PDA

View Full Version : This changes everything


DFW Area Landscaper
09-27-2004, 09:31 AM
Ever since the back injury, I've been leaning 90% towards exiting the business.

Last night, I was laying in bed, unable to sleep. I was thinking about the wage taxes and how they are just killing me.

So I did a Yahoo seach under misclassified workers. I found this.

http://www.jbartram.com/Relief_Programs_When_Workers_Are_Misclassified.html

It says that as long as you have always treated your workers as subcontractors and you have a "reasonable basis" for treating the workers as subcontractors, you can do it.

A "reasonable basis" for not treating workers as employees automatically exists if:A significant segment of the industry your business is in has historically treated similarly situated workers as independent contractors.

I've treated my employees as employees, thanks in large part to time I've spent on LawnSite. It now appears that I've been making a very, very costly mistake. I may very well be the only landscaper in my area who is paying emplyment taxes on workers wages.

If I stay in the business, I'm thinking I can just re-incorporate and hire sub-contractors next year. I'll talk to the accountant about it.

It appears the green industry has an exemption from paying employment taxes.

Later,
DFW Area Landscaper

MMLawn
09-27-2004, 10:12 AM
It appears the green industry has an exemption from paying employment taxes.

Later,
DFW Area Landscaper


That is without a doubt the must idiotic statement and interperation of IRS Regs I have ever heard!

Go ahead and try it. If you do make sure you let us know what Federal Jail Cell you are in.

I suggest you read the extenstive article in Turf this month on this very subject as it is correct.

Fantasy Lawns
09-27-2004, 10:38 AM
You weren't laying in bed thinking .... you were dreaming

941's, 940's n UT-6's can't be putting you out of business .... so much else is in the mix ... just overhead cost is the easiest slice of the pie to get at

Running a business is NOT for every one .... I wish I was a pro Golfer ....but my slice keeps me as a weekend warrior .... point is .... we gotta go where the heart is .... your not mowing grass or trimming hedges ..... your running a business which happens to provide the service of mowing n trimming

Ya kinda just feel it ... My mom's Dad was a business man n when I was a young teen I visited his Ranch in Arz. for the summer .... wanted to learn the business .... so he made me clean trailers, road ways n the sewer pond fore the summer .... great lesson ..... as Judge Smiles said "Billy the world needs ditch diggers too"

Good Luck in your thinking

Gravely_Man
09-27-2004, 11:03 AM
Contact your accountant or your tax attorney prior to doing anything. It is best to get accurate information prior to make a big decision like this.


Gravely_Man

Turf Medic
09-27-2004, 11:10 AM
This will not fly, if you even tell the guys what time you want them to start work you lose the sub-contractor status. I had a friend do this several years ago, he hired a tax lawyer, set up a corporation for each of his employees. Worked the program for a couple of years, but then the IRS decided to audit. Ended up in court took a couple years, the court found that since he gave the times of day to perform the work, and set the schedule for the work to be done, he had employees not sub-contractors. Now all in all this wouldn't be too bad, he didn't end up in jail. However he did have to go back and pay to the IRS the amount of money he should have been withholding from the employees, taxes, medicare, social security etc. They made him pay back not only his share but also the employees share. Then the fined him, I think the fine was about double what the monies he was supposed to send in, plus interest. He now has an ok job, they seized his business and all of the equipment was put up for auction, then he made payments on the rest of the money he owed.

DFW Area Landscaper
09-27-2004, 11:21 AM
The right comes from Section 530.

This wasn't the only sight advocating the "reasonable basis" argument.

There are others:
http://www.kgkcpa.com/TaxNotes/RelProg.htm
http://www.cousinsaccounting.com/html/section_5.html

Here's a good one:

http://www.nysscpa.org/cpajournal/1999/1299/f261299a.html

The industry standard test required a business to demonstrate that a significant segment of the industry treated its workers doing similar work as independent contractors. Because industry practices were not quantified by statute, this test became a matter of contention between the IRS and businesses. Disputes arose as to the definition and meaning of "significant segment." The Reag case (Reag vs. U.S. 92-2 USTC para. 50475) is a good example of how the courts began to rein in the IRS's ongoing attempts to attack what businesses felt were industry-standard practices. In that case, the judge held that Reag's burden of proof for establishing industry practice was at a lesser standard than the IRS claimed.

http://www.billbrock.net/Documents/independentcontractor.html

Here's one from the US Department of Treasury. The entire green industry, in my opinion, is exempt from employment taxes per Section 530. It's very easy, at least in my area, to prove the a significant segment of the green industry is classifying it's workers as sub-contractors. Heck, when I tell other LCO's and customers that I'm paying social security taxes, unemployment taxes, overtime wages, workers comp insurance and unemployment taxes, they all think I'm absolutely crazy. Even my accountant thinks I'm nuts for doing it this way.

Here are some more sources that advocate the reasonable basis:

http://www.ustreas.gov/press/releases/rr1727.html

http://www.taxfables.com/Columns/Employer/Distinction_Between.html
http://www.suffolklaw.com/BusinessLawIndependantContractors.htm

Later,
DFW Area Landscaper

Hawkeye5
09-27-2004, 12:02 PM
The IRS will eat you alive if they audit. They are employees, not sub-contractors. Getting caught by the IRS is one thing, but you will also run into a buzz saw with your workers compensation audit. Plus what happens when one of these so called sub-contractors is badly injured on the job? I'll tell ya, you (or your compensation insurance company) are going to pay big time. Home builders have been trying for decades to call employees sub-contractors and they almost always loose. Seems that somewhere on the web the IRS has published 10 questions to be used in determination of sub-contractor or employee status.

MMLawn
09-27-2004, 12:43 PM
Here's one from the US Department of Treasury. The entire green industry, in my opinion, is exempt from employment taxes per Section 530. Later,
DFW Area Landscaper


Then that is why you cut grass for a living instead of being a CPA (except when you are on this channel crying about taxes and your Comp and your non-paying customers and how bad business is :cry: ).

Quite simply as EVERYONE has told you over and over this is NOT WORK. They ARE EMPLOYEES not Sub-Contractors and that "test" is NATIONWIDE not just in your town and will not make a hill of beans anyway!

Turf Medic
09-27-2004, 01:06 PM
Hey you have my blessing, GO FOR IT, it it works it will be a test case for the rest of us to use. If it doesn't, there will be some good deals on your equipment in the next couple of years. This has got to be the last excuse you have holding you back from being a success in the green industry :rolleyes: , so give it a shot.

One thing that might screw you, since you already own a green industry business and do have employees and have paid taxes on them is the following paragraph, taken from one of your links

If a company has a reasonable basis for not treating a worker as an employee, it may be relieved from paying employment taxes for that worker. To qualify, the company must file all required federal tax returns on a basis consistent with the treatment of the worker as a non-employee. In addition, the company (or its predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977.

notice it also mentions predecessor

Fantasy Lawns
09-27-2004, 01:08 PM
These employees, workers or what ever you call em .... start sending em 1099's n see how far that will go in keeping or providing motivation .... you think this will fly .... fly it n let us know next year ..... let us know how many "sub contractors" you kept

DFW you are going against the rip current .... ya gotta go sideways .... get your breath n head for shore ..... otherwise your gonna drown

GO TO BEING SOLO fore 2-3 years .... learn the ropes .... figure out the bidding process, which equip is right ... the most efficient methods of operation THAN put em in force with employees n grow strong

Gene $immons
11-03-2004, 03:39 PM
DFW,

Payroll taxes do stink, but they are deductable as a business expense. The idea I use is to keep low wage employees doing my highest paying work, and to keep hours under 42 per week.

PS classic bedlam game! OSU laid it all out on the line.

Branchland
11-05-2004, 04:46 PM
I used to be a licesned building contractor before becoming a LCO. My accountant told me then that I could use Sub Labor. When I hired somebody I would tell them say like 10.00 a hour and I do the taxes or I could give them 12.00 a hour and 1099 them. They almost always went for the more money. I would have them fill out a 1099 form at time of employment. Then I would tell them that they needed to set some money back to pay taxes at the end of the year. The extra 2 or 3 dollars a hour was cheaper for me than doing all the weekly deductions. When I filed my taxes I would also enclose the 1099 form along with the total that was paid to my sub labor. They also got a copy of this. They also had their check stub from payroll checks and I had my copy as proof. My accounant brought this idea to me and the IRS never questioned it. I even had a couple of employees give false SS#'s. The IRS would send me a letter saying the info on the 1099 form was wrong and then I'd call them. I'd tell them that they had the oridgional; in thier hand and that was the info given to me. They would just tell me that they would handel it. That was all done on the phone.

J&R
11-05-2004, 05:52 PM
I don't think your sub contractors will carry there own workers comp and gen lib insurance. Any one that does sub work for me must have there insurance or they don't work

YardPro
11-12-2004, 08:10 PM
when they say " considered them as ....)
they mean how thier job is set up. if you determine thier work hours, they use your equipment, etc. they are NOT being considered as SUB contractors

lawnman_scott
11-13-2004, 02:37 AM
DFW, did you actually read it? The first link says one of the requirements is "l Your business has never treated anyone holding a substantially similar position to the workers in question as an employee for employment tax purposes after 1977." its after 1977, so this wont work for you, ever. You need to bid higher or reduce your costs legaly.