Nonprofit Basics

Our understanding is that the biggest obstacle to 501(c)(3) is the long process of IRS approval. There needs to be a charitable purpose & structure.

Here's some information in a 4 page article w/ additional links related to non profits.

Great business topical articles

• Business Start-Up Outline
• How a Business Pays Income Taxes
• Choice of Business Entities
• Home Office Deduction
• How The Audit System Works
• Auto Use Rules
• Basic Payroll Issues
• Retirment Plan Options
• Subcontractor vs. Employee
• Insurance Types and Requirements
• Keeping Business Tax Records
• Insurance Letter
• Bookkeeping/Accounting Issues
• Recordkeeping Issues/Audit or Review
• Depreciation Primer
• Family Members on Payroll
• Fringe Benefit Write-Offs
• Incorporation Basics: S vs. C
• Shareholder/Partnership Agreement
• Taking Money our of a Corporation

Contractor status protection

Independent contractors may do several things - be independent businesses operating in a professional manner.
The IRS will expect evidence of this.
E.g.:

• Have an office, business cards, stationary, billing forms and contracts with the company business name and address, etc.
• Make your services available to several
  
• Advertise
  
• Individual contractors might take on a partner and contract as one business to another business, so that there is no presumption that one individual, personally, will do the work.
• Own and use the tools and equipment needed for the job. The contractor should not borrow from the service recipient nor allow the service recipient to be the legal owner of tools and equipment that are being purchased.
• Provide the materials for the job. Investment in materials makes the service/product provider subject to profit or loss.
• Make their business services available for purchase by more than one person or company.
  
• File and pay quarterly income and self-employment taxes on income earned.

Benefits to hiring a contractor vs. employee

Why do so many businesses try to use independent contractors instead of employees? One main reason is the tax and money savings differences.

A business that uses an independent contractor instead of an employee saves on payroll taxes, insurance, medical/retirement plans & other costs.

More specifically:

1. FICA tax ( employer 1.45% medicare + 6.2% social security = 7.65% total )
   
2. FUTA(Federal Unemployment) - typically paid on first $7000 of wages - percentage varies
   
3. State Unemployment Tax - typically paid on first $9500 of wages - percentage varies
4. Worker's compensation coverage. For certain occupations (especially construction, tree work, or other more 'dangerous' work) the cost of worker's compensation coverage often exceeds 33% of overall payroll!
5. Retirement or fringe benefit plans (such as medical insurance) either.
   

There are also substantial savings on the burden of administrative tax reporting basis.
Independent contractors are far easier for businesses to deal with than employees.

1. No quarterly payroll tax returns, 941's 1120's, 1017's, 940's
   
2. no worker's compensation audits, and
   
3. no yearly W-2 forms are required to be filed--to name a few.
   

So one can see where the inducement lies in using independent contractors instead of employees.

Independent Contractor vs. Employee

TWENTY FACTORS

These factors are used to determine if an individual is classified as an Independent Contractor:

• Is the worker required to follow INSTRUCTIONS?
• Does the firm provide training to accomplish the work?
• Is the worker REGULARLY employed at the firm?
• Is the work performed personally by the worker?
• Does the firm DIRECTLY pay the worker's assistants?
• Is there a continuing ongoing work relationship?
• Are there a set number of work HOURS?
• Is the worker engaged full time by the firm?
• Does the worker work on the firm's premises?
• Does the worker work according to a SCHEDULE set by the firm?
• Is the worker required to submit regular reports to the firm?
• Is the worker paid based on time rather than by project?
• Is the worker REIMBURSED for his/her expenses?
• Does the firm furnish the tools and/or materials?
• Does the worker have a vested INTEREST in performing the services?
• Can the worker realize a profit or suffer a loss?
• Does the worker work for more than one firm at a time?
• Does the worker make his services available to the general public?
• Does the firm have the right to DISCHARGE the worker without incurring a legal liability for non-performance under the contract?
• Does the worker have the right to TERMINATE the relationship without incurring a legal liability for non-performance under the contract?

2007 Tax Law Changes

Highlights:

Mileage rate: 48.5c

Sec 179: $125K max

New recordkeeping requirements for cash contributions. You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity

Income Limits Increased for Hope and Lifetime Learning Credits

Mortgage Insurance Premiums Treated as Home Mortgage Interest: Premiums that you pay or accrue for "qualified mortgage insurance" during 2007 in connection with home acquisition debt on your qualified home are deductible as home mortgage interest.

Medical- and move-related mileage. For 2007, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 20 cents per mile.

Standard Deduction Increased

For most people who don't itemize deductions, the basic standard deduction increased in 2007 to:

• $7,850 for head of household (up from $7,550 in 2006)
• $10,700 for Married taxpayers filing jointly and qualifying widows or widowers (up from $10,300 in 2006)
• $5,350 for married taxpayers filing separately (up from $5,150 in 2006)
• $5,350 for single people (up from $5,150 in 2006)

Exemptions Increase

The amount you can deduct for each exemption has increased $100 to $3,400 in 2007.