Payroll or independent contractor that is the question.

When you own a business and you hire Bob the Builder to do repair work for you at your business he is not an employee right? Maybe yes maybe not. We have had several recent audits by the State of Nevada on the State Unemployment (SUTA). What the Nevada State auditors are looking for is the invoice that goes with the payment. If you made a check out to Bob Jones the individual that owns Bob the Builder you need an invoice that matches exactly to the check. An invoice for $1,000 and a check for $750 don't match up and can create a problem if you don't have another check for $250.

The state auditors have taken the stand that if you write a check to Bob Jones the individual and don't have an invoice or the invoice doesn't match the check then Bob Jones is your employee. As your employee he is required to be covered under your unemployment premium and on your modified business tax. You may consider that payment was to an independent contractor or as casual labor but the state is not accepting that position.

Once the state shares that information with the IRS they will be the next auditors at your door. A number of issues like this were not audited in the past. Now with the state and federal government trying to increase revenues they are looking at every issue.

If you look at the Nevada state laws a person is an employee as soon as they start to work for you. If you hire someone and they don't work out and you pay them as casual labor the State of Nevada says they are an employee, they go on payroll and you pay all the related taxes. The IRS says the same thing. Neither really enforced that rule in the past. Now they both are.

The message in all this is times have changed and it is expensive to not play by the rules.

New from IRS for 2011 tax filing season.

The IRS has changed their processing of tax returns for the 2011 tax returns. The first and most important is the IRS will process tax returns each day. Previously they only processed returns on Thursdays. So if we prepared and e-filed your return on Friday it was on hold at the IRS for a week. When it was processed if there was a correction that was needed we had already lost a week in processing. Now the IRS will process every day and the refunds will be direct deposited in 3 to 5 days.

Second big issue is the Schedule E for rental properties. Anyone paid $600 or more over the year must receive a 1099. That includes the yard maintenance people, the pool people, plumber, painters, home handyman, attorney or tax preparer. If you don't issue a 1099 you don't get the write off on your tax return. Plus you may be subject to 2 penalties. One penalty for not giving the individual their 1099 and a seperate penalty for not sending the copy to the IRS.

Thats like having a question marked wrong on a test for not having the correct answer and marked wrong again for having the wrong answer. If you did not have a 1099 for the individual how would you have a copy to send to the IRS?

If you don't have the name address and social security number of everyone you pay for maintenance, repairs and services be sure to get them now. KatTax can prepare your 1099s.