What are the Tax Consequences of Dissolving my Business?

Depends on whether you are operating as a sole proprietorship or a partnership or a corporation.  If you are operating as a limited liability company, it depends on whether you have elected for tax purposes to be taxed as a disregarded entity, partnership or corporation.  More on that in the next blog.

If your business is being operated as a sole proprietorship, the sale of the assets upon liquidation may trigger recognition of gain, loss and depreciation recapture.  Any such recognized gain, loss or depreciation recapture will be reported for federal income tax purposes on your personal income tax return.  You will pay tax at the rate of 15% on any long term capital gain. Short term capital gain will be taxed at the ordinary individual income tax rate.

If your business is being operated as a partnership or an "S" corporation, any gain, loss and depreciation recapture recognized on the sale of the business assets will be reported on the partnership or "S" corporation information return and allocated among the owners on Schedule K-1.  Each owner then reports and pays tax on such owners pro rata share of the allocated gain, loss or depreciation recapture.  The owners will pay tax at the rate of 15% on any long term capital gain.  Short term capital gain will be taxed at the ordinary individual income tax rate.  The distribution of the sale proceeds by the partnership or "S" corporation to the owners reduces the owners' capital account, but is generally not subject to tax so long as the owners have sufficient capital account.  More about capital accounts in a future blog.

If your business is being operated as a "C" corporation, any gain, loss or depreciation recapture recognize don the sale of its assets will be reported on the "C" corporation income tax return, and the corporation will pay tax on any gain or depreciation recapture at the corporate income tax rate (generally 34%).  There is no corporate capital gains rate.   Upon distribution of the sales proceeds to the owners of the corporation, the owners will report the distribution as a dividend and pay tax at the rate of 15%.  This is on top of the tax the "C" corporation paid upon sale of the assets.

The double tax aspects that result from liquidation of a "C" corporation is the main reason owners of businesses do NOT let their "C" corporation acquire appreciating assets.  Instead real estate and other appreciating assets should be acquired by an affiliated partnership, LLC or "S" corporation. 

If you are thinking about dissolving your business, or are thinking about how to best structure your business to avoid problems down the road, please give me a call or email.  Jsenney@pselaw.com or 937-223-1130. 

AND ONE MORE THING.  Under the federal income tax code, “S” corporations are not permitted to be owned by corporate shareholders.  So “S” corporations cannot be part of a parent-subsidiary consolidated group of corporations.  One way around this limitation is to use qualified “S” subsidiaries commonly referred to as “QSSS”.  More about how and why to use QSSS in a future blog.  Call or email me if you have a question about QSSS and can’t wait.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & EbelingLPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

Happy Holiday!

Merry Christmas and Happy New Years!

In the next blog we'll talk about tax consequences of dissolving a corporation or LLC and what it means to make a QSSS election.  Talk to you soon.  Call or email me if you have a question about dissolution or QSSS that can’t wait.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

How Do I Close Down My Corporation?

In Ohio and most states, a corporation is dissolved by filing a Certificate of Dissolution with the Secretary of State’s office.  After the Certificate of Dissolution is filed, the corporation will continue to exist so long as necessary for the corporation to wrap up its affairs.  If the corporation has shareholders or assets or has been doing business, the Certificate of Dissolution must be approved by the shareholders or the Board of Directors.  If the corporation has never had shareholders or assets and has never done business, the Certificate of dissolution may be signed by the Incorporator.  In addition to the Certificate of Dissolution, an Affidavit must also be submitted to the Secretary of State stating that various state agencies have been sent Notice of the dissolution and stating where in Ohio the corporation has assets.  This Affidavit must be signed by an Officer of the corporation or the person submitting the Certificate. It is also necessary to file a Form 966 with the Internal Revenue Service to report the dissolution of the corporation.  The Form 966 must be filed within 30 days after the corporate action is taken approving the dissolution.  There are penalties for late filing. Dissolution in and of itself does result in transfer of the assets of the corporation.  Upon dissolution and during the wrapping-up process, assets are sold, creditors are paid, reserves may be established and any balance is distributed to shareholders.  The corporation generally reserves the rights to its name for a year after the dissolution.   Dissolving a corporation will likely have tax consequences for the corporation and/or the shareholders.  These will be discussed in more detail in a future blog.  Please call or email if you want to know more how to dissolve a corporation.  Jsenney@pselaw.com or 937-223-1130.  AND ONE MORE THING.  Under the federal income tax code, “S” corporations are not permitted to be owned by corporate shareholders.  So “S” corporations cannot be part of a parent-subsidiary consolidated group of corporations.  One way around this limitation is to use qualified “S” subsidiaries commonly referred to as “QSSS”.  More about how and why to use QSSS in a future blog.  Call or email me if you have a question about QSSS and can’t wait.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

What is a Series LLC?

A series LLC is a special form of limited liability company intended to provide liability protection for a "series" of different activities.  In theory, the assets of each “cell” in the series should be protected from liabilities of the other cells.  In overall structure, the series LLC is comparable to a parent corporation with multiple subsidiaries.

For asset protection reasons, business owners commonly form a parent company and then put each business operation into a separate subsidiary.  This works well as a liability shield.  But having multiple subsidiaries involves additional costs to set-up, administer and maintain the parent company and the multiple subsidiaries.  A series LLC avoids these additional costs and is an alternative to consider. 

Each cell of a series LLC has its own assets and liabilities, and may have different managers and members (owners).  A series LLC pays one filing fee.  The rights and obligations of the managers and members of each cell in the series LLC is set forth in the series LLC operating agreement.

To minimize the risk that courts will find one cell in a series liable for debts of another cell in the series, owners of a series LLC should do the following: (1) register and use a separate “doing business as” name for each cell; (2) set-up a separate bank account for each cell; (3) sign legal documents (deeds, lease agreements, bills of sale, contracts, etc.) for each cell using its own distinct dba name; (4) conduct all transactions between cells at arms-length and document such transactions; (5) adequately capitalize each cell; (6) avoid having multiple cells be co-owners of assets; (7) avoid having cells lend or borrow money regularly and repeatedly from other cells; and (8)  prepare (or be able to prepare) separate financial statements for each cell showing the assets, liabilities, income and expenses of such cell. 

The federal income tax entity classification system will apply separately to each cell in a series LLC.  So if cell A has one member, that cell would be treated as a disregarded entity unless the member elected to treat the cell as a corporation for federal income tax purposes.  Likewise, if cell B had two or more members, that cell would be treated as a partnership unless the members elected to treat the cell as a corporation.  Most states have indicated that they will follow the federal income tax entity classification system for income tax purposes.

Using a series LLC rather than a parent-subsidiary organization may present some state tax savings opportunities.  For example, under some state statutes, sales tax specifically applies when one subsidiary sells or rents equipment to another subsidiary.  Using a series LLC in which one cell rents equipment to another cell may work to avoid this sales tax. 

Series LLCs are available in Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah and Wisconsin.  Ohio Has not yet enacted legislation to permit series LLCs to be created in Ohio.  The series LLC is not yet embraced as a liability protection technique because some of the federal and state tax treatment of series LLCs has not been fully resolved. 

If you would like to know about series LLC nad how they might benefit your business, give me a call or email.  Jsenney@pselaw.com or 937-223-1130

AND ONE MORE THING.  Bad new is that some successful businesses have had their loans called or lines of credit shrunk or eliminated.  Good news is that there are still some area banks that are making loans and extending lines of credit.  Give me a call or email and I can tell you who you want to talk to.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

Is There an Offer-in-Compromise Program for State Taxes?

Many states including Ohio have an Offer-in-Compromise program similar to the program offered by the IRS.  The Ohio Offer-in-Compromise program is handled through the Attorney General’s Office.  Like the federal program, the taxpayer may submit an offer based on doubt as to liability or doubt as to collectability.  However, unlike the federal program, the taxpayer will be required to make full financial disclosure of the taxpayer’s assets and income whether the offer is based on doubt as to collectability or doubt as to liability.   The Offer amount if accepted may be paid in a lump sum or over a period of time.  While the offer is pending, all collection activity generally ceases.  If you or someone you know is having trouble paying state taxes or workers compensation,   we may be able to submit an Offer-in-Compromise and reduce or eliminate the taxes.  Give me a call or email if you want to know more about how you can make an Offer-in-Compromise to reduce or eliminate state taxes.  Jsenney@pselaw.com or 937-223-1130.  AND ONE MORE THING.  Some long time successful businesses have had their bank loans called or lines of credit shrunk or eliminated in the last couple of years.  And despite the bank bailout and the modest recovery the economy has made, some banks are still turning off lines of credit for credit-worthy businesses.  If you are in this situation, give me a call.  There are some banks out there that are still making loans and extending lines of credit.  Give me a call or email and I can tell you who you want to talk to.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

What if I Just Can’t Afford to Pay My Taxes?

If you owe the IRS more taxes, interest and penalty than you can pay, or if you don’t think you owe the amount the IRS says you owe, you may be able to get the IRS to accept an Offer-in Compromise.  An Offer-in-Compromise can be made based on doubt as to liability or based on doubt as to collectability.  If the Offer is being made based on doubt as to liability, the taxpayer explains to the IRS why the taxpayer does not owe the amount the IRS has assessed.  Even though the taxpayer may have no appeal rights left, the IRS will review the matter under the Offer-in-Compromise program and will waive or reduce the tax if the IRS agrees with the taxpayer’s position.  If the Offer is being made based on doubt as to collectability, the taxpayer will need to submit detailed information concerning the taxpayer’s assets, liabilities, income and expenses.  The IRS will use this information to determine whether or not to accept the taxpayer’s offer.  In order for an Offer to be accepted, the amount offered must represent all of the net equity in the taxpayer’s assets, plus an amount calculated by multiplying the taxpayer’s monthly  disposable income (income minus allowed expenses) by a factor of 48 or 60 (depending on length of repayment period).  The Offer amount may be paid in a lump sum or over a period of time. The Offer-in-Compromise generally takes 3 months to complete.  While the offer is pending, the IRS typically puts collection activity on hold.  The State of Ohio and other states have a similar (but different) offer process.  If you or a friend are having trouble paying federal income taxes, submitting an Offer-in-Compromise may be the way to go.  At best, the IRS waives or reduces the amount of tax, penalty and interest you owe.  At worst the IRS ceases collection activities for the period of time they spend evaluating your offer.  Give me a call or email if you want to know more about the Offer-in-Compromise process.  Jsenney@pselaw.com or 937-223-1130.  AND ONE MORE THING.  Even if you don’t qualify to make an Offer-in-Compromise based on doubt as to collectability because you have too much net equity in asset or to much disposable income, you can often still get the IRS to accept an installment payment arrangement.    Call or email me if you want to talk about setting up an installment arrangement with the IRS.  Jsenney@pselaw.com or 937-223-1130. Serving Dayton, Serving You Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423 www.pselaw.com Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

Holiday Gift for SenneySays Readers/Followers

We've got some neat headbands with the PS&E / SenneySays logo to keep your ears warm this winter. We will be sending one to everyone who registers as a Reader/Follower of SenneySays.  If you are already registered as a SenneySays Reader, send me an email with your address and we will get your headband delivered.  If you are not already registered as a Senneysays Reader, register today.  Jsenney@pselaw.com or 937-223-1130.  

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Serving Dayton, Serving You
Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Am I Out of Luck if I Don’t File an Appeal Timely?

If the IRS issues an assessment of tax, and you do not appeal to the US Tax Court within 90 days, the tax assessment becomes final and cannot be appealed to the US Tax Court.  However, there are still ways to get the matter reviewed and the tax assessment adjusted. 

One way to get the matter re-opened is to pay the tax and then file for a refund.  If and when the IRS rejects the request for a refund, you will have an opportunity to explain why the assessment is erroneous and you do not owe the tax.  Paying the tax can be burdensome.  But if you have no other appeal rights, doing so gives you a chance to correct an erroneous assessment.   One important note: if the tax assessment relates to payroll taxes or income tax withholding, you only need to pay the tax related to one employee for one tax period in order to seek refund and review of all the tax erroneously assessed.

Another way to get the matter re-opened is to file an Offer-in-Compromise based on doubt as to liability.  When you file the Offer-in-Compromise you have an opportunity to explain to the IRS why you don’t owe the tax.  If the IRS agrees, they will waive the tax assessed.  If the IRS does not agree, the tax assessment stands.  The Offer-in-Compromise program is a voluntary program the IRS offers, and there are no appeal rights from rejection of an Offer-in-Compromise.  But it is a relatively simple and inexpensive way to get a second chance to correct an erroneous tax assessment, and I have had good success with this program.

If you have received a proposed or final tax assessment, call your tax professional.  And always feel free to call or email me to discuss any questions you have about your taxes.    Jsenney@pselaw.com or 937-223-1130. 

AND ONE MORE THING.  InvestOhio is an incentive program implemented by Ohio as part of the new budget that became effective on July 1, 2011. It provides a non-refundable 10% personal income tax credit against Ohio income tax to investors that infuse new equity (cash) into Ohio small businesses. In order to qualify, the business must have assets less than $50 million or annual sales that do not exceed $10 million, and the business must employ at least 50 full-time equivalent employees in Ohio or more than 50% of the business' full time employees must work in Ohio. The business must invest the cash contributed in one of five categories of allowable expenses.  The registration process opened November 14, 2011.  The application process  will start Monday December 5, 2011.  The tax credits are awarded on a first come – first served basis, so time is of the essence. For more information go to the Ohio Department of Development website or give me a call or email at Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

What are My Federal Income Tax Appeal Rights?

If your federal income return is audited by the IRS, you may appeal any proposed assessment of additional income tax, penalty and interest.  In any appeal to the IRS or to the courts, you may represent yourself, or you may be represented by a tax attorney, CPA or other authorized representative.

If you do not agree with any changes proposed by the IRS, you may choose to start the appeal process by having a conference with the auditor’s manager, or you may choose instead to appeal the proposed assessment immediately to the IRS appeals office.  There is generally no reason not to ask for a conference with the auditor’s supervisor.  You may win at this level.  And there is generally no reason not to appeal any proposed assessment to the IRS appeals office if you do not win at the supervisor conference level. 

If you do not reach a satisfactory resolution at the supervisory conference level, or you choose to skip this supervisory review, you have 30 days to your next course of action.  If you wish to appeal the proposed assessment to the IRS appeals office, you must submit a letter stating the relevant facts of the case and asking for the IRS appeals office to review the case.  If you do not respond within the 30 day period, the IRS will issue a statutory notice of deficiency, and you will then have 90 days to file a petition to the United States Tax Court. 

If you choose to appeal your case to the IRS appeals office, you will have an opportunity for a hearing and a chance to submit evidence to support your position.  The IRS appeals office will eventually issue a final assessment which either supports your position, or the position of the IRS auditor, or something else.  If you do not agree with the final assessment made by the IRS appeals office, or you do not file a request for review by the IRS appeals office, you have 90 days to file a petition with the United States Tax Court.  You also have a right to file an appeal in the United States Claims Court or the United States District Court, but these courts generally do not hear tax cases unless the proposed tax has been paid and you are seeking a refund.  To the contrary, the proposed tax does not have to be paid to appeal within the IRS or to the Tax Court.  A case may be further appealed to the U.S. Court of Appeals or to the Supreme Court, but only if those courts accept the case. 

If your tax return is being audited, you should consult with a tax professional.  Please call or email me to discuss any questions you have about your federal income tax appeal rights.    Jsenney@pselaw.com or 937-223-1130. 

AND ONE MORE THING.  This is a good time to consider making gifts of appreciated assets. Many assets are still being traded or valued at relatively low prices. If these assets are expected to increase in value over time, and you intend to transfer such assets to the next generation at some point, now might be the right time to gift such assets.  If you own a closely-held business which you intend to gift to the next generation, year-end is a great time to transfer a minority ownership interest in such business. You can take a business valuation discount on the transfer of such stock, you can do a transfer effective as of December 31 and then do a second transfer effective as of January 1 using the same valuation for both, and you can take advantage of annual gift exclusions for both 2011 and 2012.  Give me a call or email at Jsenney@pselaw.com or 937-223-1130 if you want to talk about year-end gift tax planning.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

I Am Being Audited, What Do I Do?

The IRS audits tax returns to confirm that the tax reported on the return is correct.  Being selected for audit does not always mean the IRS thinks you made an error or were dishonest.  The overwhelming majority of taxpayers file accurate returns, and they have a right to expect fair and efficient tax administration from the IRS.

The IRS selects the returns it will audit using a variety of methods, including: (a) existence of evidence the taxpayer has participated in an abusive tax shelter; (b) using a computer scoring system to flag returns that contain certain deductions and other characteristics indicative of errors or fraud; (c) the size of corporate taxpayers (large corporations get audited every year); (d) information matching of returns filed by taxpayers with information statements such as W-2s and 1099s filed by employers and banks; and (e) existence of related issues or transactions with other taxpayers under examination.

If your return is selected for audit, you have rights.  The IRS trains its employees to explain and protect your rights through the course of the audit.  Your rights include: (i) a right to professional and courteous treatment by IRS employees; (ii) a right to privacy and confidentiality about your tax matters; (iii) a right to know why the IRS is asking for information, how the IRS will use the information and what will happen if you do not provide the requested information; (iv) a right to representation, by yourself or by an authorized representative; and a right to appeal any disagreements, both within the IRS and before the courts.

An examination of your return may be conducted by mail or through an in-person interview and review of your tax records. The interview may be at an IRS office (office audit) or at your home, place of business, or accountant's office (field audit). You may make audio recordings of interviews, provided you give the IRS advance notice. If the time, place, or method that the IRS schedules is not convenient, you may request a change, including a change to another IRS office if you move or the business records are kept there.

The audit notification letter you receive from the IRS will tell you what records will be needed. You may represent yourself or have someone represent or accompany you to the audit.  If you are not present, your representative must have proper written authorization (power of attorney). The auditor will explain the reason for any proposed changes.  If you agree with the changes, the audit will end at this level.

If you do not agree with the IRS auditor, you have the right to appeal.  Appeal rights are explained by the IRS auditor at the beginning of each audit. More about your appeal rights in the next Blog.  Please call or email me if you have any questions about the IRS audit process at   Jsenney@pselaw.com or 937-223-1130. 

AND ONE MORE THING.  Don’t forget capital loss carryovers you have from prior years.  You can only deduct $3,000 a year of capital loss against active income.  But you can deduct an unlimited amount of capital loss carryover against capital gains.  So make sure you consider realizing some capital gain to offset against your suspended capital losses.  If you are holding appreciated stock that you could sell at a gain, but you want to retain such investment, consider selling the stock to realize the gain, and then repurchasing the stock.  The wash sale rules only apply to losses so you can sell and repurchase at the same price on the same day.  Give me a call or email at Jsenney@pselaw.com or 937-223-1130 if you want to talk about year-end tax planning.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Any Relief if I Misclassified Workers?

Somewhat surprisingly, the answer is often “yes.”  Section 530 of the Revenue Act of 1978 generally allows a business to treat a worker as an independent contractor for employment tax purposes regardless of whether the worker would otherwise be treated as an employee under the IRS 20 factor test, so long as the business has a “reasonable basis” for so treating the worker and certain other requirements are met.  The relief provided by Section 530 was originally scheduled to expire in 1979, but was extended permanently. 

Under Section 530, a reasonable basis for treating a worker as an independent contractor is considered to exist if the business relied on:  (1) published rulings or case law; (2) long-standing practice in the industry; (3) past IRS audit results for the business; or (4) some other reasonable basis.  The legislative history to Section 530 provides that it is to be liberally construed in favor of the business.

Section 530 relief does not apply if the worker or any other person doing similar work has been treated by the business as an employee at any time (after 1977) in the past.  Section 530 also does not apply if the worker is a "leased employee" and provides services for another person, pursuant to an agreement between the business and such person, as an engineer, designer, drafter, programmer, analyst or similar skilled worker.   There are additional very specific situations, such as workers who serve as school room supervisors or test proctors, where Section 530 does not apply.

Proper classification of workers is important. But if the IRS determines you have misclassified a worker as an independent contractor, and the worker would be an employee under the IRS 20 factor test, you might be able to use Section 530 to avoid reclassifying the worker and avoid the tax, penalties and interest the IRS attempts to impose.  Please call or email me to discuss any issues you may have with proper worker classification at  Jsenney@pselaw.com or 937-223-1130.  And thanks for sending a copy of SenneySays to your friends.   

AND ONE MORE THING.  If you want to make a charitable contribution, consider donating appreciated assets.  If you donate stock or other assets which have appreciated in value, you avoid paying tax on the gain, and you generate a charitable contribution deduction for income tax purposes.  Give me a call or email at Jsenney@pselaw.com or 937-223-1130 if you want to talk about year-end tax planning.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Should My Workers be Employees or Independent Contractors?

Treating a worker as an employee typically costs the employer more than treating the worker as an independent contractor.  If a worker is properly characterized as an employee, the employer will be required to pay the employer-portion of the social security and medicare taxes, withhold the employee-portion of social security and medicare taxes, pay unemployment tax, pay workers compensation premiums, pay the employer-portion of any pension or profit-sharing plan contributions, health plan contributions and other employee fringe benefit programs, provide vacation, sick days and maternity leave for the worker, and otherwise permit the worker to participate in all employer-sponsored employee benefit and welfare programs. 

On the other hand, if the worker is properly characterized as an independent contractor, the employer is not required to provide any of the above benefits, or pay or withhold any of the above taxes.  The employer is simply required to provide the worker with whatever payments are specified in the independent contractor agreement, and the worker is responsible for paying the appropriate income tax, self-employment tax, workers compensation and other taxes related to such payments. 

The IRS looks closely at how employers characterize their workers.  The IRS has a 20 factor test it applies to evaluate whether a particular worker, or group of workers, should be treated as employees or independent contractors.  Although the IRS test includes 20 factors, theses 20 factors can be summarized into 2 main issues.  These issues are: (1) does the employer have the right to control the details of how the worker does his or her job or only evaluate the final product or performance; and (2) does the worker have a real risk of loss.  

If the employer has the right to tell the worker how to do his or her job, when to do it, where to do it, when and where not to do it, the worker looks more like an employee.   On the other hand, if the employee is free to do the job when he or she wants to, using whatever procedures or methods he or she wants to, wherever he or she wants to do the job, using assistants or sub-contractors, and the employer controls only the evaluation of the final product or job performance, then the worker is more like an independent contractor.

If the worker is reimbursed for expense, paid a salary or an hourly wage and is provided a car or tools necessary to do the job, the worker has little risk of loss on the job and looks more like an employee.  To the contrary, if the worker is not reimbursed for expenses, is paid a specified sum for the job and is required to provide his or her own office, transportation and tools, the worker looks more like an independent contractor who runs his or her own business.

Proper classification of workers is important.  If the IRS determines a worker has been misclassified as an independent contractor, the IRS generally goes after the employer to collect any unpaid employee income tax withholding, and both employer and employee social security and medicare taxes.  If this happens, there are some defenses.  The first line of defense is that the IRS is wrong and the worker is properly treated as an independent contractor.  If this does not work, there is a second line of defense based on Section 530.  Section 530 is a piece of legislation that permits the employer to continue treating misclassified workers as independent contractors if certain conditions are met.  More about section 530 in the next Blog.

Please call or email if you have any questions about proper classification of your workers.   Jsenney@pselaw.com or 937-223-1130.  And thanks for sending a copy of SenneySays to your friends.   

AND ONE MORE THING.     If you want to reduce this year’s taxes but don’t have the cash available to prepay expenses, use your credit cards to pay for tax-deductible expenses such as home mortgage, state taxes, charitable deductions.  You can get a tax deduction this year even though you don’t pay off the credit card until next year.  Give me a call or email at Jsenney@pselaw.com or 937-223-1130 if you want to talk about year-end tax planning.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Do I Need an Employee Handbook for My Business?

If you have more than 3 or 4 employees, you should seriously consider adopting an employee handbook.  An employee handbook can be an effective mechanism for setting the culture of your business and limiting your business’ liability exposure.  

An employee handbook offers you the opportunity to answer common employee questions and address issues before they arise.  Your employee handbook can be used by managers and supervisors as reference book so they act in a consistent and reasonable manner when dealing with employee issues.  Your employee handbook can also contain a code of ethics for employee behavior, while setting forth employee performance expectations and award requirements.  And your employee handbook can be used as a tool to remind your employees of all the compensation and benefit programs they enjoy as a result of their employment with your company.

There are certain things that should be in all employee handbooks.  At a minimum your employee handbook should generally explain to employees your policies and procedures governing “at will” employment, normal work hours, overtime pay, sexual harassment and non-discrimination policy, alcohol and drug policy, maternity leave, dress code, and use of computers, email, social media and internet for personal matters.

You should avoid putting legalese and references to statutes and code sections in your employee handbook.  The employees often won’t understand what these references mean, and you can set a trap for yourself.  For example, the Family and Medical Leave Act (“FMLA”) allows eligible employees to up to 12 weeks off work during a 12 month period because the employee or his or her family member has a serious health condition, gives birth, adopts a child, or has any qualifying emergency related to the military.  FMLA does not apply to your business unless you employ 50 or more employees within a 75 mile radius.  But if your employee handbook says you comply with FMLA, you can be compelled to comply even if you otherwise would not be required to.  

Before creating an employee handbook it is wise to seek advice from a qualified employment law attorney.  We can help you if you want to create or review an employee handbook.  Please call or email if we can assist you in any way with your employee handbook  at  Jsenney@pselaw.com or 937-223-1130.  And thanks for sending a copy of SenneySays to your friends.   

AND ONE MORE THING.     Social media enables people to communicate via the internet to share resources.    The National Labor Relations Board has issued a report regarding the protected nature of employees' Facebook, Twitter and YouTube postings. This report is a guide not only for Union employers, but also non-Union employers.  Attorney Matt Stokely of PS&E has written the following article summarizing this NLRB Report.   Give him a call at 937-223-1130 to discuss any aspect of social media postings by employees.

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