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Seven Workplace Rights Employees BELIEVE They Have . . . But Don't!
20 September 2013 / Uncategorized / Comments Off on Seven Workplace Rights Employees BELIEVE They Have . . . But Don't!
Most employees believe they already know the list of “rights” they possess, simply by being an employee. After years of watching shows like Law & Order, CSI and COPS, they have absorbed lots of legal information, and not surprisingly, most of it is wrong.
We at Widget thought we’d take a break from Tax and Accounting concepts and take a fun look at some of the laws that employees think they have…but don't.
- "I was wrongfully terminated." Maybe if you lived in Montana you'd have a point. Montana is the only state in the nation with a law saying you can only be fired for just cause. Otherwise, you live in an “at-will” state. That means you can be fired for any reason or no reason at all. They don't have to have a good reason. They don't even have to give a reason in most states. Boss in a bad mood? He or she can fire you. Period.
- "I have the right to see my personnel file." No federal law requires private employers to allow employees to inspect or copy their own personnel files. Only some states require employers to allow you to look at your file and even fewer require your employer to allow you to copy items in your file. Many times, the only way you'll find out what's in your file is if you subpoena it in unemployment or other proceedings.
- "I am entitled to my break right now."
No federal law requires employers to offer any work breaks for anything, even meals. Some state laws do require work breaks, but it's not a majority. No federal law even requires bathroom breaks!! Some states also offer protection for nursing moms taking breaks. Those employees taking “smoke breaks” or “coffee breaks” should tread carefully.
- "My boss makes me work in a hostile work environment."
It's pretty much your boss's job to create a hostile work environment. A hostile environment is not illegal. Workplace harassment is not illegal. Bullying is not illegal in any state. Only hostile environment or harassment due to race, age, sex, religion, national origin, disability, color, taking Family and Medical Leave, whistle blowing, or some other legally-protected status is illegal.
- "I exercised my First Amendment Rights and told him how it was!" Only government employees have free speech protections, and those are very limited. Otherwise, you can be fired in most states for your speech (including political speech) in the workplace or outside the workplace. You can't be fired for objecting to something illegal, but be very careful to make sure you're protected before you speak out.
- "My boss invaded my right to privacy." Your boss can read your work e-mails and monitor your Internet usage at work. If your employer is going to listen into or record phone calls, there are some legal restrictions. You also have privacy rights in your medical information. There is no federal law protecting your social security number, but California and New York do offer limited protection against employers displaying your number.
- "I was discriminated against because my boss didn't like me." If your boss is discriminating against you for being you, that isn't illegal. Favoritism, nepotism, and being obnoxious are not illegal. Discrimination based on age, pregnancy, race, sex, religion, national origin, disability, color and genetic information are illegal. In some states, other categories such as sexual orientation, gender identity, marital status, and being a domestic violence victim are also protected.
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Income from whatever source derived
17 September 2013 / Uncategorized / Comments Off on Income from whatever source derived
Welcome to another edition of Tuesday Tidbits where we make tax and accounting simple. I'm your host Charles D. Shapero, CPA with Widget Bookkeeping and Tax, and today we're going to talk about income. What is income? Income is handled under the Internal Revenue Code under section 61, which simply states Income is from whatever source derived. Kinda confusing, but most of the Internal Revenue Code is. What that means is that whenever you are enriched, that's income. Here's some examples: Your W-2, your employer pays you for your hours that you worked that's income. Fairly obvious too. When you own a small business and you're doing services for people. They issue you 1099's, also pretty simple, pretty straightforward, let's talk about some items where income is not straightforward. How about bartering? I'm doing services for another business owner that is doing services for me, the services that I receive, the fair market value of those services, is reportable income to me under code section 61. I was enriched, so that kinda makes sense. What about if I buy a painting at a garage sale, and that painting has an evelope that has $5000 in it. Is that taxable income? Most of your probably said no but under code section 61 from whatever source derived. That $5000 needs to be reported on my tax return. Amazing isn't it? That is actually the Cessarini Case, it actually went to court, the IRS won. What about illegal activities? How about prostitution? What about drug dealing? Again, as silly as those examples sound, we go back to code section 61 from whatever source derived, so prostitution and drug dealing both taxable income under code section 61. That's how they got Al Capone he had all these illegal activities going on and he didn't report them on his tax return. That's tax evasion, Al Capone went to jail. Look at Wesley Snipes. Wesley Snipes didn't believe he needed to pay income tax on his income. He was jailed for it. Look at Richard Hatch. Richard Hatch won Survivor on national TV and didn't report the income on his tax return, and he went to jail. Code Section 61 very important, income from any source derived. That concludes today's Tuesday's Tidbits See you next Tuesday! Widget Bookkeeping and Tax, Know More Keep More
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What expenses can I deduct?
10 September 2013 / Uncategorized / Comments Off on What expenses can I deduct?
Welcome to another edition of Tuesday's Tidbits where we make tax and accounting simple, I'm your host Charles D. Shapero, CPA and today we're going to talk about what expenses you can deduct as a business owner. Would you believe that the Internal Revenue Code that you cannot deduct any expenses. It's true, all deductions are a matter of whats called legislative grace. Luckily, the legislature has seen fit to pass code section 162, it's a very important code section for business owners because it allows us to deduct anything that's an ordinary and necessary expense to our business. Is a trip to Hawaii a necessary deduction? Maybe not for a dentist. But what a real estate investor who wants to go look at rental properties in Hawaii? Possibly. What about a travel agent that needs to be able to talk about travel to Hawaii, possibly. But when a taxpayer does that and he takes his whole family that's a mixture of business and personal. Can he deduct his airfare? More than likely. Can he deduct his wife and kids? More than likely....not. When your looking at what expenses can I deduct come down to the ordinary and necessary and kinda talk that through. Or you can feel free to give the experts at Widget Bookkeeping & Tax a call, we'll help you walk through it. This concludes todays Tuesday Tidbit. See you next Tuesday. Widget Bookkeeping & Tax, Know more, Keep More. -
REASONABLE SALARY?
26 July 2013 / Uncategorized / Comments Off on REASONABLE SALARY?
Payroll tax collection continues to vex the Internal Revenue Service despite several court cases that have resulted in rulings favorable for the IRS regarding unreasonably low compensation. A recent high profile case was David E. Watson, P.C. v. United States on which the Eighth Circuit ruled in 2012. Watson was an indirect partner in a CPA firm, practicing through an S corporation that paid him $24,000 of W-2 salary per year and between $175,000 and $203,000 in S corporation distributions. The court adjusted his payroll compensation to $93,000.
It isn’t hard to see why shareholders of S corporations attempt to justify wage levels below what the IRS considers “reasonable compensation” (assuming the understated compensation is below the FICA wage base). Both the S corporation and employee save the 7.65% FICA and Medicare taxes on the wages not reported. Combined, for small business owners, it's a savings of 15.3%!
Another recent case is Herbert v. Commissioner. Herbert received between $24,000 and $29,000 of W-2 wages for the years 2004 through 2006. In 2007, he received $2,400 of W-2 wages. Although the Tax Court noted that the corporation lost money or earned very little income in each of the years, and the corporation closed down in 2009, the Court increased the taxable W-2 compensation for 2007. The IRS wanted to reclassify all of the draws from the S corporation for 2007 as additional wages (i.e., an additional $52,600). Ultimately, the judge averaged the petitioner’s wages for 2002 through 2006 to arrive at $30,445 as a reasonable wage.
It didn’t help matters that Mr. Herbert used the draws to pay corporate expenses personally. He lost, misplaced or never kept receipts for many corporate expenses he paid with cash. The Court accepted Herbert’s testimony that he in fact paid significant corporate expenses with cash using funds received from the corporation. Nonetheless, the judge also believed that W-2 wages of $2,400 were too low.
The result? Herbert was found to have under-reported his wages, even though the amount of cash drawn out of the corporation covered corporate expenses. Had he had maintained a better set of books, paid all of the corporate expenses with corporate (rather than what became to be personal) funds, he wouldn’t have had distributions from the corporation to himself.
Although the wages were quite low, the fact of the matter is the business was failing. There wasn’t an adequate cash flow to pay wages and expenses. By shuffling funds and taking money personally, Mr. Herbert created a payroll tax liability where such liability shouldn’t have existed.
Payroll tax reduction or avoidance is, perhaps, a major reason for the popularity of S corporation status for an operating entity, even though the formation of an LLC under state law provides similar liability protection for the sole proprietor. The IRS projects that 4.6 million Forms 1120-S will be filed for 2012, compared to 3.6 million Forms 1065 (partnership).
As part of its tax reform efforts, Congress is evaluating the continuing treatment of the bottom-line S corporation as not subject to payroll taxes or self-employment tax.
If you have any questions on S corporations and what should be considered "Reasonable Compensation" please contact the experts at Widget. We can help!