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This Week in the iNews:

▲ LUNCH & LEARN ON BUSINESS VALUATIONS

▲ TAX FAIRNESS?

▲ SECOND QUARTER 2009 TAX DEVELOPMENTS

▲ INDEPENDENT CONTRACTOR VS. EMPLOYEE

▲ Lunch & Learn Series Program – Business Valuations

Please join us for our upcoming Lunch & Learn Series Program on Business Valuations at noon on Wednesday, September 16, 2009 in the Prangley Marks, LLP lunch/conference room, presented by Leslie N. Prangley, III, CPA, CVA, and Harold A. Marks, CPA, CVA.

Please contact mripley@pmcpa.com or call (616) 774-9004 to reserve your spot.

Complimentary lunch, program and parking provided.

Seating is limited.

▲ Tax Fairness?

Upper incomers continue to bear a record share of the income tax burden. The top 1% of filers paid 40.4% of all federal income taxes, up from 39.9% in the previous year, according to IRS data for 2007, the most recent year available. Yet those taxpayers made just 22.8% of the total reported adjusted gross income. The minimum level of AGI needed to be in the top 1% hit a new high…$410,000.

The highest 5% paid 60.6% of total income tax made 37.4% of all AGI. They each had adjusted gross incomes of at least $160,000. The top 10% of filers, those who had AGI’s of $113,000 or higher, bore 71.2% of the overall tax burden, while garnering slightly more than 48% of the total adjusted gross income.

The bottom 50% of all filers paid just 2.9% of the total income tax bill. Their share is so low because Social Security taxes are not included in the figures and because many of them get substantial tax relief from the earned income credit.

▲ Second Quarter 2009 Tax Development - From the Desk of John Mack, CPA, MBA

Significant tax activity occurred in the second quarter of 2009. If you think any of these items may affect your 2009 income taxes, call us for a more detailed explanation of how you can benefit:

Some of these are:

- Making work pay credit

-First-time homebuyer credit

- Motor vehicle sales tax deductions

- Convenience fee for the tax payments

- COBRA health insurance premium assistance

- Pending tax legislation

- International reforms

- Vehicle depreciation dollar limits

- Cell phones – employer provided

- Net operating loss carry-back

- 401(k)/ 403(b) contributions

- Life insurance settlements

- Tax evasion and foreign accounts

▲ Independent Contractor vs. Employee

Understanding the difference between an employee and an independent contractor is very important. If you are an employer, you are required to withhold and contribute a matching amount of FICA and Medicare taxes from your employee's income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC. Failing to make the right classification could cost you money.

If you have workers who make substantial financial investments in tools, equipment, a place to work, or undertake some entrepreneurial risks, they are probably independent contractors. However, when you control and direct the workers who perform services for you as to the end result and how it will be accomplished, you are probably involved in an employer-employee relationship.

Unless there is a reasonable basis for treating your employees as independent contractors, failing to withhold income and employment taxes from their wages can result in severe penalties and interest in addition to the back taxes owed. However, penalties for intentional worker misclassifications are harsher than they are for inadvertent mistakes.

Your benefit plan may also be in jeopardy if any eligible employees have been misclassified as independent contractors. Since these employees have been excluded from plan participation, your retirement plan may lose its tax-favored status. The problem is compounded when excluded employees seek restitution for lost benefits not only due to their exclusion from the benefit plan, but also for health coverage and other employee benefits.

Since the potential liability is considerable, it is beneficial for you to verify that your workers are properly classified. Please contact your Prangley Marks, LLP professional if you would like to discuss this issue further or have any questions.