Tax Rules Affecting Telecommuting: Doeren Mayhew

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Increasingly, businesses across the country are finding that allowing employees to telecommute can be a win-win situation. Employees can gain more flexibility in their work life. Employers can reduce overhead expenses, secure talent beyond the business’ immediate geographic vicinity, and even accomplish contingency planning objectives. The value of these cost-saving measures and business enhancements are amplified during trying economic times. An overview of the federal tax rules applicable to telecommuters and those who employ them can help identify possible opportunities available when certain employees work off site.

Deducting Home Office Expenses

Types of Expenses. Federal income-tax rules generally categorize telecommuting expenses as either direct or indirect in nature. Direct expenses are those that relate only to the portion of the telecommuter’s home that is actually used as a home office. Such expenses may include improving or repairing the actual work space.

Indirect expenses may relate to both the personal portion of the home as well as the home office. Common examples of indirect expenses include real estate taxes, homeowner insurance premiums, and repairs benefiting the entire home.

Regular and Exclusive Use.

Various tests must be satisfied in order for an employee to be able to deduct the direct expenses and the business portion of indirect expenses relating to a home office. The tax law requires that the home office be used regularly and exclusively as a principal place of business or as a place to meet or deal with customers or clients in the ordinary course of business. As a practical matter, employees don’t commonly use a home office to meet with clients. Accordingly, deductions may be limited to situations where the home office is used regularly and exclusively as the employee’s principal place of business.

In situations where an employee works from home full-time, the principal-place-of-business test is usually easily met. However, if one’s time is split between the home and an outside office, federal tax rules generally state that the test is also satisfied if administrative or management activities are performed at the home office to the exclusion of other fixed locations.

For the Convenience of the Employer.

An employee must also be able to show that the use of a home office is for the convenience of the employer. This test is generally considered to have been met if the employer requests that the employee work from home. Alternatively, this test is also considered satisfied if the employee is not in the office on a regular basis due to the nature of his or her work.

Ultimately, the “convenience” test is determined by the facts and circumstances of the employment arrangement. In general, if the employee requests to telecommute, it commonly results in not having satisfied the test. However, the particular circumstances may show

that the arrangement was established for the benefit of the employer, despite the fact that the employee chose to telecommute. For example, if the employer looks for volunteers to telecommute for legitimate business purposes and the employee volunteers, that arrangement could qualify as being for the employer’s convenience.

How Tax Benefits Are Claimed

If an employee qualifies to claim various deductions relating to the business use of a home office, he or she would do so on Schedule A, Form 1040, as a miscellaneous itemized deduction subject to a 2%-of-adjusted-gross-income (AGI) floor. Tax rules limit the ability of a taxpayer-

employee to claim telecommuting expenses to the extent the business deductions exceed his or her gross income for the tax year.

An employer may choose to reimburse an employee for expenses incurred relating to office supplies and equipment, as well as for utilities and maintenance expenses allocable to the home office (with the employer potentially claiming a deduction for the reimbursements). Or the employer may provide the telecommuting employee with necessary supplies and equipment and, accordingly, claim an ordinary business expense deduction.

As a general rule, it is advantageous for an expense or reimbursement arrangement to qualify as an “accountable plan.” Otherwise, adverse income-tax consequences may flow to both your business and the employee.

Computers and Other Equipment

If a telecommuting employee purchases a computer or other equipment and uses it exclusively for business-related purposes, he or she may depreciate or expense the item, subject to a 2%-of-AGI limitation. If, on the other hand, the employer provides such equipment, the employer may claim appropriate deductions as if the item were located in the employer’s regular offices. Wholly unrelated expenditures, such as those relating to general landscaping or improving a room that is not used exclusively for home office purposes, are not deductible under the federal tax rules.

This data is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the content contained within this article, it is recommended that a Doeren Mayhew representative be contacted.

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Doeren Mayhew Employees Recognized For Philanthropic Activities

PHILANTHROPY AWARDS from Karmanos Cancer Institute

These awards recognize individuals who dedicate resources and talents to benefit the cause of breast cancer.

Dawn Jasinski and Sharon Hemmen
Sharon Hemmen and Dawn Jasinski – Individual Awards
Dawn Jasinski and Sharon Hemmen were co-workers at Doeren Mayhew. Hemmen, who lives in Sterling Heights, was involved in the Komen Detroit Race for the Cure® since 2004, after her treatment for breast cancer. Jasinski, an Oxford resident, signed up for the Breast Cancer 3-Day walk benefitting Susan G. Komen for the Cure in 2005 after her mother was diagnosed with breast cancer. That same year, a co-worker passed away from a long battle with breast cancer. When Doeren Mayhew agreed to match all employee donations, it took Jasinski’s and Hemmen’s fundraising to a level they never imagined. That was the kick-start of their enthusiasm for fundraising and in 2006, they started a small team with family members, called “D.A.S.H. for a Cure” (Dawn and Sharon’s Hope), which now has 11 members.

Quotes: “We are co-captains of our D.A.S.H. for a Cure team of breast cancer survivors and family members. Each year, we wonder if we will meet our goal, and each year we are amazed that we always exceed our expectations. The fantastic people on the race committee and the accomplishments of the brilliant doctors at Karmanos, along with the steady increase in survival rates, make our hard work all worthwhile!” – Sharon Hemmen

“Over the past five years, I have been involved with breast cancer fundraising (mainly Komen Detroit Race for the Cure® and the Breast Cancer 3-Day). I really got involved when my mother was diagnosed with breast cancer in 2005. Prior to that, my aunt, grandmother and my fundraising partner Sharon had also been diagnosed. It seemed I knew more and more people each year who were affected by this disease. It was then that I knew I had to help raise money to find a cure for breast cancer. In these economic times, I find it so hard to continue fundraising year after year. And then I see all the benefits and progress that is made through Karmanos and local fundraising groups. That is what keeps me going. The support and encouragement I get each year goes a long way – hopefully long enough to one day find a cure.” – Dawn Jasinski

Doeren Mayhew: 75th Anniversary

Retirement Planning: A Primary Source of Money

Retirement Planning- Doeren Mayhew

Four New Directors Named at Doeren Mayhew

TROY MICHIGAN – Troy-based public accounting and consulting firm, Doeren Mayhew has named four new directors in the firm: Claudio Calado, Aaron Caya, Timothy Gunn, and Christopher Masters. All four have been promoted from the positions of managers.

Claudio S. Calado –Director of Mergers and Acquisitions
Mr. Calado has been with Doeren Mayhew since 2005. He is a graduate of the University of Dortmund (Germany) with a master’s degree in economics. Claudio’s areas of expertise include all stages of the merger and acquisition process and strategic and operational business finance planning and analysis.

Aaron T. Caya, CPA, ABV, CVA, CFF, ABAR – Director, Litigation Support and Forensic Services
Mr. Caya started his career with Doeren Mayhew in 2000. He is a graduate of Michigan State University with a bachelor’s degree in accounting, and earned his MBA from the University of Michigan. Aaron’s areas of expertise include technical and practical knowledge in all stages of the valuation and litigation process, fraud and forensic accounting services, and financial support in commercial litigation and employment law matters.

Timothy D. Gunn, CPA, CFE – Audit Director
Mr. Gunn has been with Doeren Mayhew since 1998. He is a graduate of Walsh College with a bachelor’s degree in accounting. Tim’s areas of expertise include audits, reviews, compilations, fraud and forensic accounting services, and consulting.

Christopher T. Masters, CPA – Audit Director
Mr. Masters joined Doeren Mayhew 1998. He is a graduate of Michigan State University with a bachelor’s degree in accounting. Chris’s areas of expertise include audits, reviews, compilations, and consulting.

Founded in 1932, Doeren Mayhew recently celebrated its 77th anniversary and has grown to become nationally and internationally recognized as trusted business advisors to thousands of individuals and businesses throughout North America and around the world. Doeren Mayhew represents manufacturers, contractors and builders, retailers, wholesalers, distributors, auto dealers, financial institutions, municipalities, school districts, and non-profit organizations, with a full range of accounting, audit, tax, merger and acquisition, and consulting services.

Tax Planning Tip #6 - Save Tax-Deferred First

Because of the tax advantages, contributing to an employer-sponsored retirement plan, such as a 401(k), 403(b), 457, SIMPLE or SARSEP, is usually the best first step in retirement planning:

* Contributions are generally pretax, so they reduce your taxable income.
* Plan assets can grow tax-deferred— meaning that you pay no income tax until you take distributions.
* Your employer may match some or all of your contributions—also on a pretax basis. At minimum, contribute the amount necessary to get the maximum employer match.

Note that, if you’re age 50 or older, you’re eligible to make a “catch-up” contribution.

In certain situations, other tax-deferred savings options may be available:

If you’re a business owner or selfemployed. You may be eligible for a plan that would allow you to make much larger contributions. Depending on the plan, you might not have to make 2008 contributions, or even set up the plan, until after year end. If your employer doesn’t offer a retirement plan. Consider contributing to a traditional IRA:
* You can generally deduct your contributions, though your deduction may be limited based on your adjusted gross income (AGI) if your spouse participates in an employer-sponsored plan.
* Contribution limits, including for catchup contributions, are lower than those for employee contributions to employer sponsored plans.

You can make 2008 IRA contributions as late as April 15, 2009.

Tax Planning Tip #5 - Time Investing Gains and Losses

While time, not timing, is generally the key to long-terminvestment success, timing can have a dramatic impact on the tax consequences of your investment activities. The 15% long-term capital gains rate is 20 percentage points lower than the highest regular income tax rate of 35%—and it generally applies to investments held for more than 12months.

Holding on to an investment until you’ve owned it for more than a year may help you substantially cut your tax on the gain. Keep in mind, though: You have only until 2010 to take advantage of the 15% rate (which also applies to qualified dividends), unless Congress extends it. Of course, be sure to consider overall performance and risk, not just taxes, when making investment decisions. Here are some other tax-saving strategies related to timing:

Use unrealized losses to absorb gains - If you’ve cashed in some big gains during the year, before year end look for unrealized losses in your portfolio and sell them off, thus offsetting the gains.

Don’t let tax reasons hold you back from selling at a loss. If you’re ready to divest your portfolio of a poorly performing security but don’t have enough gains to absorb the loss you’ll realize, remember that capital gains distributions from mutual funds can also be offset with losses. If you end up with a net capital loss, you can claim up to $3,000 of the loss against ordinary income this year and carry forward any excess to future years.

Doeren Mayhew: August/September Recap

We've been up to a lot these past months and wanted to share some of our recent posts with you. Follow the links below to read financial newsletters, blogs, and guides that Doeren Mayhew has been on:

• Doeren Mayhew: Pursuing Your Financial Dreams (Scribd)
• Doeren Mayhew: Doeren Mayhew on Docstoc
• Doeren Mayhew: Doeren Mayhew on Squidoo
• Doeren Mayhew: Doeren Mayhew on YouTube
• Doeren Mayhew: Doeren Mayhew on Facebook
• Doeren Mayhew: Doeren Mayhew named to Top 100 Accounting Firms list for 14th consecutive year
• Doeren Mayhew: Doeren Mayhew Retirement Financial Planning
• Doeren Mayhew: Doeren Mayhew New Splash Site
• Doeren Mayhew: Doeren Mayhew Free Child ID Kits
• Doeren Mayhew: Doeren Mayhew on CNN
• Doeren Mayhew: Doeren Mayhew on BusinessWeek
• Doeren Mayhew: Doeren Mayhew on DBusiness
• Doeren Mayhew: Blogpost

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Doeren Mayhew Gives Back With Child ID Kits

TROY, MICHIGAN – Doeren Mayhew, a Troy-based certified public accounting and management consulting firm, announced today that it has launched a new Website where visitors can sign up to receive free child ID kits.

Doeren Mayhew has found a creative approach to helping its local community by providing free child ID kits to clients, prospects, employees, or anyone that asks for one. People requesting the kits from Doeren Mayhew are assured that they are not going to be solicited in any way; the program is simply for goodwill. To date, Doeren Mayhew has given away over 1,000 kits, originally offering them at seminars and conferences, and eventually through the firm’s corporate Website. The positive response received on the corporate Website lead Doeren Mayhew to create a dedicated Website just for child ID kits.

The kits keep a child’s vital identification information close at hand in case of an emergency. If the unthinkable ever happens, this kit can be easily stored and is readily accessible to authorities. Each kit records vital medical, identification, and contact information, including fingerprint and DNA samples that can be instantly provided to emergency personnel.

According to Larry Simon, one of the Firm’s directors, “Doeren Mayhew is a very family-focused firm and extremely committed to our community. We place the utmost importance on the safety and well being of our children and just wanted to do something to underscore this sentiment. Offering free child ID kits to clients and friends of the firm just felt like a natural fit. We started offering the kits four years ago and continue to receive great response today. When people call or e-mail us requesting the kits, they are always appreciative and supportive. It’s just a small way we can give back to our clients and the community.”

To receive a free child ID kit, please visit the Doeren Mayhew Website.

About Doeren Mayhew

Founded in 1932, Doeren Mayhew recently celebrated its 75th anniversary and has grown to become nationally and internationally recognized as trusted business advisors to thousands of individuals and businesses throughout North America and around the world. Doeren Mayhew represents manufacturers, contractors and builders, retailers, wholesalers, distributors, auto dealers, financial institutions, municipalities, school districts, and non-profit organizations, with a full range of accounting, audit, tax, merger and acquisition, and consulting services.

Doeren Mayhew: Tax Steps For Independent Employees

The IRS recently reminded individual taxpayers what important steps may be necessary to take upon being informed that their employment status is considered to be that of an employee, rather than an independent contractor.

Notice 989 is entitled Commonly Asked Questions When IRS Determines Your Work Status as “Employee.” What action a taxpayer may need to take depends on whether an income tax return was already filed reporting the income at issue, and if so, how the income was reported.

Common Scenarios

Some of the instructions set forth in the Notice include the following scenarios:

If a federal income tax return has not yet been filed for the year(s) relating to income now

categorized as employee wages, file Form 1040, U.S. Individual Income Tax Return, reporting the Form 1099-MISC income reported by the employer as wages on line 7. Social Security and

Medicare tax (i.e., FICA) must also be computed and paid on this amount. File Form 1040X, Amended U.S. Individual Income Tax Return, for any affected years for which a federal income tax return was filed but the Form 1099-MISC income was not reported, and report that income as employee wages. FICA tax must also be computed and paid on the income.

In situations where a federal income tax return has already been filed, and Form 1099-MISC

income was reported as employee wages, but no FICA tax was computed on that income, taxpayers are advised that they must file Form 1040X to compute the FICA tax due for the affected years.

For taxpayers who have already filed a federal income tax return for the affected years, but

reported their 1099-MISC income as self-employment income, and not employee wages

Form 1040X must be filed. No self-employment tax is due; however, the taxpayer’s portion of

FICA tax must be calculated and paid.

2007 Dividing Line for FICA

Note that for tax years prior to 2007, Form 4137, Social Security and Medicare Tax on Unreported Tip Income, should be used so that a taxpayer can properly compute FICA tax and receive the appropriate credit associated with the income from the Social Security Administration. For tax years 2007 and later, Form 8919 should be used for computation of FICA tax.

Payment of FICA Taxes Income

In the Notice, the IRS also reminds taxpayers that there may be situations where their employer provides a corrected Form W-2, reflecting payment of the employee’s FICA tax. In that situation, the additional amount reflecting the employer’s payment of the employee’s FICA tax is income to the employee in the year it was paid. The change in a worker’s status from independent contractor to employee may affect not only payment of FICA taxes, but also the amount of federal income tax, due to the tax treatment of certain expenses.

For instance, self-employed individuals are allowed to take a deduction on Form 1040 in an amount equal to one half of self-employment tax paid. However, as an employee, this deduction is lost. A recharacterized employee must compute and pay FICA tax based on gross wages, as opposed to self-employment tax being computed on net self-employment income. Other deductions related to one’s self-employed status may also be lost. Since wages earned by an employee are properly reported on line 7 of Form 1040, Schedule C cannot be used to report the income at issue. As a result, certain deductions, such as those for self-employed health insurance, may no longer be fully deductible, as they were when the individual was considered self employed. Instead, an employee may only be allowed to claim a miscellaneous itemized deduction on Schedule A, subject to the 2% floor.

Doeren Mayhew Can Help

If you have questions about the reclassification of a worker to an employee from being considered an independent contractor, please call the professionals at Doeren Mayhew today at (248) 244-3000, or at the following sites:

Twitter: twitter.com/doerenmayhew

Facebook: facebook.com/doerenmayhew