Milikowsky Tax Law Blog

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If you are a CPA, here are 5 things to help your client reduce the risk of an EDD, IRS, or SBA audit: 1: Confirm that your client’s 1099-K (provided by a merchant processor) does not report gross proceeds from credit card sales that are higher than the amount you are reporting as “gross receipts” on a business income tax return.  If there is a difference, you may consider adding a statement to explain a legitimate difference. For instance, chargebacks and returns are not subtracted from the amount of “gross proceeds” on the 1099-K form. 2: If you have a…
As a result of the ongoing global pandemic, IRS has elected to extend the 2020 tax submission deadline to May 17, 2021. Following last year’s deadline extension to July 15, it was predicted early on that this would likely be the case.  As the original deadline has recently passed and the extended deadline draws near, taxpayers are once again in a position to ensure that their information is submitted correctly in a timely manner to avoid the possibility of an IRS tax audit.  The financial challenges imposed upon many businesses and individuals in the past year + make the possibility…
Tax season brings on additional stress for many. First, the hurry to get your information prepared and submitted for review by IRS. Then follows the thoughts of whether or not your information was submitted correctly or whether you’ll be faced with an audit.  Ideally, your taxes will be submitted correctly the first time. That being said, if you recognize an error in your return, you should attempt to submit an amended return as soon as possible. While it’s best to fix any mistakes yourself before IRS discovers them, you still may not be 100% safe from a potential audit.  While…
Need to review 1099 classification criteria? CLICK HERE: How do you minimize the risk of an EDD Audit? There is no way to eliminate the risk of a government agency audit, audits are performed on a number of criteria, from a site sweep in which contractors are randomly audited by EDD to an unemployment claim from a 1099 worker who unwittingly files on your company. In whatever scenario, it is best to have all your ducks in a row when EDD audits. One of the first areas of scrutiny will be the status of your workers. If your workers…
After companies including Uber, Lyft, DoorDash, and others spent nearly $200 million campaigning for the addition of a ballot measure exempting them from the previously passed California AB5 ruling. They won, and so began Proposition 22.  The passing of Proposition 22 protects drivers’ preferences to remain classified as independent contractors with the flexibility to work when, where, and how long they want. A notable aspect of the passing of Prop 22 is that future reform is limited by preempting local laws and requiring that any tweaks by the state legislature comport with its intent and pass with a seven-eighths supermajority. …
Despite everyone’s awareness that tax day is rolling around each year, many companies still end up leaving their filings until the last minute. As a result, the last-minute filings can easily lead to accidental mistakes when filing.  Nobody wants to intentionally make mistakes, but especially when it deals with your taxes. Why? Because mistakes on your tax return are often a red flag for IRS to investigate further.  So how can you properly prepare to minimize your likelihood of an IRS audit? Well, the following tips are a good place to start.  1. Download the IRS calendar  There are often…
On January 7th, 2021, the US Department of Labor (DOL) announced the updated ruling to clarify its interpretation of independent contractor status as part of the Fair Labor Standards Act (FLSA).  Overall, the ruling stands largely unchanged from the original ruling which established a tiered test to determine employee versus contractor status as part of the FLSA. The updated proposal establishes a two-part analysis to determine whether a worker’s correct status is that of an independent contractor or employee. The “core factors” stated are as follows:  The nature and degree of control over the work. The worker’s opportunity for profit…
EDD Audit Triggers Independent contractor filed for unemployment A disgruntled worker (1099 or W2) reported your company to EDD EDD “randomly” selects your company based on a computer algorithm – one factor is the larger % of independent contractors versus employees compared to your company revenue i.e. Company with $2 million in revenue with few or no employees Minimize risk of EDD audit Do you hire 1099 contractors? If you are unsure if your workers are properly classified as contractors versus employees, review these questions and the facts to determine if your contractors are misclassified: Does each contractor have an…
How long does an EDD audit last? If EDD selects your company for an audit of your contractors, you can expect the audit to last between 3 months and 9 months.   The purpose of an EDD audit The purpose of an EDD audit is to determine if your workers are really employees and the audit starts when you receive a letter titled “Inquiry Regarding Records” that includes a “Pre-audit Questionnaire.” Why does the audit take so long? EDD requests a lot of records including your federal income tax return, W2s, payroll returns, 1099s, and your company’s financials.  EDD will also…
If IRS selects your return for an audit, the audit will generally cover a 3 year period. That is the statute of limitations IRS has to audit a tax return. More specifically, this is 3 years from the date you file your return. If you filed the last 5 years of your tax returns last year, IRS will have a couple more years to open all those returns for an audit. If you have a “substantial understatement of income” (you fail to report 25% or more of your gross income), IRS can go back 6 years. If you fail to…