Tax Tip: Three Tests to Classify Workers

October 24th, 2017

picTo classify workers, IRS uses three tests, each made up of multiple factors.

  1. The behavioral test focuses on whether the company controls or has the right to control what the worker does and how to do the job. Key factors for employee status include instructions about performing the work, evaluation criteria and training.
  2. The financial test looks at who controls the economics of the worker’s job. Being able to work for multiple firms and providing your own tools needed for the job are indicative of independent contractor status. Some factors favoring employee status are eligibility for reimbursement of travel costs and payment based on hours worked.
  3. The type-of-relationship test examines how the parties perceive each other. Providing paid vacation and retirement benefits indicates a worker is an employee, as does hiring to provide services indefinitely rather than for a specific time period. Written language stating the worker is an independent contractor isn’t determinative.

Let us know if you have any questions.

Tax Tip: Penalty-Free Treatment of Higher Education Costs

October 24th, 2017

picTapping an IRA before age 59½ to pay higher education costs is penalty-free. Expenses covered under this exception are college tuition, textbooks, supplies, and the cost of room and board for students enrolled at least half-time. To qualify, the payout must cover education costs paid in the year of the withdrawal. Payouts can be used to pay expenses for the IRA owner, spouse, child or grandchild. Note that even if the distribution is exempted from the 10% penalty, income tax is due.

Non IRA plans do not qualify.  Early payouts from 401(k)s, 403(b)s, etc to fund education don’t get penalty-free treatment.

Let us know if you have any questions.

Tax Tip: Tips to Keep in Mind on Income Taxes and Selling a Home

September 13th, 2017

picHomeowners may qualify to exclude from their income all or part of any gain from the sale of their main home.

Below are tips to keep in mind when selling a home:

Ownership and Use. To claim the exclusion, the homeowner must meet the ownership and use tests. This means that during the five-year period ending on the date of the sale, the homeowner must have:

•    Owned the home for at least two years
•    Lived in the home as their main home for at least two years

Gain.  If there is a gain from the sale of a main home, the homeowner may be able to exclude up to $250,000 of the gain from income or $500,000 on a joint return in most cases.

Loss.  The loss from the sale of a main home that sells for lower than purchased is not deductible.

Reporting a Sale.  Reporting the sale of a home on a tax return is required if all or part of the gain is not excludable. A sale must also be reported on a tax return if the taxpayer chooses not to claim the exclusion or receives a Form 1099-S, Proceeds from Real Estate Transactions. However, we always recommend that you keep all documentation used to calculate the gain or loss.

Possible Exceptions.  There are exceptions to the rules above for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others. More information is available in Publication 523, Selling Your Home.

Worksheets.  Worksheets are included in Publication 523, Selling Your Home, which will help you figure the:
•    Adjusted basis of the home sold
•    Gain (or loss) on the sale
•    Gain that can be excluded

Items to Keep In Mind:

•    Taxpayers who own more than one home can only exclude the gain on the sale of their main home. Taxes must paid on the gain from selling any other home.
•    Taxpayers who used the first-time homebuyer credit to purchase their home have special rules that apply to the sale. For more on those rules, see Publication 523. Use the First Time Homebuyer Credit Account Look-up to get account information such as the total amount of your credit or your repayment amount.
•    Work-related moving expenses might be deductible, see Publication 521, Moving Expenses.
•    Taxpayers moving after the sale of their home should update their address with the IRS and the U.S. Postal Service by filing Form 8822, Change of Address.
•    Taxpayers who purchased health coverage through the Health Insurance Marketplace should notify the Marketplace when moving out of the area covered by the current Marketplace plan.

Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

Additional Resources:

•    Tax Topic 701, Sale of Your Home
•    Tax Topic 703, Basis of Assets
•    Tax Topic 611, Repayment of the First-Time Homebuyer Credit
•    IRS Tax Map, Selling Your Home 
IRS YouTube Videos:
•    Moving Expenses– English | Spanish | ASL
•    First Time Homebuyers Credit Account Look-Up Tool –  English | Spanish | ASL

Let us know if you have any questions.

Tax Tip: Important Reminder

September 13th, 2017

picThis message is a reminder to all sales and use tax practitioners and taxpayers that the August, 2017 monthly sales and use tax returns are due September 25, 2017.

Taxpayers are required to file sales and use tax returns electronically via the Ohio Business Gateway at business.ohio.gov or through TeleFile by calling (800)697-0440.

Let us know if you have any questions.

Tax Tip: Ohio Unreported Income Notices

September 11th, 2017

picThe Ohio Department of Taxation is sending billing notices to taxpayers to resolve issues related to Unreported Income. Notices must be responded to immediately to avoid potential additional charges. Check here for more information .

Let us now if you have any questions.

Tax Tip: Check Withholding Now to Avoid Surprises at Tax Time 

August 23rd, 2017

picThe federal income tax is a pay-as-you-go system. Employers generally withhold tax from workers’ wages. Taxpayers also often have taxes withheld from certain other income including pensions, bonuses, commissions and gambling winnings.

People who do not pay tax through withholding, like the self-employed, generally pay estimated tax. In addition, those who earn income such as dividends, interest, capital gains, rent and royalties are usually required to make estimated tax payments.

Each year, because of life events like changes to household income or family size, some people get a larger refund than they expect while others find they owe more tax.

To prevent a tax-time surprise, the IRS offers these tips:

•    New Job. When starting a new job, an employee must fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from regular pay, bonuses, commissions and vacation allowances. The IRS Withholding Calculator tool on IRS.gov is easy for taxpayers to use to figure how much tax to withhold to avoid surprises.
•    Estimated Tax. People who have income not subject to withholding may need to pay estimated tax. Those expecting to owe $1,000 or more than taxes withheld from their wages may also need to make estimated tax payments to avoid penalties. The worksheet in Form 1040-ES, Estimated Tax for Individuals, helps to figure the tax.
•    Life Events. A change in marital status, the birth of a child or the purchase of a new home can change the amount of taxes a taxpayer owes. The Managing Your Taxes After a Life Event page on IRS.gov provides resources to explain the tax impact of these changes. In most cases, an employee can submit a new Form W–4 to their employer anytime.

Let us know if you have any questions.

Tax Tip: Important Reminder

August 22nd, 2017

picThis message is a reminder to all sales and use tax practitioners and taxpayers that the July, 2017 monthly sales and use tax returns are due August 23, 2017.

Taxpayers are required to file sales and use tax returns electronically via the Ohio Business Gateway at business.ohio.gov or through TeleFile by calling (800)697-0440.

Please visit the website at www.tax.ohio.gov or contact the Department at 1-888-405-4039 with any questions regarding sales and use tax.

Tax Tip: Fake Publishers Clearinghouse scams

August 18th, 2017

picPublishers Clearing House and the FTC have both gotten many reports about scammers using the Publishers Clearing House name to deceive people.

Scammers call, claiming you’ve won the sweepstakes – but, to collect your prize, you need to send money to pay for so-called fees and taxes.

Read more> 

If you have any questions, please give us a call.