Changing Employees to Independent Contractors? What are the Ramifications?

An employer made the decision to change the status of their workers from employees to independent contractors and it ended up backfiring.

An at-home nursing service provider owed almost $1.3 million in back employment taxes and penalties for a misclassification of 99 nurses. The taxpayer, for reasons that were unclear, made the decision in 2016 to switch their employees to independent contractors. After this decision, in the years at issue, the taxpayer did not make any federal employment tax deposits due to their change in the employment status of their workers.

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New Tax Relief Bills Have Been Signed Into Action by the Governor! 

In addition to granting tax refunds of $700 to qualifying taxpayers with California AGI up to $250,000 ($500,000 HOH), this bill also authorizes up to $1,050 for MFJ taxpayers who have California AMI over $500,000. The only downside is the payments will not arrive until the end of October (at the earliest).

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Tax Management in the Virtual World

Recently we have seen how cryptocurrency investments can be very unpredictable. In November 2021, the cryptocurrency market peaked at about $3 trillion. Two months later, the cryptocurrency market plummeted over 40%, wiping out more than $1.2 trillion in a matter of months. This can be daunting to navigate, but just like any bear or bull cycle in the stock market, it can present opportunities to use different tax strategies.

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Holding Property in a Corporation Potential Issues

Holding property in an entity provides asset protection from creditors, but the type of entity holding the property will have a big tax impact; for example, partnerships have an edge over C or S corporations when it comes to getting the property back out of the entity. Weighing the pros and cons of different entities, whether real estate will be held in the entity should be a major consideration. 

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Employee Retention Tax Credit 

As we approach tax season, the Employee Retention Credit (ERC) may be an important credit for businesses. The ERC is a fully refundable IRS payroll tax credit (not a loan) available to employers with the potential of up to $26,000 per employee in federal payroll taxes. Businesses that received round one and/or two of Paycheck Protection Program (PPP1 and PPP2) loans also qualify for the ERC. 

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