AVA News Bulletin

4. 2017 Mileage Rates(in cents)

Mileage Type
Business
Relocation
Medical
Charitable
2017
53.5
17.0
17.0
14.0





3. January 17th- Be E-file Ready 

For 2017, the date the IRS will begin to accept the tax returns sumbitted electronically, or E-filing, is January 17th, 2017. We are open Monday through Friday from 8:30 am until 5:00 pm and weekends by appointment. Initial consultation is free, and there are many discounts we are currently offering. 

9. The "Wash Sale" Rule 

If you sell securities at year-end, you might be soaked by the "wash sale" rule. This rule prevents you from claiming a tax loss on the sale of securities if you acquire "substantially identical" securities within 30 days of the sale. 

However, it is relatively easy to avoid the wash sale rule. One obvious strategy is to wait at least 31 days before you buy back the same securities. 

Of course, other economic factors besides taxes should enter into your investment decisions. Just remember to watch out for the wash sale rule if you sell securities at a loss 

10. Your Tax Strategy: Time Matters 

"Saving on your taxes starts with planning, and the sooner you begin, the better. By aligning your tax strategies with your financial strategies, the money you save from taxation can help fund your future. Minimizing your taxes and maximizing your saving opportunities involves planning for both the short- and long-term. 

Like your financial strategy, your tax strategy operates in two-time frames�now and later. �Now� covers the 12 months of the current tax year. In the short term, a misstep of a month in selling an appreciated stock and paying the higher short-term capital gains tax versus the lower long-term rate could result in a significantly higher tax bill. �Later� covers long-range moves such as starting a tax-deferred savings plan (for instance, a 401(k) plan for your retirement). 

Long-term planning opportunities may help you reduce your tax bill in the short term, as well as reach your future goals, such as funding a secure retirement or paying for an education. For example, if you contribute to a qualified employer-sponsored retirement plan, like a 401(k), your contributions are pre-tax, and earnings have the potential to grow on a tax-deferred basis. If you plan on sending your children to college, a 529 college savings plan allows your contributions to grow tax-deferred, and withdrawals for qualified expenses are tax-free. 

The ways in which you are capable of reducing your tax burden will most likely change over time as your personal circumstances change and as tax laws change. In May 2003, the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) accelerated income tax cuts scheduled for 2006 by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), increased the child tax credit, and cut long-term capital gains and dividend tax rates. In addition to income tax cuts, EGTRRA also made landmark changes by expanding savings opportunities in the areas of retirement and education, as well as by reducing the estate tax rates (with repeal scheduled for 2010)."
- Liberty Publishing, Inc.

11. Protect Your Business with an EPLI Policy 

"In today�s litigious society, businesses are susceptible to a host of employment-related lawsuits, including claims of discrimination, sexual harassment, wrongful termination, and invasion of privacy. Such claims stem from employer monitoring of voicemail, email, office computer systems, and the Internet, as well as daily interactions between staff and management. The increase in these liability claims has fueled the need for a different type of insurance coverage - employment practices liability insurance (EPLI). 

Policy Issues
EPLI policies generally cover suits brought against employers, directors, officers, and supervising employees. Coverage usually includes expenses relating to legal defense, indemnity for liability, and administrative hearings or actions. 

EPLI coverage may exclude suits involving employees hired under nontraditional employment arrangements, such as independent contractors, consultants, and volunteers. It may also exclude claims involving employment-related defamation, misrepresentation or fraud, occupational health- and safety-related issues, and unfair labor practices. 

Coverage Terms
Business owners who purchase EPLI insurance should focus particular attention on policy language that will provide the appropriate coverage for their businesses. Policy terms that may cause confusion include the following:
  • Defined vs. Undefined. The use of specific definitions of coverage may provide a threshold for claims to be tested; in other words, coverage will only be granted for a claim if it meets the express definition contained in the policy. Conversely, undefined terms written ambiguously in the policy may cover all claims, unless otherwise excluded.
  • "Consent" vs. "Confer." When choosing legal representation, the right of "consent" grants an insured business veto power or authority to influence the insurance carrier�s selection of counsel. Likewise, the right to "confer" allows a business owner to participate in the selection process without the authority to make the final decision.

Directions for Loss Prevention
An EPLI policy tailored to the company�s needs combined with a proactive employment practices program may provide the best road map to guide businesses safely through employee claims. Companies may consider the following practices to help protect against liability:
  • Designate a human resources manager who has knowledge of current employment laws, and give him or her the authority to facilitate a forum for employees to discuss potentially liable issues in a safe environment.
  • Establish and maintain a current human resources policy manual that includes written guidelines for grievance procedures, discrimination issues, sexual harassment issues, and termination.
  • Require managers to obtain training for hiring, conducting performance evaluations, and terminating employees.
  • Conduct employment practices audits.

Cause for Consideration
As with all insurance, the decision to employ EPLI insurance should be made with careful consideration. Some EPLI coverage is only offered in certain states; therefore, companies with operating facilities in several states should ensure their policy provides coverage for all facilities. In addition, because the risk of potential EPLI claims may be directly associated with the size of a company, smaller or family-owned companies employing few non-related workers may believe they face minimal exposure to liability. Before deciding whether your company may or may not be immune to the risks of employment-related lawsuits, you may want to consider speaking with one of our qualified insurance professionals. We will help you evaluate your employment practices liability needs. "
--Liberty Publishing, Inc.

14. Recordkeeping

Why should I keep records?
Good records will help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.

What kinds of records should I keep?
You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

How long should I keep records?
The length of time you should keep a document depends on the action, expense, or event the document records. You must keep your records as long as they may be needed to prove the income or deductions on a tax return.

How long should I keep employment tax records?
You must keep all of your records as long as they may be needed; however, keep all records of employment taxes for at least four years.

How should I record my business transactions?
Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. These documents contain information you need to record in your books.

What is the burden of proof?
The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove (substantiate) certain elements of expenses to deduct them.

References/Related Topics

16. Federal Minimum Wage Increases July 24, 2009

On July 24, 2009 the Federal minimum wage will be increasing from $6.55 per hour to $7.25 per hour. The Federal Minimum Wage Law establishes a minimum wage rate per hour for all non-exempt workers.

This marks the final leg of a scheduled three-phase increase. The increases took place as follows: $5.85 per hour as of July 24, 2007, $6.55 per hour as of July 24, 2008, and $7.25 per hour effective July 24, 2009.

Employers subject to the Fair Labor Standards Act�s minimum wage provisions are required to comply with the law (state or federal) that allows for a greater minimum wage to be paid to the employee. Many states have minimum wage laws which are more stringent than federal regulations. If this is the case, employers must comply with their state-specific minimum wage requirements.

Many states have also chose to increase their minimum wage rates to $7.25 per hour effective July 24th in order to coincide with the federal change, including:
  • Maryland
  • Montana
  • Nebraska
  • New Jersey
  • New York
  • North Carolina
  • North Dakota
  • Oklahoma
  • Pennsylvania
  • South Dakota
  • Texas
  • Utah
  • Virginia

17. Charitable Contributions

New recordkeeping requirements for cash contributions. You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution. For more information, see Publication 526, Charitable Contributions

Contributions to donor advised funds. You cannot deduct a contribution to a donor advised fund after February 13, 2007, if the sponsoring organization is a war veterans' organization, a fraternal society, or a nonprofit cemetery company. There are also other circumstances in which you cannot deduct your contribution to a donor advised fund. Generally, a donor advised fund is a fund or account in which a donor can, because of being a donor, advise the fund how to distribute or invest amounts held in the fund. For details, see Internal Revenue Code section 170(f)(18). 

Filing fee for easements on buildings in historic districts. A new $500 filing fee must be paid for each qualified conservation contribution after February 12, 2007, that is an easement on a building in a registered historic district, if the claimed deduction is more than $10,000. See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13). 

18. Adoption 

Adoption credit. Beginning in 2007, the credit allowed for an adoption of a child with special needs is $11,390 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $11,390. The credit begins to phase out if you have modified adjusted gross income of $170,820 or more and is completely phased out if you have modified adjusted gross income of $210,820 or more. 

Adoption assistance program. Beginning in 2007, you may be able to exclude up to $11,390 from your gross income for qualified adoption expenses paid or incurred by your employer under a qualified adoption assistance program in connection with your adoption of an eligible child. This income exclusion starts to phase out if your modified adjusted gross income is $170,820 or more and is completely phased out if your modified adjusted gross income is $210,820 or more.

21. Resignation vs. Termination 

Question: I have an employee who just gave us her two weeks notice. What do I do? Can I ask her to leave earlier? 

Answer (TX): If an employee gives you two weeks or less notice of their intent to quit, you can accept their resignation immediately and it remains a voluntary quit. You could reply, "I accept your resignation effective today." You don't have to keep them around for the remainder of the two weeks. 

Once resignation is accepted, the Texas Payday Law states that you will need to issue their final paycheck by the following scheduled payday. 

HOWEVER, if the employee comes and says they want to quit three months from now, letting them go at that time would be considered a termination. 

22. Where's My Refund?? 

You filed your tax return and you're expecting a refund. You have just one question and you want the answer now - Where's My Refund? 

Access this secure Web site to find out if the IRS received your return and whether your refund was processed and sent to you.    Click Here 

23. New Bankruptcy Law Adds Debtor Tax Responsibilities 

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which was effective October 17, adds new tax responsibilities for bankruptcy filers. 

Under the new law, debtors must not only comply with filing their returns but also provide copies of the tax returns or risk dismissal or conversion of their case. 

Also under BAPCPA, in order to have their plan confirmed, Chapter 13 debtors must file all tax returns for the four-year period before the bankruptcy petition. 

Fact Sheet 2005-18 provides more on this topic.

24. Independent Contractors vs. Employees 

Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be -

  • An independent contractor
  • A common-law employee
  • A statutory employee
  • A statutory nonemployee

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.

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

Who is an Independent Contractor?
A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

  • Example: Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours.  She is to receive $1,280 every 2 weeks for the next 10 weeks.  This is not considered payment by the hour.  Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400.  She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements.  Vera is an independent contractor

How should I report payments made to independent contractors?

You may be required to file information returns to report certain types of payments made to independent contractors during the year.  For example, you must file Form 1099-MISC, Miscellaneous Income, to report payments of $600 or more to persons not treated as employees (e.g. independent contractors) for services performed for your trade or business.  For details about filing Form 1099 and for information about required electronic or magnetic media filing,  refer to  information returns .

Who is a Common-Law Employee (Employee)?
Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

To determine whether an individual is an employee or independent contractor under the common law, the relationship of the worker and the business must be examined. All evidence of control and independence must be considered. In an employee-independent contractor determination, all information that provides evidence of the degree of control and degree of independence must be considered.

Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Refer to Publication 15-A, Employer's Supplemental Tax Guide  for additional information. 

Who is an Employee?
A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done.

  • Example: Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. She works 6 days a week, and is on duty in Bob's showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Bob. Bob also pays the cost of health insurance and group-term life insurance for Donna. Donna is an employee of Bob Blue.

Statutory Employees
If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute ( statutory employees ) for certain employment tax purposes if they fall within any one of the following four categories and meet the three conditions described under Social security and Medicare taxes, below.

  • A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.
  • A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
  • An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
  • A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. The work performed for you must be the salesperson's principal business activity. Refer to the Salesperson section located in Publication 15-A, Employer's Supplemental Tax Guide for additional information.

Statutory Nonemployees
There are two categories of statutory nonemployees: direct sellers and licensed real estate agents. They are treated as self-employed for all Federal tax purposes, including income and employment taxes, if:

  • Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked and
  • Their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes.

Refer to information on Direct Sellers located in  Publication 15-A, Employer s Supplemental Tax Guide for additional information. 

Misclassification of Employees
Consequences of treating an employee as an independent contractor.  If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker.  See Internal Revenue Code section 3509 for additional information. 

Resources
  • Tax Topic 762 Basic Information 
  • To determine whether a worker is an independent contractor or an employee, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories Behavioral Control, Financial Control, and the Type of Relationship itself.
  • Publication 1976, Section 530 Employment Tax Relief Requirements (PDF)
  • Section 530 provides businesses with relief from Federal employment tax obligations if certain requirements are met.
  • IRS Internal Training:  Employee/Independent Contractor  (PDF)
  • This manual provides you with the tools to make correct determinations of worker classifications. It discusses facts that may indicate the existence of an independent contractor or an employer-employee relationship.  This training manual is a guide and is not legally binding.   If you would like the IRS to make the determination of worker status, please file IRS Form SS-8. 
  • Form SS-8 (PDF)
  • Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
  • Publication 15-A 
  • The Employer's Supplemental Tax Guide has detailed guidance including information for specific industries.
  • Publication 15-B
  • The Employer�s Tax Guide to Fringe Benefits supplements Circular E (Pub. 15), Employer's Tax Guide, and Publication 15-A, Employer's Supplemental Tax Guide. It contains specialized and detailed information on the employment tax treatment of fringe benefits.

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