Avoiding Retirement Plan Compensation Errors

The amount your company can contribute to your retirement plan and deduct for federal income-tax purposes generally depends on the amount of compensation you pay employees. Using an incorrect definition of compensation in your retirement plan can lead to costly operational failures that can affect your plan’s qualified status.

To help plan sponsors, the IRS’s website provides five tips for avoiding compensation-related plan failures:

• Review your plan document’s definition of compensation for each plan purpose
• Use the statutory definition of compensation when required
• Transmit accurate compensation data for each employee to your payroll processor and plan administrator
• Consider amending your plan to use one definition of compensation for all plan purposes
• Periodically review your plan for errors and fix them as quickly as possible using the IRS’s Employee Plans Compliance Resolution System (EPCRS)

If you have any questions or need assistance about retirement plan compensation, don’t hesitate to call Jerry Smith.

Smart On-Site Logistics

Efficient handling of materials — from delivery to unloading, storage, and on-site movement — is critical to a properly functioning construction site. There are also financial and safety benefits to having a well-thought-out materials handling program.

A systematic approach to handling materials on a job site can reduce labor costs, help keep projects on schedule, improve work quality, and provide a safer workplace. Key goals should be to minimize the number of times materials are handled and reduce the amount of time they are stored on site.

Develop Detailed Delivery Schedules
The just-in-time delivery system in many auto plants is designed to bring materials into the factory just as they are about to be used. Your goal should be similar. Coordinate with suppliers and subcontractors to develop precise delivery schedules. Materials should arrive on the site in the sequence they are to be used.

Make sure subcontractors and suppliers understand you won’t permit storage of materials for any length of time where work is being done. By eliminating stockpiles of materials and equipment on site, you’ll improve work flow and help schedules stay on track. In addition, you enhance on-site safety since there are fewer hazards employees have to work around.

Set Up a Common Checkpoint/Entrance
On large jobs, you need a single checkpoint operated by an individual who is responsible for all access to the site. That individual can also ensure that all materials delivered to the site are scheduled for arrival that day and time. Materials should be properly labeled, and the work areas where the materials are to be used should be clearly identified.

Coordinate Hoist- and Crane-use Schedules
Be sure to carefully schedule the use of hoisting equipment to unload and position materials. You have to be rigorous with the time you allot to each delivery. If a delivery doesn’t reach your site as scheduled, the late delivery will probably have to wait until other scheduled hoist activities are completed.

Allot Specific Times for Each Stage of Work
All subcontractors working on a project have to agree up front that they will have the required number of craftsmen and tools/equipment available at a scheduled time to complete their part of the project. When their part of the project is completed, the subcontractors must agree to leave their area cleared of all debris and ready for the next crew and stage of the project.

Getting materials handling right is a profit issue. It requires time and effort on your part and the cooperation of those who work with you, but it can help add to your bottom line in the long run.
A systematic approach to handling materials on a job site can reduce labor costs, help keep projects on schedule, improve work quality, and provide a safer workplace.

IRS and Independent Contractor Misclassification

Companies that misclassify employees as independent contractors could have the IRS demanding unpaid payroll taxes. The IRS looks at three broad categories in determining whether a worker should be classified as an employee or an independent contractor. The categories are:

Behavioral Control
These are facts that illustrate whether a company has the right to direct or control how a worker performs a specific task, including:
Instructions
Training

If a company has the authority to tell the workers what jobs they were to do and how and when they were to perform that work, these are factors that indicate employee status.

Financial Control
These are facts that illustrate whether a company has the right to direct or control how the business aspects of the worker’s activities are conducted, including:
Which party invests in work facilities used by the individual
Unreimbursed expenses
Method of payment
Opportunity for the worker to realize a profit or loss
Services available to the relevant market

Example: If the company has the right to fire the workers, who are an integral part of its business, and the workers have no opportunity for profit or loss, the factors favor employee status not contractor status. Even though the workers are engaged on a per-job basis and are free to work elsewhere, the IRS has ruled they are employees not contractors in previous cases.

Relationship of the Parties
An independent contractor’s services are typically for separate and distinct projects. However, employees also may be hired on a seasonal or per-project basis. Factors that show how the worker and business perceive their relationship include the permanency of the relationship, the existence of a written contract, the provision of employee benefits, and whether the services provided are considered a key activity of the business.

Contact Us
The IRS looks at three broad categories in determining whether a worker should be classified as an employee or an independent contractor. If you need help in ensuring that your company correctly classifies employees and independent contractors, please contact us.

Smart Strategies for Reducing Payroll Taxes

Can employers reduce their payroll taxes without shedding employees? It may be possible if you implement certain strategies that can trim your tax burdens and boost your balance sheet.

Tax-savings strategies
Employers must pay Social Security, Medicare and federal unemployment taxes, as well as state unemployment tax in most states, on their employees’ wages. Collectively, these are called payroll taxes, and they can take a big bite out of employers’ pocketbooks.

To reduce your company’s payroll tax burden, consider these strategies:
Offer tax-exempt fringe benefits instead of more money
Even though you may want to reward employees with bonuses or raises, consider tax-exempt fringe benefits instead. You can deduct the cost of the benefits just as you would wages or bonuses, but you won’t owe payroll taxes on them. Employees also won’t owe income or payroll taxes on the benefits, and because they might otherwise have to buy these services with their after-tax wages, fringe benefits can also help their dollars go further.

Examples of tax-exempt fringe benefits include health benefits, education assistance, dependent care assistance, group term-life insurance, certain meals on the business’s premises and retirement planning services. Dollar limits and exceptions apply to some benefits, so consult your tax advisor before launching a benefits program.

Establish an accountable plan for employee reimbursements
If you reimburse workers for mileage, tools or other job-related expenses, those payments generally are subject to payroll taxes. But by establishing an accountable plan, you can avoid owing payroll taxes on those reimbursements (plus they’ll be excluded from employees’ taxable income).

Expenses need to have a business connection to be included in an accountable plan. Employees also need to provide you with proper documentation for each expense, generally including an expense report and a receipt, within 60 days of incurring it.

You can use the accountable plan to pay employees in advance for upcoming expenses, but employees must return any excess reimbursements within a reasonable timeframe, typically 120 days.

Use independent contractors when possible
Bringing on independent contractors can save you payroll taxes because these workers are responsible for their own taxes. You must be wary, however, of the pitfalls that come with misclassifying workers. If you have too much control over a worker, the IRS will consider the worker an employee, even if you’ve treated the worker as an independent contractor. This could result in back taxes, interest and penalties.

Typically, a worker who completes work related to your core business is considered an employee. Employers often use independent contractors for maintenance, sales or other noncore functions.

Before engaging potential independent contractors for a particular task, evaluate the degree of control you’ll have over the workers and look at how other employers classify workers who do the same work. If independent contractor status is warranted, have workers sign an agreement stating they are independent contractors and responsible for their own taxes, and issue a Form 1099 to each one.

Ease the tax pain
In addition to these strategies, discuss with your tax advisor additional ways to ease the payroll tax burden. Payroll taxes are a part of doing business, but with a little planning they can be much less painful.

Talk to Us
If you want to explore tax-saving options for your company, our firm can help make your plan more realistic and effective. Please contact us to discuss how we can help.
For more tax-related articles, explore our Tax Planning Guide.

Make a 2013 IRA Contribution… Still

Tax-advantaged retirement plans allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years. So it’s a good idea to use up as much of your annual limits as possible.

Have you maxed out your 2013 limits? While it’s too late to add to your 2013 401(k) contributions, there’s still time to make 2013 IRA contributions. The deadline is April 15, 2014. The limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on Dec. 31, 2013).
A traditional IRA contribution also might provide some savings on your 2013 tax bill. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — your traditional IRA contribution is fully deductible on your 2013 tax return.

If you don’t qualify for a deductible traditional IRA contribution, consider making a Roth IRA or nondeductible traditional IRA contribution. We can help you determine what makes sense for you.

Can I claim my elderly parent as a dependent?

For you to deduct up to $3,900 on your 2013 tax return under the adult-dependent exemption, in most cases the parent must have less gross income for the tax year than the exemption amount. Generally Social Security is excluded, but payments from dividends, interest and retirement plans are included.
In addition, you must have contributed more than 50% of your parent’s financial support. If the parent lived with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence.

If you shared caregiving duties with a sibling and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the exemption.

The adult-dependent exemption is just one tax break that you may be able to employ to ease the financial burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others.

If you have questions, please let us know.

IRS Tax Filing Deadlines: Be On Time

If you still file a paper return, it is important to know the IRS’s “timely mailed equals timely filed” rule: If your tax return is due April 15, it is considered timely filed if it is postmarked by midnight on April 15. But just because you drop your return in a mailbox on the 15th does not mean you are safe.

Consider this example: On April 15, Susan mails her federal tax return with a payment. The post office loses the envelope, and, by the time Susan realizes what has happened and re-files, two months have passed. She is hit with failure-to-file and failure-to-pay penalties totaling $1,000.

To avoid this risk, use certified or registered mail. Alternatively, you can use one of the private delivery services designated by the IRS to comply with the timely filing rule, such as DHL Same Day service. FedEx and UPS also offer a variety of options that pass muster with the IRS. But beware: If you use an unauthorized delivery service — such as FedEx Express Saver or UPS Ground — your document isn’t “filed” until the IRS receives it.

If you have not filed your return yet and are concerned about meeting the deadline, another option is to file for an extension. Doing so has both pluses and minuses, depending on your situation. Please contact us if you have questions about what you should do to avoid penalties for failing to file or pay.