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IRS Expands Employment Tax Relief Program: |
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A Closer Look at Classifying Employees
Under the Voluntary Classification Settlement Program (VCSP), employers can voluntarily reclassify some or all of their workers from non-employees or independent contractors to employees for federal tax purposes. The VCSP offers partial relief from past federal employment tax obligations. At this time, only the IRS is offering federal tax relief. Recent program changes include:
- Employers under IRS audit (other than an employment tax audit) can apply for, and potentially qualify for VCSP.
- Employers allowed into the program will no longer be subject to a special six-year statute of limitations instead of the usual three-year limitation period that normally applies to payroll taxes.
- Until June 30, 2013, the IRS is temporarily waiving the eligibility requirement that states an employer must file Forms 1099 with respect to workers they are seeking to reclassify for the past three years.
- Clarify that a taxpayer is not eligible to participate if the taxpayer is contesting in court the classification of the class or classes of workers from a previous audit by the IRS or Department of Labor.
A taxpayer participating in the VCSP will agree to prospectively treat the class or classes of workers as employees for future tax periods. In exchange, the taxpayer will:
- Pay 10% of the employment tax liability that would have been due on compensation paid to the workers for the most recent tax year.
- Not be liable for any interest and penalties on the amount.
- Not be subject to an employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years.
However, understanding the distinction between what makes a worker an independent contractor and what makes them an employee is critical—misclassification can have significant consequences for your business.
For more information on classification, State law and consequences, click here; more information about the VCSP program can be found on the IRS website.
For specific questions about the VCSP program, please contact
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Partner of Taxation. |
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IRS Introduces Simplified Method for Claiming Home Office Deduction |
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Recently, the IRS released Revenue Procedure 2013-13, which outlines a new, simpler method for determining the home office deduction for tax years beginning on or after January 1, 2013. The new method provides taxpayers with an optional safe-harbor method to calculate the amount of the deduction for expenses for business use of part of a residence during the tax year. Taxpayers may now elect to determine their home office deduction by simply multiplying a prescribed rate by the square footage of the portion of the taxpayer’s residence used for business purposes.
The new optional deduction is limited to $1,500 per year, based on $5 per square foot for up to 300 square feet. The simplified method is not effective for 2012 tax year returns being filed during the current 2013 filing season, but will become effective for 2013 tax year returns filed in 2014.
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IRS Now Accepting Returns for Depreciation and Education Credits
As of February 10, the IRS started processing tax returns that contain Form 4562, Depreciation and Amortization. Additionally, as of February 14, the IRS began processing Form 8863, Education Credits, which is used to claim the American Opportunity Tax Credit and the Lifetime Learning Credit. The IRS will begin accepting the remaining forms affected by the American Taxpayer Relief Act of 2012 in the first week of March.
To account for most of the tax law changes enacted January 2, 2013 by the American Taxpayer Relief Act of 2012, the IRS announced that it would delay the 2013 filing season in order to update forms and complete programming and testing of its processing systems to account for the new tax law changes. The delay applies to both electronic and paper returns. While the IRS began accepting and processing most individual tax returns on January 30th, many forms will not be accepted until the first week of March (see below for a full list).
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Charitable Contribution Guidelines |
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On May 17, 2012, the Tax Court made a ruling in a case that serves as a harsh reminder of the unforgiving nature of tax laws. In Durden v. Commissioner of Internal Revenue, TC Memo 2012-140, the Tax Court disallowed a married couple’s charitable contribution deduction on the grounds that the donee church failed to provide a properly completed contemporaneous written acknowledgment of the contribution.
The Durdens claimed a $25,171 deduction on their 2007 return for contributions they made to their local community church. Following an IRS audit of the tax return, a notice was sent to the Taxpayers that disallowed their 2007 charitable deductions. Upon receipt of this notice, the Dursdens provided the auditors with canceled checks and a letter of acknowledgement from the church confirming their donations.
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Organizations planning on purchasing machinery and equipment may want to do so sooner rather than later. Unless Congress takes quick action, many of the tax breaks offered under Code Sec. 168(k) and Code Sec. 179 of the United States Internal Revenue Code will expire at the end of the year. Currently, tax codes allow for a 50% bonus first-year-depreciation allowance on property placed into service before the end of this year. After Jan. 1, 2013, there’s a good chance this allowance will no longer be available. Furthermore, the Section 179 deduction limit is expected to drop to $25,000 for property placed in service after December 31, 2012, which is a significant decrease from the current limit of $139,000.
Section 179
In order to understand why these changes are important, we must first understand the rules and regulations surrounding depreciation. Under Section 179 of the Internal Revenue Code (IRC), eligible businesses can elect to expense all of the cost of new and used qualified property acquired in the year when the assets are placed in service.To qualify for the section 179 deduction, the assets purchased must be eligible property and acquired for a business purpose.
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