receive your third stimulus check, or you received less than you’re entitled to, you can talk to your tax professionals to see if you can claim credit for the amount on your 2021 tax returns (which will be filed next year). Employee Retention Credit Originally set to expire at the end of June 2021, the Employee Retention Credit has been extended through December 31, 2021. If your business was hit hard and has gross receipts down by 90% or more compared to the corresponding quarter in 2019, you can claim this credit on all wages paid to employees who have continued to work during the quarter. You can use this credit to offset the employer’s share of Medicare taxes. COBRA The American Rescue Plan Act also allows any employees and individuals who were involuntarily terminated or who experienced reduced work hours the option to receive Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage without paying any premiums or fees from April 1, 2021, to September 30, 2021. Employers are responsible for these fees during this time. Excess Business Losses Under previous laws, owners of pass-through entities were able to deduct losses in excess of a specified amount as specified by IRC section 461(I). The cap on business loss deductions was supposed to expire at year-end in 2025, but that has been extended another …
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