Classification of a worker as an employee or a “1099 person” has nothing to do with whether they are full-time, part-time, or seasonal.  The number of hours worked is not a factor at all in determining a worker’s classification as an employee or an independent contractor. 

For income tax withholding, Social Security, Medicare, and federal and state unemployment tax purposes, there are no differences between full-time employees, part-time employees and employees hired for short periods.  It makes no difference whether the worker has another job or has the maximum amount of social security tax withheld by another employer.

Some employers may be tempted to pay a worker as an independent contractor until they see “if it works out.”  Don’t fall into this trap.  In general, if the employer controls the job and how it will be done, then the worker is an employee, not an independent contractor.  Treat them as employees from the start.  The IRS imposes stiff penalties for misclassifying workers.

For more info on how to be sure you are classifying an employee or contractor correctly, read more here from AccuPay.

Our Veros Dental team also has some tips on classifying.  Read those here.

Yesterday in Part I, I broke down the main components of your credit report and today continues with Part II of What You Need to Know About Your Credit Report.

There are several things that can have an unfavorable impact on your credit score.  Some of these are:

1. Late or missed payments
2. Using more than 80% of your total amount of available credit (ideally, you should use no more than 25% of your available credit).
3. Bankruptcy, liens, foreclosures
4. Closing old credit cards can lower your score as the length of credit history accounts for 10% of your score.
5. Closing cards with available credit can lower your score as your available credit amount is reduced, thus increasing your debt ratio.
6. Too many frequent requests for new lines of credit
7. Credit cards or revolving debt is viewed unfavorable as compared to installment loans.

Your credit score is derived using many factors.

This post will be broken down into 2 parts.  Part I today will focus on the main components of your credit report and how you can better understand it.  In tomorrow’s Part II, I’ll tell you more about how your credit score is derived and what things can negatively affect your score.

Most people don’t review their credit reports because they don’t understand what they’re looking for.  However, a little homework upfront will enable you to better understand what all this information means and help ensure you are catching errors.  According to a CBS report, about 79% of all credit reports contain some type of error.  It’s important to ensure you are taking advantage of your free reports annually and making sure everything is being reported accurately.

The four main parts of your credit report include:

1. Identifying Information
   This section lists your name, address, Social Security number, date of birth, and other information used to identify you.  Read through it carefully as it isn’t uncommon to find incorrect information or misspellings in this section.
2. Credit History
   The bulk of the report is in this Credit History section.  It’s a list of your open and paid credit accounts.  It shows late payments, loan amounts, credit limits, and how well you have paid the account.  Make sure you read this section in detail first to ensure all accounts listed are actually your accounts and second to confirm that the information being presented is actually correct.  If you have closed a credit card account, double-check to ensure that has been noted on your credit report.  Approximately thirty percent of credit reports contain credit accounts that were closed by the consumer but are still listed as open on the report.
3. Public Records
   The goal is for this section to be blank.  Financial activities like bankruptcy, tax liens, and judgments are listed in this section.
4. Inquiries
   This section lists everyone who has ever asked to see your credit report.  If anyone has viewed your credit report, a detailed inquiry will be posted.  This is extremely beneficial for you as the consumer.  There are soft inquiries and hard inquiries.  Soft inquiries are from companies who want to send you promotional materials or from current creditors who are checking your account.  Hard inquiries are made when you fill out a credit card application.

Stay tuned for tomorrow’s PART II for information on what negatively impacts your credit score, what makes up your score, and the best steps to take in getting a copy of your credit report.

Being a trusted advisor for my clients and having just finished up tax season, it’s more likely now that clients may receive that dreadful notice letter in the mail from a taxing authority.  The typical initial reaction is that the IRS is wanting more of your money!  However, if you work with a CPA, you should always provide a copy of the letter to them to review first before contacting the IRS yourself.  As a CPA, we are not exempt from making a mistake; however, I have seen many times where the IRS takes a position with a quick check at the surface (that usually results in more revenue for them) that differs from how the tax return was originally prepared.  As long as we are able to back the position on the tax return or provide additional documentation to support it, the outcome should be favorable for the taxpayer.  This can be frustrating for both you as the client and us as the CPA, as responses to notices can take six months or longer often before a resolution is determined.  However, with a little patience, the matter can be resolved and dealt with timely.

Technology is another area that can require a lot of patience to deal with.  We all get so used to the quickness of being able to complete our work with computers and programs, but when something goes haywire, it can be very frustrating and difficult for the average person to understand.

Having two young girls at home reminds me from time to time that patience is a virtue which all parents must possess!  I am also reminded of this as I see friends and family with long recoveries ahead of them or when the end of life is near.  We are so accustomed to a quick fix or using technology that will make us more efficient, but the fact is that we still need to have patience in situations that may allow for a better outcome in the end and trust that your advisors/mentors/doctors/family are providing you the best advice they possibly can.

No one I know enjoys paying taxes.  However, most of us dutifully pay our taxes — both to abide by our nation’s laws and out of respect for the nation we live in — despite what we may think about the current state of our tax system.  It was Arthur Godrey who said, “I’m proud to pay taxes in the United States.  The only thing is, I could be just as proud for half the money.”

When it comes to paying income taxes though, there are a couple common misconceptions that people tend to make.  One is related to a question that I’m often asked.  ”Should I give money to charity to reduce the amount of taxes I owe?”  I’m all for giving money to charity, so don’t get me wrong.  In fact, if you feel so charitably inclined today, check out Coburn Place, a local safe haven for women and their children who have suffered from domestic violence.  Our firm has selected this organization as our primary charitable focus this year.  We will work with them closely both in volunteering and fundraising.  But back to my point on taxes, giving money to charities to avoid taxes is a poor wealth-building technique because for most of us, every dollar given to charity may save us 25 – 35 cents in taxes, but we lose the remaining value of that dollar given.  So you are losing 65 – 75 cents on that dollar.  Some people seem to think that by doing this, they’re creating wealth, but unfortunately, it’s quite the opposite.  Hence, the misconception.  Give to worthy charitable causes because you want to give to these organizations, not because you want to create the tax deduction.  However, one great tax saving technique in charitable giving is to give highly appreciated stocks or mutual funds, as that is one of the rare items that qualifies for a “double tax deduction.”  You receive a tax deduction at the fair market value and don’t have to recognize the capital gains that you normally would when you otherwise dispose of the investment.

Speaking of investments, that brings up another common misconception.  We have heard at times from clients — especially those in higher tax brackets — that they don’t want to invest in higher yielding investments because of the income tax repercussions of that additional income.  If the goal is to invest that money to build wealth, then that line of reasoning doesn’t add up.  If your money is sitting in cash earning 0% these days, which it is (or close to it), you would rather earn as high an interest rate as possible on that money because any federal and state income taxes owed on that will be equivalent to 35% – 45% (sorry, California and New York residents!).  That means that you are still retaining 55% – 65% of that higher interest income even after taxes are factored in.  So you should always want to earn more on your money, assuming it is a prudent investment regardless of the income tax repercussions.  Now you want to carefully examine what investments are held in your tax-advantaged and taxable investment accounts as you will typically want to keep your most tax-efficient investments in your taxable accounts when possible.

Bottom line: it is tax time — maybe not high on your list but don’t make a bad situation worse by falling into some common misconceptions people have about paying and/or avoiding income taxes.

The story goes that back in Medieval Europe, eggs were forbidden during Lent.  So eggs laid during that time were often preserved in some way.  Thus, eggs became an important part of Easter day meals, marking the end of Lent.  They were also given to children as a gift and in Germany, tales were told that the “Easter hare” laid eggs for children to find, which has become our Easter egg hunt today.

The symbol of the eggs has since evolved into much more for us these days as kids enjoy coloring them and turning them into art.  While egg hunts are fun, the White House put its twist its own egg tradition by hosting the White House Easter Egg Roll that began back in 1878 by President Hayes.

But for most of us here at Veros, this oldest Christian holiday is for celebrating the resurrection of Christ.  Easter day marks the end of Lent, a 40-day period of fasting, repentance, and spiritual discipline.

I’ll be spending my weekend doing all of these things above with my family, aside from the White House egg roll.  We’d love to hear about what Easter means to you and what traditions your family has.

Do you decorate eggs?  Are there favorite food items you look forward to?  Do you attend church to celebrate His resurrection?  Do the kids (and adults too) participate in an egg hunt?   Share your comments below.

Here are five things you should know about extending a business and/or personal income tax return (Form 1120, Form 1065, Form 1040):

The common causes range from supply/demand imbalance, Middle  East conflict, speculators, and big oil price gouging.  While the first two causes certainly have some merit, the blame on speculators and big oil is largely untrue, considering the facts.  In fact, one could argue that speculators actually provide a balanced market for oil.  For example, speculators buy/sell oil contracts representing future prices of oil in hopes of selling/buying them for a profit in the future.  Speculators can make money whether the price of oil goes up or down, depending on what side of the trade they are on.  So the assumption that speculators are simply driving the price of oil up is a far-reaching statement as there are just as many traders on the short side looking for the right opportunity to take the price down.

Similar to the speculators, the big oil companies get a bad rap for controlling and manipulating prices.  A recent study by Mark Perry, Professor of Economics at University of Michigan, notes that big oil companies like Exxon Mobil only earn about 7 cents per gallon on the sale of gasoline.  Compare this to the approximate 50 cents per gallon that is paid in local, state and federal tax.  Based on these numbers, I think the better question may be, “Big oil or big government?”

I have argued against some of the common causes mentioned above.  So what then has caused the price of gas to increase by roughly 97% over the past three years?  I would argue one of the greatest and most overlooked causes has been the devaluing dollar, which has a direct impact on increased commodity prices, including oil.  When the Federal Reserve prints excessive amounts of money (QE1, QE2, QE3???), the supply of U.S. dollars increases while the corresponding value of the dollar decreases (basic supply and demand characteristics).  Over the past 10 years, the U.S. dollar has lost 40% of its international exchange value, meaning the price of commodities (i.e. oil) sold overseas in U.S. dollars has driven up the price of oil on the heels of the devalued greenback.

I would also argue that the short-term fix to controlling gas prices and keeping inflation in check is to reel in the excessive spending and stimulus programs.  This would provide an immediate resurgence in the greenback and directly lead to a stronger dollar and inflation.  Additionally, the strong dollar would further help the economy grow by putting more money in the consumers’ pockets and allowing them to spend on goods and services of their choice.

Do you have thoughts on rising gas prices?  We’d like to hear from you.  Share your comments below.

As many are aware, this is a busy time of the year for our firm with a number of year-end client planning projects combined with the year-end client meetings and the annual income tax preparation cycle.  It’s a time of the year where we all become self-absorbed with what we have to do on a daily basis and it’s easy to lose perspective of the bigger picture that life provides.  That changed for me early last week.  The storms that ripped through southern Indiana seemed to be just another round of violent storms and tornados.  Based on the numerous daily media sources, it seems we see things like this happen all the time and due to their frequency we go on living our lives without thinking too much about it.  However, this latest storm created a different experience for me as a close friend of one of our team members lost his life in this storm.  It forced me to take the time to stop and think how many people’s lives get turned upside down on a daily basis — whether it be from mother nature, an automobile accident, unexpected deaths in a family, major health issues, etc.  This happens daily but for the most part, we remain removed and insulated from it and become conditioned to think that these things will continue to happen to “other people” — but not us.  This provided another wake-up call that someday this could potentially happen to me or someone very close to me.

With this being my 15th “busy season” in the personal financial services industry, there are several lessons that I continue to learn over time (some just last year) that I try to apply on a regular basis (daily, weekly, monthly).  I’ve found that most of these are important to keep high on my priority list — no matter how frenzied life may get.

• Never lose focus on the people closest to you – wife, husband, family – and at least once a day, think about what you can do to help make their load a little lighter — no matter how big or small that thing may be.
• Take some time once a week to think about any friends (or clients) who are having a tough time and think about what you can do to help them out in a time of need.
• To get more, give more.
• Make time for yourself by doing something you enjoy — whether that be taking time to exercise, watching your favorite sports team, reading a book, etc.
• Think about the frustrations in your life and/or in the lives of those close to you and think about how those frustrations might be able to be eliminated.
• Always focus on continuing to learn new things in life as this will help keep you feeling young and refreshed.
• Don’t dwell on your past mistakes or successes, but be sure to learn from them.
• Remind yourself that insanity comes from doing the same thing over and over again and expecting a different result.  Identify poor habits and confront common problems with a new approach.
• Be more satisfied with what you have and less worried about what you don’t have.

I realize these are some random thoughts, but they’re definitely a few things to think about as you continue down your chosen path in life.  I’m confident if you aren’t doing or thinking about some of these things on a regular basis that they will make a difference, not only in your life, but in those close to you as well, whether that be family, friends, or co-workers.  All of our lives may be short and fleeting, we just never know.  So the time to look inward to make positive changes with your life is now.

When it comes to your automobile, first understand that the IRS allows you to choose one of two methods.  You can deduct the miles driven for business multiplied by a mileage rate (allowance method) OR you can deduct actual costs that you incurred for the business use of your auto (actual method).  Once you choose a method for a particular vehicle, you must use that method for the life of that automobile.

Within the mileage allowance method, you are allowed to deduct an annually adjusted dollar amount (51/55.5 cents for 2011 and 55.5 cents for 2012, thus far) based on each mile traveled for business.  The best way to keep track is by maintaining a business mileage log.  For tips on how to keep one, contact us.

Under the actual method, you deduct the business use of the actual costs you incur with your vehicle.  These costs include the depreciation on your auto that year, maintenance and repairs, gas, insurance, etc.  Your business use is likely not 100% use though, right?  Which means you have to be sure you calculate what percent of time your auto was used strictly for business operations and travel. Keeping track of costs as I mentioned above, which may further include license, oil, parking fees, and tolls, still requires proper documentation and substantiation.  Also, don’t forget to document your beginning of the year odometer reading and then again at the end of the year.

The IRS divides mileage into three categories: 1) business; 2) commuting; and 3) personal.  Driving from home to work does not count as business use — that’s considered your commute.  Business miles are counted as travel between temporary business stops.  Do you know the one instance in which commuting can be considered business mileage?  That’s right… when your home is also your office.  If you travel to a business meeting from your home office (if your home is your principal place of business), then those miles are deductible.

Properly planning and strategizing for automobile deductions can go a long way in optimizing your tax benefits from business auto use.  Remember, the method you choose initially stays with the auto as long as you or your business uses it.  Be sure to let your advisor know whenever you purchase a new one for your business.