Equine Accounting: Assistance from the IRS to pay for Child Care

Whether you work for yourself or someone else, worrying about care of your children while you are at work can cause both financial and emotional stress. Well relax; the IRS is here to help. The Child and Dependent Care Credit is available to many taxpayers for care incurred during vacations and throughout the year. For parents who are working (or looking for work) and arrange for day care for their children under thirteen years of age, this credit may provide some reimbursement toward the cost of this care.
What you need to know:



•You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to calculate the credit.
•The range of the actual credit is between 20 and 35 percent of your qualifying expenses, depending upon your income. Unlike many other deductions and credits, there is no upper limit on the amount of your adjusted gross income.
•You (and your spouse if filing jointly) must have earned income during the year.
•Both in-home sitters and daycare facilities outside the home qualify you for some tax benefit if you are eligible for the credit.
•The cost of day camp may count as an expense towards the credit. However, expenses for overnight camps do not qualify.
•When you submit your tax return, you must complete IRS Form 2441 and provide the name and tax identification number for the individual providing the care.
•This is a tax CREDIT, which directly reduces the amount of tax due on your return. However, it is a nonrefundable tax credit - which means that it cannot reduce the amount of tax due to less than zero.
Please see IRS Publication 503 (http://www.irs.gov/pub/irs-pdf/p503.pdf) for more information.

Equine Accounting: Employee vs. Independent Contractor. Who's Who?

An independent contractor (IC) is someone who provides services to others, outside the context of employment. Examples of possible ICs to an equine business would be a contractor and an attorney. An employee is a person who provides services to a company on a regular basis in exchange for compensation and does not provide these services as part of an independent business. Examples of possible employees to an equine business would be your office manager and daily barn help.
Why is this information important to you? In recent years, the IRS has focused considerable attention on this issue. Classifying a worker as an IC avoids the payroll tax liability and reporting responsibility of having an employee. But misclassification of employees as independent contractors can cause the IRS to levy penalties and interest which could significantly affect your company.
The IRS considers three general categories - behavioral controls, financial controls, and the relationship of the parties.
Behavioral control exists when the company who has hired the worker has the right to control and direct the worker. The company does not have to actually control and direct the worker – only have the right to do so. Behavioral control includes the type and degree of instruction, any training provided and the type of evaluation performed.
Employee IC
Instruction Detailed General
Training Provided Worker uses own methods
Evaluation Ongoing Only end result evaluated
Financial control is measured by the degree of significant investment in the work, unreimbursed expenses, availability of services to the general marketplace and the opportunity for profit or loss. More financial control is usually indicative of an independent contractor.
Relationship of the parties covers factors such as whether the worker receives benefits, the existence of a written contract, permanence of the relationship, and whether the worker provides services which are a key activity of the business.
You may request a determination by the IRS as to the status of a worker by submitting Form SS 8 to the IRS. Be aware that the worker themselves may also file if they feel improperly classified as ICs and are held responsible for payment of employment taxes and denied benefits. The IRS will investigate the claim and you may be held responsible for all employment taxes as well as significant penalties and interest.
What is your responsibility as someone who hires an IC? If you anticipate that your annual payments to this vendor will meet or exceed $600, before commencement of work, you should obtain a signed W-9 Form. At the end of the year, you are responsible to complete a 1099 Misc Form for each unincorporated vendor meeting the $600 or more threshold. Submit a copy to the vendor by Jan 31 of the following year and a copy to the IRS by Feb 28.
If you determine the worker to be an employee, you are responsible for withholding and submitting to the IRS income and FICA taxes and paying unemployment taxes. You must also submit periodic reports regarding these withholdings and payments to the IRS. There is a lot of record-keeping involved and if you are not familiar with this process, it would probably be in your best interest to outsource the payroll. QuickBooks offers several affordable payroll solutions.
Prepare now for several proposed changes to 1099 reporting which include
Payments to corporations would now require a 1099 form when they exceed the $600 limit.
IC would be subject to withholding if they do not provide a valid Tax Identification Number.


IRS Publications 1779 and 15A on IC/Employee classification provide more detailed information on this issue and can be found at http://rs6.net/tn.jsp?t=ul9id6cab.0.0.tnz777cab.0&p=http%3A%2F%2Fwww.irs.gov%2F&id=preview.