Accounting & Business Partners https://accountingandbusinesspartners.com Your Accounting Department Mon, 23 Dec 2019 18:29:22 +0000 en-US hourly 1 https://wordpress.org/?v=5.6.2 https://secureservercdn.net/198.71.233.179/npe.9f9.myftpupload.com/wp-content/uploads/2019/05/cropped-favicon-1-32x32.png Accounting & Business Partners https://accountingandbusinesspartners.com 32 32 Starting a Business vs. Buying a Franchise https://accountingandbusinesspartners.com/2019/01/starting-a-business-vs-buying-a-franchise/ Sat, 05 Jan 2019 05:30:28 +0000 https://accountingandbusinesspartners.com/?p=18043

When you are thinking about branching out in the business world, a lot of future owners are faced with one decision. Is it better to buy into an already established franchise or start your own business?
To answer this question, you have to know what your goals are as an owner. Both being a business owner or franchise owner have positive and negatives.

Take a look at the differences between starting a business vs. buying a franchise:

Business Owner

The idea of opening a brand new business can be intimidating for some people. Others thrive on the idea of having their hands in every detail. The decision to open your own business is best for those who are breaking into a new field where the market is not over saturated or where the idea has not been done before.

When you open a new business, there will be so many decisions to make, from hiring a contractor to making the business plan. You are able to hire the employees that you want and can follow your own set of rules. Starting a business from scratch is best for those who want to be part of each aspect of the company. People who have the time, money and ability to be there every step of the way can get a great return. Opening a business or company is really the time for you to put all of your dreams into place and watch them come to life.

However, as amazing as starting a business from scratch sounds, there are some nerve-wracking aspects of owning and starting a business. The main reason is that you are doing it on your own. You, as the business owner, will have to make the correct decisions that will get you more customers which means you can make a profit. Choosing paint colors and light fixtures might be your breaking point, for others location or a business name might be enough to stump them for months. Besides the possibility of making the wrong decisions, all of your own money is on the line. If you make a mistake, it is solely on you.

Franchise Owner

A franchise is “a business in which the owners, or “franchisors”, sell the rights to their business logo, name, and model to third-party retail outlets, owned by independent, third-party operators, called “franchisees”. Franchises are an extremely common way of doing business.”

When you sign up with a franchise, you exchange money for everything from a business name to training your employees. The franchise is there to help you succeed! A franchised company is most often something that customers know about or have been to before. This helps get your customers in the door, helping you turn a profit!

The negative aspects to a franchise is that as you make money, you have to continue to pay a portion to the franchising company. This cuts into your bottom line. You also have very little control over major decisions in the company. Many things are not allowed when you are part of a large corporation franchise.

 

Do you know where your business is heading? To learn more about how we can simplify your accounting process, call us at 727.828.9945 to schedule your free consultation.

 

About Accounting & Business Partners

Accounting & Business Partners is a CPA firm with an efficient bookkeeping department. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

 

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Happy New Year from Accounting & Business Partners https://accountingandbusinesspartners.com/2018/12/happy-new-year-from-accounting-business-partners/ Thu, 27 Dec 2018 18:15:20 +0000 https://accountingandbusinesspartners.com/?p=17817 Approach the New Year with resolve to find the opportunities hidden in each new day! We wish you and your family a joyful, bright, healthy, prosperous and happiest new year ahead!
Happy New Year!

Do you know where your business is heading? To learn more about how we can simplify your accounting process, call us at 727.828.9945 to schedule your free consultation.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

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Happy Holidays! https://accountingandbusinesspartners.com/2018/12/happy-holidays/ Sat, 22 Dec 2018 23:30:27 +0000 https://accountingandbusinesspartners.com/?p=17804 Warmest thoughts and best wishes for a wonderful Holiday and a Happy New Year.
Have a magical holidays!

Do you know where your business is heading? To learn more about how we can simplify your accounting process, call us at 727.828.9945 to schedule your free consultation.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

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How to Protect Your Company In Case of a Disaster https://accountingandbusinesspartners.com/2018/11/how-to-protect-your-company-in-case-of-a-disaster/ Fri, 23 Nov 2018 11:22:04 +0000 https://accountingandbusinesspartners.com/?p=17490 What steps do you have in place to protect your business in case of a disaster? 

Many businesses are not ready for a major storm, burst pipes, computer malfunctions or data loss… or shaking earthquakes, blazing fires, and flash floods! Because entrepreneurs aren’t prepared, many businesses are not able to reopen when their business is damaged. It doesn’t take much more than a slight loss of inventory or data to impact a small business. Some business owners simply don’t think about the risk of disasters and others don’t think that it is necessary to come up with a plan.

No one really thinks that it will happen to them.
Sure, your company is your baby. When you first set up shop, you put all of your time, talent, and money into making your business succeed. Since you put so much effort into launching and maintaining a small business, it is surprising that more owners don’t take the right steps to protect their company.
In order to protect your company, you must have a plan in store that is customized for your business.

1. Protect the most important things, try cloud based backups.

Inventory, office furniture, and computers can be can be tough financially to replace, but nothing is more valuable than your financial figures. In order to protect sensitive information, talk to your IT professional about putting your backups and financial data on a cloud-based system.

What is the cloud and what can it do for me?
The cloud is a network of interconnected storage systems and servers that are located offsite. The information that gets stored in the cloud is always available 24/7 and would not be affected by any disasters at your physical work location.
How do I use the cloud?
To use a cloud-based system, enter information on your business device, like a desktop computer or smartphone, and it is safely stored in the cloud. It is easy to use and backup information to cloud-based interfaces, almost anyone can use it.

2. Have a relocation plan

You might choose to work virtually or to set up shop at a nearby location while damages are being repaired. No matter what works best for your company, you must have a plan. Being prepared and organized for these type of events can lead to a smooth transition that can help you get your business back on its feet sooner.

3. Create a plan of communication

Things can start to get crazy during emergencies! Make sure to set up a plan of communication before disaster hits to maintain a little bit of calm in a busy time. Use tools such as a “calling tree” or social media to help spread word during disasters.
• Make sure you know what your insurance covers
Take time to talk to your insurance agent to verify your business is covered in a disaster. Sometimes business owners think that their insurance coverage will protect them, simply to find out that their exact policy didn’t cover a specific disaster.

Do you know where your business is heading? To learn more about how we can simplify your accounting process, call us at 727.828.9945 to schedule your free consultation.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

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Why Virtual Accounting Is Better For Your Business https://accountingandbusinesspartners.com/2018/10/why-virtual-accounting-is-better-for-your-business/ Fri, 12 Oct 2018 14:14:51 +0000 https://accountingandbusinesspartners.com/?p=16855 Best Virtual Accounting Services In Tampa Bay

Virtual accounting or outsourced accounting may sound like a situation where you ship jobs far away while losing all control of your finances. The truth is, many virtual accountants these days are folks that live in your own community, not across an ocean and in another country. Plus, data from the Association of Chartered Certified Accountants (ACCA) concluded that while businesses believed that they would lose control by using outsourced finance and accounting services, they actually gained control and a host of other benefits like cost savings and an increase in quality due to benchmarks being applied to performance and more.

Simplifying and standardizing F&A processes is a key characteristic of well-run companies… Outsourcing outcomes are more likely to use clear metrics, such as savings and service-level achievement. That allows a company to have continuous improvement in their accounting and finance operation, while the company itself can focus on its core competencies.
~ Forbes, The Benefits Of Outsourcing Finance And Accounting

Scores of small businesses have found just how beneficial hiring a virtual accounting firm can be. Ready to get started? By working with Accounting and Business Partners, you will not only increase your revenue, you will also gain the freedom to concentrate on other areas – like generating new customers and growing your business. To learn more about how we can help your business thrive, call us at 727.828.9945 for more information.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

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How to Manage Profit and Loss https://accountingandbusinesspartners.com/2018/09/how-to-manage-profit-loss/ Wed, 26 Sep 2018 13:54:03 +0000 https://accountingandbusinesspartners.com/?p=17513 In order for a business to be successful and to provide better products or services, it must be able to make a profit. Of course, any business that has a profit is sure to have a loss, but the main goal is to keep the profit higher than the loss.

So what is the profit and loss in a company? According to Intuit “A profit is an amount of money that is more than its original price while a loss is an amount of money that is less than its original price.” Or in layman’s terms, profit is making money while the loss is losing money. In order to properly manage your business’s profit and loss, you must be able to track how much income is received and how much it costs to run your business.

Follow these tips below and get on the path to managing your business’s profit and loss the right way!

Consider

As the owner of business, you must sit down with your bookkeeper or your accounting firm to compare your current profit and loss statements to previous years. Ideally, you should go back a number of years to compare, but if you are a new business, you may not have this much data.

Prepare

Your bookkeeper or accounting firm should be able to give you an income statement. Consequently, this statement should allos you to view the profit and loss between the previous years. Keep in mind that some things will naturally raise in price due to inflation. Your cost of rent may not be the same it was 2 years ago, and if your sales have increased your employee costs may have raised as well.

Explain

As a business owner, who does not have a knack or passion for accounting, may not be able to understand the information off the bat. The person that is providing this data, bookkeeper or accountant, should be able to explain it thoroughly to you. They should also be able to answer any questions that you have regarding the information they provide.

Review Your Profit and Loss

After you have met with your accounting firm or in house bookkeeper, you should discuss and review this data with an analyst or advisor. Keep in mind that even if you are managing your finances well, your company may still not be hitting the desired mark. At this point your advisor can help you determine how to save money and where to cut costs.

Managing all of your company’s finances on your own is difficult. It can lead to some stressful and exhausting nights spend at the computer which takes away from your real goal, your company. Our customized solutions can save your time so your business can grow. Put your effort where your passion lies!

Do you know where your business is heading? To learn more about how we can simplify your accounting process, call us at 727.828.9945 to schedule your free consultation.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

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How to hire an accountant https://accountingandbusinesspartners.com/2018/09/how-to-hire-an-accountant/ Wed, 12 Sep 2018 13:51:50 +0000 https://accountingandbusinesspartners.com/?p=16938 From the loan application to a tax audit and planning, an accountant will make running your business easier. However, you should know that this doesn’t mean that you should hire an accountant without actually learning more about them and their services.

Every dollar is important for your business, so an accountant can potentially be your company’s financial partner for life and give you more knowledge on how you can handle your business or company finances.

Before you decide to hire an accountant, you need to understand the key areas of expertise that they specialize in for your business needs.

Business Advisory Services

Accountants will have an intimate knowledge of your business, its financial statements, and your current tax situation. They can guide and advise you on running your business, as well as insurance, expanding operating costs, etc.

Bookkeeping

This is the basic job of an accountant. An accountant will set up and run accounting and bookkeeping systems. With correct bookkeeping, you can evaluate the profitability of your business,  keep track of your budget, monitor expenses, and produce tax returns and financial statements.

Auditing

An often overlooked area until something is wrong or your business needs a loan. Your accountants should know the basic aspects of auditing that range from preparing financial statements to the actual auditing.

Tax Advisors

This one is a no-brainer and a must-have. Your accountant will assist you with any tax related problems, preparation, compliance, and filing. 

Hiring an accountant is a task that requires time, so it’s best that you never rush the process. Take your time and hire one only when you feel they are a fit for you and your business.

Need some help with your accounting practices? By working with Accounting and Business Partners, you will not only be able to simplify your acounting process, you will also gain the freedom to concentrate on other areas – like generating new customers and growing your business. To learn more about how we can help your business thrive, call us at 727.828.9945 for more information.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

[/vc_column_text][vc_empty_space height=”20px”][/vc_column][/vc_row][vc_row row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css_animation=””][vc_column][vc_empty_space][/vc_column][/vc_row]

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What Income is Taxable? https://accountingandbusinesspartners.com/2018/09/what-income-is-taxable/ Thu, 06 Sep 2018 22:44:23 +0000 http://abp.innovativefront.com/?p=15777 Are you wondering if there’s a hard and fast rule about what income is taxable and what income is not taxable? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there’s more to it than that.

Taxable income includes any money you receive, such as wages and tips, but it can also include non-cash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Nontaxable Income

Here are some types of income that are usually not taxable:

  • Gifts and inheritances
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

In addition, some types of income are not taxable except under certain conditions, including:

  • Life insurance proceeds paid to you because of the death of the insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
  • Income from a qualified scholarship is normally not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts you use for room and board are taxable.
  • If you received a state or local income tax refund, the amount may be taxable. You should have received a 2014 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.

Important Reminders about Tip Income

If you get tips on the job from customers, that income is subject to taxes. Here’s what you should keep in mind when it comes to receiving tips on the job:

  • Tips are taxable. You must pay federal income tax on any tips you receive. The value of non-cash tips, such as tickets, passes or other items of value are also subject to income tax.
  • Include all tips on your income tax return. You must include the total of all tips you received during the year on your income tax return. This includes tips directly from customers, tips added to credit cards and your share of tips received under a tip-splitting agreement with other employees.
  • Report tips to your employer. If you receive $20 or more in tips in any one month, from any one job, you must report your tips for that month to your employer. The report should only include cash, check, debit and credit card tips you receive. Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips. Do not report the value of any noncash tips to your employer.
  • Keep a daily log of tips. Use the Employee’s Daily Record of Tips and Report to Employer (IRS Publication 1244), to record your tips.

Bartering Income is Taxable

Bartering is the trading of one product or service for another. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Typically, there is no exchange of cash.

If you barter, the value of products or services from bartering is taxable income. Here are four facts about bartering that you should be aware of:

1. Barter exchanges. A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.

2. Bartering income. Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get.

3. Tax implications. Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules. How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.

If you have any questions about taxable and nontaxable income, don’t hesitate to contact the office.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

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Claiming an Elderly Parent as a Dependent https://accountingandbusinesspartners.com/2018/08/claiming-an-elderly-parent-as-a-dependent/ Wed, 29 Aug 2018 16:27:56 +0000 http://abp.innovativefront.com/?p=15791 Are you taking care of an elderly parent or relative? According to the U.S. Census Bureau, there were 44.7 million people age 65 and older in the United States in 2013, more than 15 percent of the total population.

Whether it’s driving to doctor appointments, paying for nursing home care or medical expenses, or handling their personal finances, dealing with an elderly parent or relative can be emotionally and financially draining, especially when you are taking care of your own family as well.

Fortunately, there is some good news: You may be able to claim your elderly relative as a dependent come tax time, as long as you meet certain criteria. Here’s what you should know about claiming an elderly parent or relative as a dependent:

Who Qualifies as a Dependent?

The IRS defines a dependent as a qualifying child or relative. A qualifying relative can be your mother, father, grandparent, stepmother, stepfather, mother-in-law, or father-in-law, for example, and can be any age.

There are four tests that must be met in order for a person to be your qualifying relative: not a qualifying child test, member of household or relationship test, gross income test, and support test.

Not a Qualifying Child

Your parent (or relative) cannot be claimed as a qualifying child on anyone else’s tax return.

Residency

He or she must be U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico; however, a parent or relative doesn’t have to live with you in order to qualify as a dependent.

If your qualifying parent or relative does live with you however, you may be able to deduct a percentage of your mortgage, utilities and other expenses when you figure out the amount of money you contribute to his or her support.

Income

To qualify as a dependent, income cannot exceed the personal exemption amount, which in 2015 is $4,000. In addition, your parent or relative, if married, cannot file a joint tax return with his or her spouse unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.

Support

You must provide more than half of a parent’s total support for the year such as costs for food, housing, medical care, transportation and other necessities.

Claiming the Dependent Care Credit

You may be able to claim the child and dependent care credit if you paid work-related expenses for the care of a qualifying individual. The credit is generally a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.

In addition, expenses you paid for the care of a disabled dependent may also qualify for a medical deduction (see next section). If this is the case, you must choose to take either the itemized deduction or the dependent care credit. You cannot take both.

Claiming the Medical Deduction

If you claim the deduction for medical expenses, you still must provide more than half your parent’s support; however, your parent doesn’t have to meet the income test.

The deduction is limited to medical expenses that exceed 10 percent of your adjusted gross income (7.5 percent if either you or your spouse was born before January 2, 1949), and you can include your own unreimbursed medical expenses when calculating the total amount. If, for example, your parent is in a nursing home or assisted-living facility. Any medical expenses you paid on behalf of your parent are counted toward the 10 percent figure. Food or other amenities, however, are not considered medical expenses.

What if you share caregiving responsibilities?

If you share caregiving responsibilities with a sibling or other relative, only one of you–the one proving more than 50 percent of the support–can claim the dependent. Be sure to discuss who is going to claim the dependent in advance to avoid running into trouble with the IRS if both of you claim the dependent on your respective tax returns.

Sometimes, however, neither caregiver pays more than 50 percent. In that case, you’ll need to fill out IRS Form 2120, Multiple Support Declaration, as long as you and your sibling both provide at least 10 percent of the support towards taking care of your parent.

The tax rules for claiming an elderly parent or relative are complex. If you have any questions, help is just a phone call away.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

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Paying Taxes on Household Helpers https://accountingandbusinesspartners.com/2018/08/paying-taxes-on-household-helpers/ Tue, 21 Aug 2018 13:56:07 +0000 http://abp.innovativefront.com/?p=15785 If you employ someone to work for you around your house, it is important to consider the tax implications of this arrangement. While many people disregard the need to pay taxes on household employees, they do so at the risk of paying stiff tax penalties down the road.

As you will see, the rules for hiring household help are quite complex, even for a relatively minor employee, and a mistake can bring on a tax headache that most of us would prefer to avoid.

Commonly referred to as the “nanny tax”, these rules apply to you only if (1) you pay someone for household work and (2) that worker is your employee.

  1. Household work is work that is performed in or around your home by baby-sitters, nannies, health aides, private nurses, maids, caretakers, yard workers, and similar domestic workers.A household worker is your employee if you control not only what work is done, but how it is done.

Who Is a Household Employee?

If a worker is your employee, it does not matter whether the work is full-time or part-time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily or weekly basis or by the job.

If the worker controls how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.

Also, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

Example: You pay Betty to babysit your child and do light housework four days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household employee.

Example: You pay John to care for your lawn. John also offers lawn care services to other homeowners in your neighborhood. He provides his own tools and supplies, and he hires and pays any helpers he needs. Neither John nor his helpers are your household employees.

Can Your Employee Legally Work in the United States?

When you hire a household employee to work for you on a regular basis, he or she must complete USCIS Form I-9 Employment Eligibility Verification. It is your responsibility to verify that the employee is either a U.S. citizen or an alien who can legally work and then complete the employer part of the form. It is unlawful for you to knowingly hire or continue to employ a person who cannot legally work in the United States.

Keep the completed form for your records. Do not return the form to the U.S. Citizenship and Immigration Services (USCIS).

Tip: Two copies of Form I-9 are contained in the UCIS Employer Handbook. Visit the USCIS website or call 800-767-1833 to order the handbook, additional copies of the form, or to get more information, or give us a call.

Do You Need to Pay Employment Taxes?

If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax or both. Refer to this table for details:

If you…

Then you need to…

Will pay cash wages of $1,900 or more in 2015 to any one household employee.Do not count wages you pay to:

  • your spouse,
  • your child under age 21,
  • your parent, or
  • any employee under age 18 during 2015.
Withhold and pay Social Security and Medicare taxes.

  • The combined taxes are generally 15.3% of cash wages.
  • Your employee’s share is 7.65%.

(You can choose to pay the employee’s share yourself and not withhold it.)

  • Your share is 7.65%.
Have paid or will pay total cash wages of $1,000 or more in any calendar quarter of 2014 or 2015 to household employees.Do not count wages you pay to:

  • your spouse,
  • your child under age 21, or
  • your parent.
Pay federal unemployment tax.

  • The tax is 6.0% of cash wages.
  • Wages over $7,000 a year per employee are not taxed.
  • You also may owe state unemployment tax.

If neither of these two contingencies applies, you do not need to pay any federal unemployment taxes. But you may still need to pay state unemployment taxes (see below).

You do not need to withhold federal income tax from your household employee’s wages. But if your employee asks you to withhold it, you can choose to do so.

Tip: If your household employee cares for your dependent that is under the age of 13 or your spouse or dependent that is not capable of self-care, so that you can work, you may be able to take an income tax credit of up to 35 percent (or $1,050) of your expenses for each qualifying dependent. If you can take the credit, then you can include your share of the federal and state employment taxes you pay, as well as the employee’s wages, in your qualifying expenses.

State Unemployment Taxes

Please contact us if you’re not sure whether you need to pay state unemployment tax for your household employee. We’ll also help you figure out whether you need to pay or collect other state employment taxes or carry workers’ compensation insurance.

Note: If you do not need to pay Social Security, Medicare, or federal unemployment tax and do not choose to withhold federal income tax, the rest of this article does not apply to you.

Social Security and Medicare Taxes

Social Security taxes pays for old-age, survivor, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance.

Both you and your household employee may owe Social Security and Medicare taxes. Your share is 7.65 percent (6.2 percent for Social Security tax and 1.45 percent for Medicare tax) of the employee’s Social Security and Medicare wages. Your employee’s share is 6.2 percent for Social Security tax and 1.45 percent for Medicare tax.

You are responsible for payment of your employee’s share of the taxes as well as your own. You can either withhold your employee’s share from the employee’s wages or pay it from your own funds. Note the limits in the table above.

Wages Not Counted

Do not count wages you pay to any of the following individuals as Social Security and Medicare wages:

    1. Your spouse.
    2. Your child who is under age 21.
    3. Your parent.

Note: However, you should count wages to your parent if they are caring for your child and both of the following apply: (a) your child lives with you and is either under age 18 or has a physical or mental condition that requires the personal care of an adult for at least four continuous weeks in a calendar quarter, and (b) you are divorced and have not remarried, or you are a widow or widower, or you are married to and living with a person whose physical or mental condition prevents him or her from caring for your child for at least four continuous weeks in a calendar quarter.

    1. An employee who is under age 18 at any time during the year.

Note: However, you should count these wages to an employee under 18 if providing household services is the employee’s principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.

Also, if your employee’s Social Security and Medicare wages reach $118,500 in 2015 ($117,000 in 2014), then do not count any wages you pay that employee during the rest of the year as Social Security wages to figure Social Security tax. You should, however, continue to count the employee’s cash wages as Medicare wages to figure Medicare tax. You figure federal income tax withholding on both cash and non-cash wages (based on their value), but do not count as wages any of the following items:

  • Meals provided at your home for your convenience.
  • Lodging provided at your home for your convenience and as a condition of employment.
  • Up to $130 a month in 2015 for transit passes that you give your employee or, in some cases, for cash reimbursement you make for the amount your employee pays to commute to your home by public transit. A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train.
  • Up to $250 a month in 2015 to reimburse your employee for the cost of parking at or near your home or at or near a location from which your employee commutes to your home.

As you can see, tax considerations for household employees are complex; therefore, professional tax guidance is highly recommended. This is definitely an area where it’s better to be safe than sorry. If you have any questions at all, please call.

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About Accounting & Business Partners

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Accounting & Business Partners is a CPA firm with an accurate, consistent and timely bookkeeping, payroll and tax departments. We believe that success lies in numbers. However, the drive behind the numbers is what truly matters. That’s why we look beyond the financial statements.

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