State and federal governments are looking for money. Small businesses are easy targets because they don't have a stable of lawyers to defend them. Here are some of the hot areas to be careful about.
Employee Versus Independent Contractor
The IRS has posted some general differences between an employee and an independent contractor. These differences can be categorized as:
Behavioral. Does the company control or have the right to control what the worker does and how the worker does his or her job? An employee is generally subject to the business's instructions about when, where, and how to work. An independent contractor is not.
Financial. Are the business aspects of the worker's job controlled by the payer? An independent contractor is generally free to seek out other business opportunities.
Type of Relationship. Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? A contract may state that the worker is an employee or an independent contractor but that is not sufficient to determine the worker's status.
Sales Taxes
Sales taxes are a big deal for many small businesses. Returns are generally due one month after the end of the reporting period, even if you don't have any sales to report. In general, sales to the federal government or its affiliates are not taxable. But sales to a nonprofit organization may be taxable. Make sure you understand the tax status of your customer and obtain a copy of your customer's resale permit if you are not collecting sales tax.
Payroll Taxes
Use an outside payroll service that will calculate your payroll, pay your taxes and file your returns automatically. Don't let this one get away from you.
Workers Compensation
Make sure your employees are properly classified so that there are no unpleasant surprises.
Other items worth noting
• Keep a very clean set of books. These will be invaluable if and when you are audited.
• Do not mix personal and business expenditures. Keep a separate business checking account and credit cards.
• Don't fail to file all reports timely. Nothing will catch the attention of government authorities faster than some anomaly like late filings and late payments.
• Pay yourself a reasonable salary to avoid closer inspection by the IRS.
• Any loans to or from the company must be documented, carry a market interest rate and be repaid in a timely manner.
• Don't go it alone. Hire qualified professionals who can advise you if you have a question.
If you have been doing these things all along, an audit should be smooth sailing; if not, there is no time like the present to get your house in order.
Bryce E. Jones, CPA, MBA, can be reached at [email protected].
Employee Versus Independent Contractor
The IRS has posted some general differences between an employee and an independent contractor. These differences can be categorized as:
Behavioral. Does the company control or have the right to control what the worker does and how the worker does his or her job? An employee is generally subject to the business's instructions about when, where, and how to work. An independent contractor is not.
Financial. Are the business aspects of the worker's job controlled by the payer? An independent contractor is generally free to seek out other business opportunities.
Type of Relationship. Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? A contract may state that the worker is an employee or an independent contractor but that is not sufficient to determine the worker's status.
Sales Taxes
Sales taxes are a big deal for many small businesses. Returns are generally due one month after the end of the reporting period, even if you don't have any sales to report. In general, sales to the federal government or its affiliates are not taxable. But sales to a nonprofit organization may be taxable. Make sure you understand the tax status of your customer and obtain a copy of your customer's resale permit if you are not collecting sales tax.
Payroll Taxes
Use an outside payroll service that will calculate your payroll, pay your taxes and file your returns automatically. Don't let this one get away from you.
Workers Compensation
Make sure your employees are properly classified so that there are no unpleasant surprises.
Other items worth noting
• Keep a very clean set of books. These will be invaluable if and when you are audited.
• Do not mix personal and business expenditures. Keep a separate business checking account and credit cards.
• Don't fail to file all reports timely. Nothing will catch the attention of government authorities faster than some anomaly like late filings and late payments.
• Pay yourself a reasonable salary to avoid closer inspection by the IRS.
• Any loans to or from the company must be documented, carry a market interest rate and be repaid in a timely manner.
• Don't go it alone. Hire qualified professionals who can advise you if you have a question.
If you have been doing these things all along, an audit should be smooth sailing; if not, there is no time like the present to get your house in order.
Bryce E. Jones, CPA, MBA, can be reached at [email protected].