How working in the gig economy affects your taxes
Gig work offers flexibility, autonomy and a way to earn income, but it comes with tax obligations that may catch you off guard. Whether you drive for a rideshare service, deliver food, sell products online or offer pet walking services, it’s crucial to understand the tax implications to stay compliant and avoid costly surprises. Generally, if you receive income from a gig, it’s taxable. That’s true even if you don’t receive a 1099-NEC reporting the money you made. You may need to make quarterly estimated tax payments (the next is due June 16) because the income isn’t subject to withholding. Business expenses may be deductible, subject to the normal tax rules. Contact us to learn more.
Hiring independent contractors? Make sure you’re doing it right
Many businesses turn to independent contractors to help manage costs, especially during times of staffing shortages and inflation. If you’re among them, ensuring these workers are properly classified for tax purposes is crucial. Misclassifying employees as independent contractors can result in expensive consequences if the IRS reclassifies them. But determining if a worker is a contractor or an employee can be complex. The IRS and courts have generally ruled that individuals are employees if the businesses they work for have the right to control and direct them in their jobs. Otherwise, they’re generally contractors. Contact us to discuss how the rules apply to your business.
Companies should take a holistic approach to cybersecurity
Cyberattacks pose a serious risk to every level and function of a business. That’s why your company should take a holistic approach to cybersecurity. First, if possible, don’t place sole responsibility for cybersecurity on one person. Delegate responsibilities to everyone on your leadership team. Second, properly identify and classify all data assets. The most straightforward way to do so is by conducting a data audit. This is a systematic evaluation of your company’s data sources, flow, quality and management practices. Third, enable employees to report suspected cybersecurity incidents easily. Provide plenty of training, retraining, upskilling and testing, too. Contact us for help.
The tax rules for legal awards and settlements: What recipients should know
If you’ve received a legal settlement or award, it’s important to grasp the tax implications. While compensation for physical injuries is typically tax-free, awards for lost wages, emotional distress and punitive damages are usually taxable. Even if your attorney is paid directly from the settlement, you may be taxed on the full amount. The way a settlement is structured can significantly affect your tax liability, making professional guidance essential. We can help you understand the rules, ensure proper reporting and potentially reduce your tax burden. Contact us to discuss how a court award or out-of-court settlement may affect your taxes.
Can you turn business losses into tax relief?
Even well-run companies experience down years. The federal tax code may allow a bright strategy to lighten the impact. Certain losses, within limits, may be used to reduce taxable income in later years. The net operating loss (NOL) deduction addresses the tax inequities between businesses with stable income and those with fluctuating income. It lets the latter average their income and losses over the years and pay tax accordingly. The tax rules regarding business losses are complex, especially when accounting for how NOLs can interact with other potential tax breaks. Please consult with us about how to proceed in your situation.
4 ways business owners can make “the leadership connection”
Today’s business owners need to form an authentic bond with their employees. Here are four ways to make “the leadership connection” with your staff: 1) Listen and share; set up an email address or web portal for employees to share concerns and ask questions. 2) Stage formal get-togethers; hold “town hall” meetings to discuss the company’s financial performance and establish expectations for the future. 3) Make appearances; though meetings are useful, interact with managers and employees in other ways as well. 4) Have fun and celebrate; show positivity, a sense of humor and be enthusiastic about your business’s successes. Ultimately, the leadership connection is about building trust.
Still have tax questions? You’re not alone
If you filed your 2024 tax return, you may still have a few questions: 1) When will you get your refund? Go to the IRS website and click “Get your refund status.” You’ll need your Social Security number, filing status and the exact refund amount. 2) How long should you keep tax records? In general, hold on to tax documents for 3 years after filing. However, keep the actual tax returns indefinitely. Certain situations may require keeping records longer. 3) Can you still claim a missed deduction or credit? Yes! You can file an amended return to claim a refund within 3 years of the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
Cost management is critical for companies today
Many business owners take an informal approach to controlling costs. A better way is through systematic cost management. This means identifying your company’s major spending areas and continuously adjusting how you allocate dollars to each. Examples include: 1) Supply chain; analyze sourcing, production and distribution, factoring in the impact of global tariffs. 2) Operations; undertake periodic reviews to identify bottlenecks, outdated processes and old technology. 3) Customer service; look into helpful tech solutions and focus on optimal channels. 4) Marketing and sales; use the right tech to get the data you need, and review sales compensation and travel expenses. Contact us for help.
Corporate business owners: Is your salary reasonable in the eyes of the IRS?
Are you a corporate business owner? Make sure your compensation passes IRS scrutiny! Determining “reasonable compensation” is a critical issue for owners of C corporations and S corporations. If the IRS believes an owner’s compensation is unreasonably high or low, it may disallow certain deductions or reclassify payments, potentially leading to penalties, back taxes and interest. The IRS wants to see that what you pay yourself is in line with what you’d pay someone else doing the same job. Some factors the IRS examines include duties, experience and comparable salaries for similar positions in the same industry. Contact us for guidance on setting or reviewing your compensation.
The “wash sale” rule: Don’t let losses circle the drain
If you make an ill-fated investment in a taxable account, you may be able to harvest a tax-saving capital loss by selling the losing stock. However, for federal income tax purposes, the “wash sale” rule could disallow your tax loss. A loss from selling stock is disallowed if, within the 61-day period beginning 30 days before the loss sale date and ending 30 days after that date, you buy substantially identical securities. If you have a disallowed wash sale loss, it doesn’t vaporize. Instead, it’s added to the tax basis of the substantially identical securities that triggered the wash sale rule. When you eventually sell, the extra basis reduces your tax gain or increases your tax loss.