Avoid common slip-ups when selling your business

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Employee vs. independent contractor: How should you handle worker classification?

To save money, your business may treat workers as independent contractors, rather than employees. Be aware that the IRS looks for businesses that improperly classify workers. It’s best to handle independent contractors so the relationships comply with tax law. This includes not controlling HOW the workers perform their duties, not treating them like employees, and providing annual Forms 1099. You can file optional IRS Form SS-8 to receive a determination of a worker’s status. But filing this form may trigger an audit. Contact us for ways to proactively plan ahead.

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Taking distributions from your traditional IRA

If you’re like many people, you’ve worked hard to accumulate a large nest egg in your traditional IRA (or a SEP-IRA). It’s critical to carefully plan for withdrawals. For example, if you need to take money out of your traditional IRA before age 59-1/2, the distribution will generally be taxable. In addition, distributions before age 59-1/2 may be subject to a 10% penalty tax. (However, several exceptions may allow you to avoid the penalty tax but not the regular income tax.) And once you reach age 70-1/2, distributions from a traditional IRA must begin. If you don’t withdraw the minimum amount each year, you may have to pay a 50% penalty tax on what should have been taken but wasn’t.

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Expenses that teachers can and can’t deduct on their tax returns

As teachers head back to school, they often pay expenses for which they don’t receive reimbursement. Fortunately, they may be able to deduct some of them on their tax returns. You don’t have to itemize your deductions to claim this “above-the-line” tax break. For 2019, educators can deduct up to $250 of eligible expenses that weren’t reimbursed. Eligible expenses include books, supplies, computer equipment, software, other classroom materials, and professional development courses. To be eligible, taxpayers must be kindergarten through grade 12 teachers, instructors, counselors, principals or aides. They must also work at least 900 hours a school year in an elementary or secondary school.

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The tax implications of a company car

The use of a company car is a valuable fringe benefit for business owners and key employees. This perk results in tax deductions for the employer and tax breaks for the owners and employees using the cars. (And of course, they get the nontax benefits of driving the cars!) For tax deduction purposes, a business will treat the car much the same way it would any other business asset. Providing an auto for an owner or key employee comes with complications and paperwork. Personal use will have to be tracked and valued under the fringe benefit tax rules and treated as income. We can help you stay in compliance with the rules and explain more about this prized perk.

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Employers: Be aware (or beware) of a harsh payroll tax penalty

If payroll taxes withheld from employees’ paychecks aren’t remitted to the IRS, a severe tax penalty can be personally imposed on “responsible” individuals. The IRS can assess a penalty of 100% of the unpaid tax amount on shareholders, owners, directors, officers, employees and others. The Trust Fund Recovery Penalty (or “100% Penalty”) is assessed when there’s a willful failure to collect and pay over to the IRS taxes that are withheld from employees. Unlike some liability protections that a corporation or company may have, business execs can’t escape personal liability for payroll tax debts. Contact us for information about making tax payments.

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