Is hiring seasonal workers on your busy season to-do list? Here are tax rules to keep in mind.
- Affordable Care Act exception. When you employ 50 or more full-time workers, you’re considered a “large employer” and are generally required to provide health insurance coverage or pay a penalty. However, the law provides an exception for seasonal workers, defined as those you employ for not more than 120 days during the prior calendar year. In general, your answer to two questions determines if you qualify for the exception. Did your workforce exceed 50 full-time employees for 120 days or fewer during the year? Are the employees in excess of 50 who were employed during that period seasonal workers? If both answers are yes, you’re generally not considered a large employer.
- Employment taxes. Temporary workers are typically subject to the same employment tax rules as regular employees. You’ll generally have to withhold social security and Medicare taxes, as well as federal income tax from wages. You’ll also have to follow payroll tax deposit rules and employment return filing requirements.
- Employment tax returns. Special filing rules may apply when you only hire employees at a specific time of year, such as the holiday season. For each quarter that you pay wages, you can check the box for “seasonal employer” on “Form 941, Employer’s Quarterly Federal Tax Return.” By notifying the IRS of your seasonal status, you’re not required to file returns for quarters when you have no wages or tax liability.
- State rules. In addition to reporting these employees as new hires and filing quarterly state payroll reports, you may have to request classification as a seasonal employer by completing a special form. In some states, you’re required to reapply periodically. Qualifying as a seasonal employer can affect your staff’s eligibility for unemployment benefits as well as your experience rating, which determines your tax rate.
Please call Carl Heinemann, your Chattanooga CPA, for more information about payroll tax rules, recordkeeping requirements, and documentation for seasonal employees. We’re here to make sure your busy season goes smoothly.
As you begin year-end planning, keep in mind that some tax breaks you may have benefitted from in prior years have not yet been extended for 2015. Here are a few that expired at the end of 2014 and are not currently available.
- Educator expense deduction. If you’re a teacher or other eligible educator such as an aide or a principal, this above-the-line deduction would let you subtract $250 of qualified unreimbursed expenses. Those are expenses you paid or incurred for books, supplies, computers and other equipment, and supplementary materials that you use in the classroom.
- State and local sales taxes. This itemized deduction gave you the option to deduct state and local sales taxes instead of state and local income taxes.
- Deduction for qualified tuition. This was an above-the-line deduction of up to $4,000 for qualified tuition and related expenses.
- Charitable distributions from your IRA. This break let you exclude up to $100,000 from your income for donations paid directly to a qualified charity from your IRA if you were age 70½ or over.
- Bonus depreciation. This special depreciation allowance would let you deduct up to 50% of the cost of qualifying property in the year of purchase.
- Enhanced Section 179 expensing. While you can still elect to immediately expense up to $25,000 of business assets that you purchase and place in service during 2015, the increased expensing limit of $500,000 is not currently available.
Give Carl Heinemann, your Chattanooga CPA, a call for the most up-to-date news on these tax breaks and other tax legislation.
As the end of the year approaches, start thinking about education tax credits. Why? The two federal education credits available for 2015 — the American Opportunity Credit and the Lifetime Learning Credit — include timing rules.
For example, say you’re planning to pay qualified tuition expenses with loan proceeds. You can claim an education tax credit for expenses paid with the proceeds of a loan in the taxable year in which the expenses are paid. That means when you pay tuition in 2015 with loan proceeds and you’re eligible for a credit, you’ll claim the credit on your 2015 federal income tax return. This rule specifically states the credit is claimed in the year the proceeds are disbursed, not when the loan is repaid.
If the loan proceeds are sent directly to your school, the expenses are treated as paid on the date the school credits the proceeds to your account. How do you know that date? Your school can provide a student financial account statement to help you claim the credit in the correct year.
If you’re not sure of the date the loan proceeds were credited to your account, the rules say you treat the expense as paid on the last day for payment prescribed by the school.
Here’s an illustration. Your school’s policy is that you can’t begin classes until tuition is paid. Your classes begin in December. Your loan proceeds are credited to your account the following February. When you file your tax return in April, you believe the school would not have allowed you to attend the course unless your tuition was paid when the classes began. Would you use the expenses to claim the education credit on the return you’re currently filing or next year’s?
A recent tax court opinion allowed the credit on the current return. The decision hinged on the taxpayer proving he was not aware of the exact date the loan proceeds were credited to his account.
Give Carl Heinemann, your Chattanooga CPA, a call for more information about education credits and other tax breaks for college expenses.
In the case of any loss claimed to have been sustained… Those are the first words of Internal Revenue Code Section 1091, which you may know as the wash sale rule. That particular sentence goes on for another 111 words. Yet you may sell a security and still not be sure whether the rule applies. That’s true despite the information reporting form you receive from your broker at year-end.
It might help to understand the reason behind the rule, which prevents you from claiming a current loss on certain investments you sell, then reacquire within a short time period. The idea is that in a wash sale, you’ve initiated a tax-saving transaction without changing your true economic position.
Here’s how wash sales work. When you buy a “substantially identical” security in the thirty-day window before you sell an investment and the thirty days after, any loss on the sale is postponed. Note that the rules include the day of the sale, so the window is 61 days.
Note, too, that the term “substantially identical” is not defined. The general rule is that stocks or bonds in different companies — even those in the same industry — are not substantially identical.
Wash sale rules apply to securities such as mutual funds, exchange-traded funds, and stock or option grants, including those you receive as part of your compensation. A wash sale can occur when you repurchase a security in your IRA, or when your spouse or a company you control does the buying.
Wash sale rules merely defer capital losses. In most cases you’ll eventually get the benefit, since the disallowed loss is added to the basis of the reacquired securities. The holding period of the original security is also carried over, creating planning opportunities.
Want to know more about wash sales? Give Carl Heinemann, your Chattanooga CPA, a call.
Owning an automobile is an expensive proposition. Your ride needs to be cleaned, fueled, and maintained. You need to buy insurance and pay licensing fees. Emissions testing may be required. And unless you’ve invested in a classic car that’s expected to turn a profit (a relatively rare occurrence), your vehicle’s value will decline year after year, especially if used for your regular commute to work.
Fortunately, paying attention to the little things — those ongoing maintenance matters laid out in your owner’s manual — can help you avoid expensive repairs, reduce operational costs, and keep your car running great. Consider the following six suggestions from automobile professionals.
- Read and follow the owner’s manual. That little booklet has been placed in your glovebox for a reason. The company that built your car knows how to keep it running well. Following the preventive maintenance schedule for fluid changes, timing belt replacement, and brake and tire inspection can save hundreds of dollars over the life of your car. Knowing what’s in the owner’s manual can also provide a “leg up” when dealing with mechanics, some of whom may recommend unnecessary repairs.
- Find a good mechanic. If your car is under warranty, your dealership is often a great place to go for repairs and routine maintenance. Once the warranty has expired, ask family and friends to suggest an experienced local mechanic. Independent shops generally charge less than licensed dealers because they have access to less expensive aftermarket parts. In addition, a competent mechanic can develop familiarity with the characteristics and quirks of your car.
- Pay attention to warning signs. Has your gas mileage suddenly dropped? The engine may need analyzing. Is your ride getting rougher? The shocks may need replacing.
- Maintain a constant speed. Cruise control improves fuel economy.
- Check your tires. Keeping tires inflated at the proper pressure helps you achieve better gas mileage. The correct PSI (pounds per square inch) can be found on your car’s doorjamb. Rotate tires regularly to distribute wear.
- Save maintenance receipts. When it’s time to sell your car, a potential buyer will likely ask for service documentation. Keeping that paperwork will show that you’ve been a conscientious car owner, and may put more money in your pocket.
You’re late for an appointment, so you drive faster, scramble for a parking space, and rush to the receptionist’s counter. You apologize for your tardy arrival; then you wait and wait and wait. No one else seems to be in a hurry, and no one tells you how long you’ll be waiting. What message is being conveyed, loud and clear? Our time is valuable; yours isn’t.
Businesses that fail to manage wait times may be losing current and potential customers without even realizing the problem.
And it’s a shame, because most customers understand that service delays are a fact of life. They don’t always expect immediate service, and they’ll forgive delays if a company makes a reasonable effort to mitigate the inconvenience. Standing in line at a busy grocery store when it’s obvious the store manager is working hard to keep things moving — that’s understandable. Waiting for a rental car when the line’s backed up and the clerk is making a personal call on his or her cell phone — unacceptable. Even the most reasonable customer may blow a fuse.
Here are three suggestions for managing wait times.
- Communicate expectations. When you walk into a restaurant and the host says the wait will be an hour, you have choices. You can go elsewhere or leave your name on a list, take a walk, shop at a nearby store, or fill the car with gas. You know what to expect and can plan accordingly. Train your employees to extend the same courtesy to your customers.
- Provide a comfortable waiting experience. Provide a surplus of seating in the waiting area to prevent your customers from having to play musical chairs. If a television is turned on, keep it muted with scrolling captions and make sure the content is appropriate for your clientele. Stock current magazines. If it’s likely children will accompany their parents, provide toys, video games, and age-appropriate books to keep them occupied.
- Apologize and compensate. In some cases, excessive wait times are unavoidable. To let customers know you value their time, tell them you’re sorry, then offer a discount. You may lose short-term revenue but gain long-term customer loyalty.
In short, follow the golden rule: treat customers the way you want to be treated.