Tax Savings Tips

IRS audits can result in reclassification of workers and collection of back taxes will now be handled by collection agencies. Learn some tax saving tips.

by Steve Shapiro

Beating Penalties for Misclassifying W-2 Workers as 1099 Contractors One potential business tax reduction strategy is to hire independent contractors instead of employees. If a worker’s classification fits within the tax law, it’s a legitimate strategy that can save you thousands of dollars. But sometimes the classification isn’t clear-cut. You may think you have the independent contractor classification correct, but when the IRS does the audit, you could learn the IRS considers those contactors W-2 employees. This can cost you a huge sum of money in back payroll taxes.

The law requires that you withhold taxes on the wages you pay to your employees. If you don’t, you are liable for the withholding and FICA (i.e., Social Security and Medicare) taxes that you neglected to remit to the IRS. Thus, if the IRS reclassifies your independent contractors as W-2 employees, you are on the hook for the taxes you should have taken from the paychecks.

But you have a way out of a big chunk of this potential tax bill: If you can show the worker paid the taxes, then you aren’t liable for them. This rule prevents the taxes from being paid twice. For this favorable treatment, which is on a worker-by-worker basis, you need the worker to sign IRS Form 4669, Statement of Payments Received.

Private Debt Collectors Are Coming to a Doorstep Near You A large chunk of overdue tax bills has sat idly uncollected due to the IRS’s lack of resources. But that’s about to change, thanks to some debt collectors that the IRS hired.

As part of the Fixing America’s Surface Transportation (FAST) Act, lawmakers wrote a provision that requires the IRS to outsource inactive tax receivables to private collection agencies. About nine months ago, the IRS announced it had contracted with four private collection agencies to operate the program.

And then, a little over two months ago, the IRS released new Internal Revenue Manual sections putting in place the procedures for this new program. This means that delinquent taxpayers could now receive a Notice CP40 telling them that the IRS assigned their case to a private collection agency

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Steve Shapiro grew up in a family owned business and understands the trials and tribulations of the small business owner.  He has extensive experience in credit, planning and helping people manage debt which led him to the tax industry. Call today for a FREE Consultation. 888.490.9744 or visit www.steveshapiroea.com.