Introducing the 2017-18 Tax Planning Guide

Tax planning guideTaxes are important, especially as you’re running your business. Paying attention to tax laws, and planning in a timely fashion for taxes, can seriously help you in the long run. For instance, you can estimate your tax liability and even look for ways to reduce it. That’s why we created our annual tax planning guide.

The guide highlights all sorts of information related to tax planning and tax law. Topics include:

  • Executive compensation
  • Investing
  • Real Estate
  • Business Ownership
  • Charitable Giving
  • Family & Education
  • Retirement
  • Estate Planning
  • Tax Rates

To learn more, or download the guide, click here.

Change could be coming …

There’s a large possibility that tax laws could be seriously changing, thanks to a change in White House administration and Republicans maintaining a majority of Congress. But for now, following current tax laws is the way to go.

However, it’s important to know that change could come quickly and you need to be ready to respond. We encourage you to have a tax adviser who can help you navigate these changes if they happen.

The Importance of Classifying Workers

Recently, the IRS released a fact sheet to help remind small businesses of the importance of correctly classifying workers. Sometimes IRS lingo can be complicated, so we broke it down for you.

Let’s start with the question that’s probably going through your head – why does this matter?

When you classify your workers, this can help determine if you need to withhold income, social security and Medicare taxes. It also helps determine if you actually have to pay these taxes on employee wages. When it comes to independent contractors, businesses usually don’t have to withhold or pay taxes. If you’re not classifying correctly, you can get stuck with some harsh fines and penalties.

So how do you determine if the individual is an independent contractor or an employee? One general rule to follow is that your worker is an independent contractor if the business has the right to control only the result of the work, not how the work will be done. However, there are three categories that can help you make your determination.

Behavioral Control

A worker is considered an employee when the business gets to be bossy. Okay, maybe bossy isn’t the right word, but the business does have the right to direct and control the work being done. Behavioral control can be broken down into a few more distinct categories:

  • Type of instructions – This can include telling the employee where to work, when to do the work and how the work should be done.
  • Instruction complexity – The higher the complexity of the instructions given, the more likely it is the individual is an employee. When the instructions have less detail, this gives the worker more control to do the job how they see fit, which points towards the worker being an independent contractor.
  • Evaluation – How a business evaluates the work can help determine if the worker is an employee or contractor. If the details of how the work was done are evaluated, then the worker is likely an employee. However, if only the end product is being evaluated, it’s more likely you have a contractor.
  • Training – This one is fairly simple. Would you like someone else telling you how to do your job? If a worker is an employee, the business has the authority to do just that. For independent contractors, they are the experts and generally don’t require training from the hiring company.

Control over Finances

This category looks at what control the business has over the financial and business pieces of the worker’s job. Factors to consider include:

  • Equipment investment – Independent contractors are much more likely than employees to make significant investments in the equipment they are using to get the job done. Employees are often provided equipment from their employer, rather than investing in it on their own.
  • Expense reimbursement – Businesses generally reimburse expenses for their employees, not for independent contractors.
  • Availability – Independent contractors generally have the freedom to seek out more business opportunities, while employees work is usually contained to the one business.
  • Payment – This one is easy to understand. When you have employees, you usually guarantee them a regular wage. With independent contractors, a flat fee is usually agreed upon and paid on the completion of the work.

Relationship Elements

What the business or worker offers in the relationship can also determine classification. Some key elements to consider are:

  • Contracts – Written contracts which describe the relationship the parties plan to create are a fairly simple way to determine which type of worker the business has. However, it’s important to note that a contract stating the worker is a contractor or an employee isn’t enough on its own to classify the worker’s status.
  • Benefits – Insurance, retirement, vacation and sick pay are benefits provided to employees. It’s rare for these benefits to be given to independent contractors.
  • Forever or just a fling – The length of time of the relationship can help determine a worker’s status. When an employee is hired, the expectation is that the relationship is long term. For contractors, the relationship isn’t permanent. Instead, both parties enter the relationship with the assumption of a certain amount of time for the work to be completed.

When businesses wrongly classify their workers, they are still liable for the related taxes and payments for those workers, and may even face other sanctions. Correctly classifying your workers helps you avoid this, making it easier for you to run your business.

We know this stuff can be kind of confusing – and even scary. But don’t fear! We are here to help.. just ask!

 

Updates to Per Diem Rates

Back in August, the General Services Administration (a.k.a GSA) issued its annual update on federal maximum per diem rates. These new rates pertain to locations within the continental United States – otherwise known as CONUS. This includes the lower 48.

Before we go into detail on the new rates, let’s do a little refresher.

Per Diem: A Latin word that translates to per day, or for each day. In the case of this post, per diem is being discussed as the daily allowance employees are paid and reimbursed for when they travel for work. Common expenses covered under per diem rates include:

  • Lodging
  • Meals
  • Tips
  • Ground Transportation
  • Wi-Fi Charges
  • Other incidental expenses, such as dry cleaning

Another simple way to put it: it is the amount of money an employee is able to spend, per day, on a business trip, attending conferences and events related to work and traveling to work away from the home office. Think of it as an allowance. However, it is important to note the per diem rate doesn’t include the cost of transportation to the site, such as flights or driving. Those costs are usually paid separately by the employers.

So, let’s get back to the main point: these rates are changing, and if you or your employees travel for work, it’s important to know them and stay in compliance!

The new FY18 rates apply to work travel on or after October 1, 2017. If the per diem allowance given to an employee is equal to or less than the federal rates, the allowance is excludable from income tax; those over the federal rates are subject to employment taxes.

Let’s take a look at what FY18 per diem rates have to offer.

The first takeaway to note is the CONUS meal and incidental expense (M&IE) rate hasn’t changed – it is staying at $51. The M&IE rates for non-standard areas – areas still within CONUS which have different rates for travel – will also stay the same. However, all locations in CONUS that don’t appear on the non-standard area list will have an increase in the lodging per diem rate. This has gone up from $91 to $93.

There are also some changes to the non-standard areas list. While no new locations were added, there were 14 locations removed for FY18. They include:

  • Redding, CA
  • Cedar Rapids, IA
  • Bonner’s Ferry/Sandpoint, ID
  • Dickinson/Beulah, ND
  • Watertown, NY
  • Youngstown, OH
  • Enid, OK
  • Mechanicsberg, PA
  • Scranton, PA
  • Laredo, TX
  • McAllen, TX
  • Pearsall, TX
  • San Angelo, TX
  • Gillette, WY

These removed locations are now considered part of the regular CONUS, and follow CONUS standard rates.

You might also be wondering about rates in places that aren’t part of the CONUS, such as Alaska, Hawaii or even Puerto Rico. If your employees are lucky enough to travel to Hawaii for work, it’s important to note these rates are not updated annually, but rather on an irregular basis.

The Department of State steps in and updates per diem rates for foreign travel, but also on an irregular schedule.

To find these rates, as well as the CONUS rates, be sure to check out the GSA website.

In the meantime, if you’re struggling to understand how much to reimburse your employees for their travels, reach out to us. We would be happy to help!