Employee or Independent Contractor ?

Tax E Man — Tax Consultation, Preparation, Representation

Employee or Independent Contractor

Employee or Independent Contractor?

In order for a business owner to know how to treat payments made to workers for services, he or she must first know the business relationship that exists between the business and the person performing the services. A worker’s status determines what taxes are paid and who is responsible for reporting and paying those taxes. A worker performing services for a business is generally an employee or an independent contractor. If a worker is classified incorrectly, the IRS may assess penalties on the employer for nonpayment of certain taxes.

Penalties and Interest
When the IRS determines that a worker is actually an employee rather than an independent contractor, the employer is subject to penalties for failure to withhold
and remit income, FICA (Social Security and Medicare) and FUTA (federal unemployment tax) taxes, interest on the underpaid amounts, and penalties for failure to file information returns. The state will also seek to collect workers’ compensation and unemployment compensation premiums for unreported wages.

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Independent Contractor
An independent contractor is self-employed and is generally responsible for paying his or her own taxes through estimated tax payments. A business issues Form 1099-MISC, Miscellaneous Income, to any one independent contractor, subcontractor, freelancer, etc.,
to whom the business made $600 or more in payments over the course of the tax year. The business is not generally responsible for withholding income tax or FICA.

Employee
A worker treated as an employee will be issued Form W-2 for wages paid. The business hiring the worker is responsible for withholding income tax and FICA. The employer is also liable for FUTA and various state employment taxes. Also, the employee may be eligible for certain fringe benefits offered by the employer, such as health care.

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Any accounting, business or tax advice contained in the Tax E Man Blog or www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

If desired, Pat Tax, Inc. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired.

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Education Tax Benefits

Educational Benefits

Education Tax Benefits

If you pay tuition, fees, and other costs for attendance at an eligible educational institution for yourself, your spouse, or your dependent, you may be able to take advantage of one or more of the education tax benefits.

You can claim more than one education benefit in a tax year as long as you do not use the same expenses for more than one benefit.

Exception: Qualified expenses used to claim education benefits can also be used to eliminate the 10% penalty on premature IRA distributions.

You may claim only one of the following education tax benefits for the same student per year: tuition and fees deduction, American Opportunity Credit, or Lifetime Learning Credit.

Click and Read Education Tax Benefits Here

Education Deductions.
Deductions reduce the amount of income subject to income tax. Deductions for education expenses include:

Tuition and fees deduction up to $4,000 from gross income. Income limitations apply.
The provision for deducting tuition and fees expires for tax years after 2016.
Student loan interest deduction up to $2,500 from gross income. Income limitations apply.
Business deduction on Schedule C or F. You can deduct the cost of education related to the business or farm activity.
Miscellaneous itemized deduction on Schedule A, subject to the 2% AGI limitation. You can deduct the unreimbursed cost of education required to keep your current job or maintain and improve skills needed for your job. You cannot deduct the cost of education that qualifies you for a new trade or business.

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Education Tax Credits
Tax credits reduce the amount of income tax you may have to pay. Income limitations apply. The education credits are claimed on Form 8863, Education Credits
(American Opportunity and Lifetime Learning Credits).

American Opportunity Credit, $2,500 maximum per student per year.
Lifetime Learning Credit, $2,000 maximum per tax return per year.

Note: The Hope Credit applied to 2008 and earlier years. It was replaced by the more generous American Opportunity Credit for the 2009 – 2017 tax years.

Penalty-Free IRA Distributions
If you withdraw money from your IRA before you are age 59½, you are generally subject to a penalty of 10% of the distribution, in addition to any tax that may be due on the distribution.

The 10% penalty does not apply to traditional IRA or Roth IRA withdrawals, if you use the money to pay qualified education expenses for yourself, spouse, or for any child or grandchild of yourself or your spouse.
Qualified education expenses include tuition, fees, books, supplies, equipment, and special needs services required for enrollment or attendance at an eligible
educational institution. Room and board for students enrolled at least half-time in a degree or certificate program may also qualify.
Reduce qualified expenses by scholarships and other tax-free assistance the student receives, but not by gifts or inheritances.

Click and Read Education Tax Benefits Here

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Your Rights as a Taxpayer-The Taxpayer Bill of Rights

As stated by the Internal Revenue Service (IRS), their Mission is to

Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all

It was toward this end that the Taxpayer Bill of Rights were created by the IRS and incorporated into IRS Publication 1. The Taxpayer Bill of Rights contain 10 provisions compiled by the Internal Revenue Service that “take the multiple existing rights embedded in the tax code and groups them into 10 broad categories making them more visible and easier for taxpayers to find.”.

Read Taxpayer Bill of Rights Here

The 10 Taxpayer Rights are:

The Right to Be Informed
The Right to Quality Service
The Right to Pay No More than the Correct Amount of Tax
The Right to Challenge the IRS’s Position and Be Heard
The Right to Appeal an IRS Decision in an Independent Forum
The Right to Finality
The Right to Privacy
The Right to Confidentiality
The Right to Retain Representation
The Right to a Fair and Just Tax System

As stated in Right 9, tax payers have “The Right to Retain Representation”. Patrick White, the president of Pat Tax Inc. is Enrolled to Practice to Practice Before the Internal Revenue Service and as such is authorized to represent taxpayers.

Pat can be contacted at 917 533-8475 or email: PatTaxHelp@gmail.com with any questions or concerns on tax preparation, consultation or representation.

Read Taxpayer Bill of Rights Here

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Health Savings Accounts (HSAs)

Health Savings Account

Health Savings Accounts (HSAs)

A health savings account (HSA) is a tax-exempt or custodial account set up with a qualified HSA trustee to pay or reimburse certain medical expenses incurred by an individual, his or her spouse, and qualified dependents. The medical expenses must not be reimbursable by insurance or other sources, and distributions from HSA funds will not give rise to a medical expense deduction on the individual’s tax return.

Click 2016 Health Savings Accounts (HSAs) Here

Qualifying for an HSA
To be eligible, a participant must meet the following requirements.

Must be covered under a high deductible health plan (HDHP).
Cannot have any other health coverage. Exception:
Coverage for specific things, such as disability, dental care, vision care, and long-term care, can be purchased in addition to the HDHP without disqualifying
the HSA.
Cannot be enrolled in Medicare.
Cannot be eligible to be claimed as a dependent on someone else’s tax return

Last-Month Rule
If an individual is an eligible individual on the first day of the last month of his or her tax year (December 1 for most taxpayers), that individual is considered an eligible
individual for the entire year. Special rules apply if the individual does not remain an eligible individual during a full 12-month period. Exceptions apply in case of death or disability.

Click 2016 Health Savings Accounts (HSAs) Here

Spousals HSAs
The HSAs cannot be joint accounts. Each spouse must open a separate account. However, if only one has an account, the funds in that account can be used to pay for expenses incurred by the other spouse, as well as the participant’s other family members.
High Deductible Health Plan (HDHP)
An HDHP can provide for preventive care benefits without a deductible or with a deductible below the minimum limit ($1,300 for 2015 self-only coverage). Family
HDHP coverage covers an eligible individual and at least one other person.

Click 2016 Health Savings Accounts (HSAs) Here

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Dependent Support Worksheet

Dependent Support Worksheet

Support and the Dependency Exemption
The support test is one of the factors used to determine whether you may claim the dependency exemption for another person. The person may be a qualifying child or
a qualifying relative. You must consider the support test each tax year for which you wish to claim a dependency exemption.

Support Test
Qualifying Child	The child cannot have provided more than half of his or her own support during the tax year.
Qualifying Relative	You must have provided more than half of the relative’s support during the tax year.

Click Dependent Support Worksheet Here

What is Support?
Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, health insurance, recreation, transportation, and similar
necessities.

In general, the amount of an item of support is the expense incurred in providing that item.
The amount of support for lodging is the fair rental value of the lodging, including a reasonable allowance for the use of furniture and appliances and for utilities provided.
Expenses not directly allocable to any one member of
the household, such as the cost of food for the household,
must be divided among the household members.
Property provided as support is measured by its fair market value.

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Families With Children

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Baldwin NY Tax Preparation service Pat Tax Inc. and Patrick White, Enrolled Agent . Please feel free to contact us with any questions or concerns.

Family Picture

Child Tax Credit

Maximum credit: $1,000 per qualifying child.
Adjusted Gross Income (AGI) Phaseout
The credit is reduced by $50 for each $1,000 of modified AGI above:

$110,000 Married Filing Jointly.
$75,000 Single, Head of Household, or Qualifying Widow(er).
$55,000 Married Filing Separately.

The regular child tax credit is nonrefundable, but if any part of the credit is disallowed because tax is reduced to zero, the taxpayer may qualify for the additional child tax credit, which is refundable.

Click Families With Children 2016 Here

Additional Child Tax Credit

Taxpayers may be able to claim the additional credit if any portion of the regular child tax credit was disallowed because tax was reduced to zero before the entire credit was used. The portion of the child tax credit phased out because of AGI cannot be used to claim the
additional credit. The additional credit is refundable.

Child and Dependent Care Credit

Credit
The credit is 20% – 35% of the smallest of:

$3,000 ($6,000 for two or more qualifying persons).
Qualified expenses incurred and paid during the year.
Include expenses for care in 2015 that were paid before
2015. Reduce expenses by dependent care benefits excluded
from income.
Taxpayer’s earned income.
Spouse’s earned income.

Click Families With Children 2016 Here

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Estate Planning, Wills, Probate, and Transfer of Assets

Pictures for Estate, Trusts

Wills and Intestacy

A will allows the testator (the person creating the will) to specify:
• Who receives property at the testator’s death.
• Whether beneficiaries receive gifts outright or in trust.
• Who will act as personal representative.
• Who will be the guardian of minor children.

In the absence of a will, these matters are settled by state law.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Who Needs a Will?

Include persons who are not heirs. Wills are needed to provide for a person who is not an heir under state law—unmarried partners, stepchildren, friends, charities, in-laws, etc.
Exclude an heir. Heirs are the persons who inherit an estate under state law in the absence of a will. A will is needed to prevent an heir from inheriting probate assets.
Minors and disabled adults. Trust provisions can be included in a will to delay receipt of an inheritance or to allow assets to be used on behalf of an adult who is disabled.
Estate tax planning. Married couples can include trust provisions to reduce estate tax.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Dying Intestate—Without a Will

State law determines who receives probate property if a decedent dies without a will.

Most states provide first for the surviving spouse and children. Children of the decedent always inherit a share in some states while in others they inherit only if they are not also children of the surviving spouse. Children also receive a share in some states if the surviving spouse has any children who are not also children of the decedent.
Intestacy laws generally provide for distribution by representation, also known as per stirpes distribution. The share of any heir who dies before the decedent passes in equal shares to that heir’s children.
When there are no descendants, the surviving spouse receives the entire estate in some states but more commonly shares the estate with the decedent’s parents.
When there is no spouse and no descendants, parents and siblings share the estate in some states. In others, parents inherit the entire estate, and siblings inherit only if there is no surviving parent.
If there are no parents or descendants of parents, grandparents generally inherit next, followed by their descendants.
The final beneficiary under intestacy law is the state. Only relations up to a certain degree inherit under each state’s laws. After that point, the decedent’s property “escheats” to the state. State laws vary—a third cousin thrice removed may inherit in one state but a second cousin may be too remotely related to inherit in another.

Example: Nola died at age 103 without a will. Under state law, her property passes to her descendants per stirpes. Nola’s three children, Brian, Kyle, and Lloyd, all died before Nola.
Nola’s six grandchildren inherit her $900,000 estate. Brian’s only child receives $300,000. Kyle’s two children each receive $150,000. Lloyd’s three children each receive $100,000.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

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Moving Out Worksheet

Moving Out Worksheet

This worksheet is geared toward helping young people determine whether they have the financial means to move out on their own and maintain their desired lifestyle. One-time or yearly costs are listed as lump sums. Periodic costs are computed on a monthly basis.

Read Moving Out Worksheet Here

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Newlyweds Tax Tips

Just Married

Tips for Newlyweds

Updating your status from single to married may bring about some unanticipated changes, including changes relating to your taxes. While wedding planners don’t typically use an IRS checklist, here are a few things to keep in mind when filing your first tax return as a married couple will be required.

As with any tax issue, contact your tax professional to help you navigate your own unique situation.

Read Newlyweds Tax Tips Here

Notify the Social Security Administration (SSA)
If one of you has taken on a new name, report the change to the SSA. File Form SS-5, Application for a Social Security Card.
It is important that your name and Social Security number match on your tax return. The IRS will match your information with records provided by the SSA and, if the records don’t match, any electronically filed return will be rejected and any paper filed return will have the mismatched individual’s personal exemption cancelled until the error is corrected.
Avoid making a name change too close to tax season. While the SSA can process a name change in about two weeks, the delay in data-sharing between the SSA and the IRS can make any change near the end of the year problematic. In such situations, it may be advisable to file the tax return using your maiden name and change your name with the SSA after the return has been filed.
Form SS-5 is available on the SSAs website at http://www.ssa. gov, by calling 800-772-1213, or by visiting a local SSA office. A copy of your marriage certificate and driver’s license or passport will be required.

Read Newlyweds Tax Tips Here

Notify the IRS if You Move
The IRS will automatically update your new address upon filing your next tax return, but any notices the IRS sends in the meantime may not get to you. The U.S. Postal Service does not forward certain types of federal and certified IRS mail. IRS Form 8822, Change of Address, is the official way to update the IRS of your address change. Download Form 8822 from http://www.irs.gov or order it by calling 800-TAX-FORM (800-829-3676).

Read Newlyweds Tax Tips Here

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Pension Income Planning

Pension Income Planning

An employee nearing retirement may face a dilemma when it comes to choosing his or her pension. Pension options from a defined benefit retirement plan generally include a lifetime payment with no survivor benefit, a joint and 50% survivor payment, or a joint and 100% survivor payment. The joint and survivor benefits are reduced amounts from the lifetime payment option.

Read 2016 Pension Income Planning Here

Predicament
If the employee selects the lifetime payment and then dies before the surviving spouse, no monthly pension will be left for the spouse. If the employee selects one of the survivor options, and the spouse dies before the employee dies, the employee will be locked into the lower payout for the rest of his or her life. The amount of potential loss of income can be devastating to the retired employee or spouse. Emotionally, an employee may be inclined to choose one of the pension options that give an ongoing benefit to his or her surviving spouse. However, this may not be the best financial decision.

Example:

Henry, age 65, will be retiring soon. He and his wife, Louise, also age 65, are reviewing his pension options.

Option	Monthly Pension	Survivor’s Monthly Pension
Life	$2,000	$0
50% Survivor Benefit	$1,600	$800
100% Survivor Benefit	$1,200	$1,200

If Henry chooses the life option and subsequently dies, Louise will be left without any portion of his pension. With the 50% survivor benefit, Henry would have $400 less per month than the life option, and Louise would receive a pension of half of Henry’s if Henry were to die. With the 100% survivor benefit, Henry would receive $1,200 per month and if he were to die, Louise would receive $1,200 per month.

Read 2016 Pension Income Planning Here

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Your Rights as a Taxpayer-The Taxpayer Bill of Rights

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Click Dependent Support Worksheet Here

Click Dependent Support Worksheet Here

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Click Families With Children 2016 Here

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Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

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Read Moving Out Worksheet Here

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Read Newlyweds Tax Tips Here

Read Newlyweds Tax Tips Here

Read Newlyweds Tax Tips Here

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Read 2016 Pension Income Planning Here

Read 2016 Pension Income Planning Here

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