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Monthly Archives: April 2020

Using Tax Software, Think Again

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April 19  |  Uncategorized  |   admin

If you’re taking advantage of the July 15 tax extension this year, you may still be deciding on which software to use.

The media has bombarded you with the ease of tax preparation and using tax preparation software to get you that refund quickly. Some tax software outfits are offering free on-line consultation to get your taxes filed.

For the typical W-2 filer with no deductions, tax prep software is a good way to get your taxes filed at a relatively inexpensive cost. If you have anything more than a W-2, you should seriously consider hiring a tax professional to assist you.

Tax Professionals are Expert in their Field

Tax professionals know the tax laws in and out, have studied at universities, have experience for many scenarios and are licensed professionals.

Tax software is… tax software…. It doesn’t interact with you, it can’t advise you on the law, it has a shelf life, but most importantly, it can’t represent you before the tax authorities in the event of an audit or inquiry.

Like the seasonal tax shops on the corner, they are there for the quick buck and have no skin in the game. Come the day after filing deadlines, the shops are closed, the hot-lines have been disconnected and there is no one there to help you. These so-called help hot-lines can’t offer adequate tax advice to you. They can tell you how to input information into their software but they generally do not have the experience or knowledge to give you tax advice. There are numerous disclaimers.

What the tax software companies don’t tell you is the quality of their hot-line staff. What’s their training? What’s their experience? Are they still a ”tax professional” when filing season is finished? Or are they driving for a ride-share company.

A good tax professional stands by their client, strives to understand the client’s needs, works with the client to help them legally pay the lowest tax possible. They offer tax advice, have resources to answer specific questions; a tax professional will keep you out of hot water and guide you on the proper path of success.

Your Time is Valuable

From the commercials you see a bright, smiling, millennial-something talking about how fast and easy their software is and how you can get a quick refund. What they don’t tell you is the time it will take you to prepare your return on your own.

Preparing your taxes with on-line software will take you HOURS to prepare. Then the second guessing happens: Did I get it right? What have I missed? What did I do wrong? Why can’t I get the refund I expected? You pay about $150 to E-file your taxes (for a small business). To top it off if you add the hotline, it’ll cost you an additional $200.

So it took you 8 hours to prepare, how much is your time worth? A hardworking plumber charges $125-$200 per hour for their work. Is it worth $1,000-$1,600 of your billable time to be uncertain about your taxes?

A tax professional will often save you money. Isn’t it worth hiring someone to be in your corner that will be there for you, to save your time and money to prepare your tax returns properly? NO tax software can commit to that!

Foreseeing the Unseen

Tax software will not help you from a tax planning standpoint or have the ability to run multiple scenarios. Tax software not only can’t advise you on how to improve your tax outlook, it can’t evaluate what works best for you, the taxpayer.

Sure, tax software packages have a Q&A section, but they’re canned script. A seasoned tax professional works with you, asks you the important questions, and can help you by advising you the best course of action; from evaluating your current tax situation, and solving current tax problems when they exist to creating new tax planning solutions for the future.

Sharing Your Personal Information Online

Here’s the big question, do you really want to share your social security number, your bank account information, your income numbers and details online? How often do we hear about identity theft and scammers? The tax software firms tout how safe their websites are to input this sensitive information but….. can you be sure that your computer hasn’t been hacked or your internet connection?

Working directly with a tax professional you’ll have the assurance of confidentiality, and the security and safety of your personal information.

Call Anthony W. Imbimbo, CPA for a complimentary consultation. Anthony is a tax expert with over 35 years’ experience. Call him today at 619-497-1040

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More on AB5: Common Law Rules versus California regarding Independent Contractors

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April 3  |  California  |   admin

Small businesses are threatened by AB5, the new Independent Contractor law, and as a result of the sweeping changes some may end up going out of business. The following will help you figure out what you need to know and do to survive AB5.

The chart below depicts the differences between California and Federal Law on Independent Contractors, as well as an in-depth analysis on what each of their rules are.

This is a continuation on AB5. Read the previous post here

California

Federal Common Law

ABC Test

X

X

Behavioral Control

X

X

Financial Control

X

X

Relationship of Parties

X

X

Exclusion of B-B contracting; favored/repeat reference

X

Certain jobs can’t be considered as independent contractors for CA purposes

X

IRS rules on Independent Contracting

Under common-law rules, anyone who performs services for you is your employee if you control what they do and how they do it. This applies even when you give the employee freedom of action. What matters is that you have the ability to control the details of how the services are performed. Common law is a body of unwritten laws based on legal precedents established by the courts.

For federal employment tax purposes, the usual common law rules are applicable to determine if a worker is an independent contractor or an employee. Under the common law, you must examine the relationship between the worker and the business. Consider all evidence of the degree of control and independence in this relationship. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Relationship of the Parties.

Behavioral Control covers facts that show if the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means.

Financial Control covers facts that show if the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:

  • The extent to which the worker has unreimbursed business expenses

  • The extent of the worker’s investment in the facilities or tools used in performing services

  • The extent to which the worker makes his or her services available to the relevant market

  • How the business pays the worker

  • The extent to which the worker can realize a profit or incur a loss

Relationship of the Parties covers facts that show the type of relationship the parties have. This includes:

  • Written contracts describing the relationship the parties intended to create

  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay

  • The permanency of the relationship

  • The extent to which services performed by the worker are a key aspect of the regular business of the company

New State of California rules on Independent Contracting

One of the exemptions in AB 5 is for bona fide “business-to-business” contracting relationships. The statute describes these as relationships in which a “business service provider” provides services to a “contracting business.” But even an independent contractor agreement may not be enough to defend you. For the “business-to-business” exemption to apply, all of the following conditions must be met:

  • The “business service provider” (i.e., contractor) must be free from the control and direction of the “contracting business entity” in connection with the performance of the work, both under the contract for the performance of the work.

It should be noted that California has a very strict stance on the ABC test that all elements must be met on the test. False designation of employees as independent contractors are in violation of state wage orders. AB5 broadens the horizons of the ABC test, which is done to stop state wage violations,  so that it applies to more businesses, which were able to avoid punishment for misclassification. To help enforce this law, city attorneys are authorized to sue employers that violate the law.

These occupations that were treated as independent contractors in the past will be covered under AB 5: health care professionals, ride share services, delivery service workers, truck drivers, janitors and housekeepers, health aides, performers and other entertainment professionals, land surveyors, architects, and geologists, campaign workers, language interpreters, exotic dancers, rabbis and other clergy.

Among the exceptions are licensed physicians, lawyers, engineers, tutors (that teach their own curriculum, and that are not public school tutors), commercial fishermen, AAA-affiliated tow truck drivers, real estate agents, accountants, and private investigators; certain marketing and human resources professionals; and licensed manicurists and barbers who can meet certain conditions, including setting their own rates.