EVA ROSENBERG - Employee vs Independent Contractor Rules In California

Since the California Legislature passed Assembly Bill 5 (AB5) in September of 2019, the rules regard who is and who is not an employee in this state have gotten ever more stringent – and confusing.

Why confusing? Because there was a very loud roar from several industries whose workers’ statuses were so severely compromised by this Bill.

I remember being at the 2019 CSEA Tax State Agency Liaison Meeting (STALM) in Sacramento after the bill was signed and one of the big concerns was truckers. Many of them work for the same company all year round (one “employer”) but own their own rigs and have always filed their tax returns using a Schedule C. Suddenly, if they had to be employees, there goes their federal deduction for the depreciation on the very expensive rig (costs approach $100,000 for some), the interest or lease fees, the fuel costs and all the other, legitimate out-of-pocket expenses they have in order to do their “jobs.”

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Business Licenses Often Overlooked – You Need Them

Every city, town and state has a variety of rules to regulate businesses operating within their bounds.

For instance, I live in the City of Angels. Within a 5 or 6-mile radius, in parts of Los Angeles (LA), you can be working in 5 or more distinct cities – West Hollywood, Beverly Hills, Santa Monica, Culver City, Malibu, and the City of Los Angeles – each with unique business license requirements. Have your cities and towns grown as complicated as ours?

Some people like to avoid the higher licensing costs in LA or other high-cost cities by establishing an address at a mail-box service with a street address (not a Post Office box) in a nearby area with lower business tax rates.

Unclear On The Concept

People think that by setting up business addresses in mail boxes, or by incorporating in tax-free states, they can avoid paying the higher taxes in their city, county or state.

There are two things wrong this concept.

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Navigating The California Employee vs Independent Contractor Maze

Since the California Legislature passed Assembly Bill 5 (AB5) in September of 2019, the rules regard who is and who is not an employee in this state have gotten ever more stringent – and confusing.

Why confusing? Because there was a very loud roar from several industries whose workers’ statuses were so severely compromised by this Bill.

I remember being at the 2019 CSEA Tax State Agency Liaison Meeting (STALM) in Sacramento after the bill was signed and one of the big concerns was truckers. Many of them work for the same company all year round (one “employer”) but own their own rigs and have always filed their tax returns using a Schedule C. Suddenly, if they had to be employees, there goes their federal deduction for the depreciation on the very expensive rig (costs approach $100,000 for some), the interest or lease fees, the fuel costs and all the other, legitimate out-of-pocket expenses they have in order to do their “jobs.”

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Eva Rosenberg, Tax Connections

The good news. President Trump Congress keeps telling you that taxpayers will be able to file on a postcard.

The bad news? Look at lines 3, 10, 11, and 12.
Your government is naïve. While this may be wish-fulfillment, it has no basis in practical reality.

It should be a required pre-requisite for all lawmakers to prepare their own income tax returns before they are permitted to write, vote on, or pass legislation. I loved that episode of the short-lived TV series Mr. Sterling, where Senator Bill Sterling (Josh Brolin)  is grumbling, trying to prepare his own tax return. Better yet, they should spent two weeks volunteering, or observing, at a VITA site to see how their tax laws truly affect low-income people’s tax filings. Read More

Eva Rosenberg, Tax Advisor

Generally, whenever a major disaster strikes in the United States, the president issues a declaration – which triggers some special tax breaks and extensions for those in the disaster area.

In this case, President Trump has issued declarations for 9 disasters,  since taking office. We know there will be one for Hurricane Irma. But, so far, he has not issued the usual declaration for the Los Angeles – La Tuna fires. (But that’s a whole other discussion.)

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Why do you keep forming LLCs, partnerships or any kind of corporation when you’re not really ready to do business?

Then, you have these legal entities, with stringent tax filing responsibilities – and you do nothing.

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I have heard questions about expired refunds. Let me summarize. “I faced a hardship and didn’t file tax returns for several years. Now, I learn that I cannot get my refunds for all those years. Can you help?”

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When two people fall in love, they tend to be blind to life’s realities. The last thing they want to do is bring up issues that might generate conflict, and let’s face it, the topic of taxes is definitely turbulent.

Ask these tough tax questions before you get married – to avoid an inevitable divorce.

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The most important thing about representing a client is – know at least as much about them as the IRS does.

Don’t ever put yourself in the position of being embarrassed, after putting together your client’s financials or tax audit workpapers – only to learn that the IRS knows about income or assets your client has not disclosed to you.

How do you make sure this never happens?

1) Get a signed power of attorney from the client and/or spouse and/or partner
2) USE the POA to request every possible kind of transcript there is for the year(s) in question – third party reports of income and expenses, master file records, account Read More