Planning Potpourri


Payroll Tax Audits:  Detailed federal employment tax audits will begin in November and will focus on: (1) worker classification (employee vs. independent contractor); (2) fringe benefits; (3) officer's compensation; and (4) reimbursed expenses. Don't wait to get tagged, review your policies and procedures now. Review employee classification and correct any inappropriate treatment of employees as independent contractors. Corroborate the legitimate classification of appropriate workers as independent contractors (e.g. document relevant facts, collect business cards, advertisements, etc.). In closely held businesses have your CPA confirm the reasonableness of salary. If you're underpaying salary to avoid payroll tax in an S corporation, that could be an issue. Be sure expenses are properly corroborated and that firm policy requires appropriate recordkeeping and reporting.


Deductions and Employee Status:  A surgeon was held by the court to be an employee, not an independent contract. So what? His business expenses were therefore only deductible as unreimbursed employee business expenses on Schedule A, not as a business expense on Schedule C under IRC Sec. 62. These are subject to the 2% floor on miscellaneous itemized expenses - i.e., the have to exceed 2% of adjusted gross income ("AGI") to be deductible. IRC Sec. 67. No surprise, they didn't so the entire deduction was lost. Maimon, TC Summary 2009-53.  Here's some of the facts: ◙ Executed an employment agreement expressly identifying him as an "employee". He should have signed a consulting agreement stating he was a contractor. ◙  He served as an officer and director of the employer/corporation. Bad move. ◙  He was reimbursed for CME, hospital staff dues, professional societies, professional publications, and other professional expenses in accordance with policies established by the employer. Contractors should have the risk of economic loss. If many costs are reimbursed, the risk of loss is mitigated. ◙  Received Form W-2 for "Wages, tips, other compensation". He should have been given a 1099. ◙ He did not pay self-employment tax. You can't have your cake and eat it too. ◙   He did not receive compensation from any other source, and he did not perform medical services for a fee outside of his relationship with the employer. A contractor holds himself out to others for similar work.

Our Consumer Webcasts and Blogs

Subscribe to our email list to receive information on consumer webcasts and blogs, for practical legal information in simple English, delivered to your inbox. For more professional driven information, please visit Shenkman Law to subscribe.

Ad Space