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I hope this issue of the Tax Reduction Letter finds you and your family in good health. Warmest good wishes at this difficult time from all of us at the Bradford Tax Institute.
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If you’re an employer who hires independent contractors, California’s new AB 5 law can have severe negative consequences for your business.
You see, AB 5 was created to turn 1099 independent contractors into W-2 employees. And this can affect you even if your business is in a state other than California.
For many, the AB 5 law causes both employers and independent contractors to lose important advantages they used to enjoy.
Losers #1: Employers who hired independent contractors saved on Social Security taxes, Medicare taxes, employment taxes, unemployment taxes, paid vacation, and a host of work-place rules.
Losers #2: Independent contractors, who enjoyed work-place freedom, could deduct their business expenses, set their own hours, and generally put away as much as they liked into their solo 401(k) accounts.
To find out more about what all this means to you, read my new article titled, Tax Tips: Does California’s AB 5 Turn Your Contractors into Employees?
Three ways our fact-filled article can help you:
- We’ll tell you how the IRS looks at your business. The IRS considers three factors to make the independent contractor determination. It looks at:
- Your “behavior control” of independent contractors
- Your “financial control” of independent contractors
- “Important “Relationship” factors
What do all these strange IRS terms mean and how do they intertwine with California? You’ll find out when you read my new article titled, Does California’s AB 5 Turn Your Contractors into Employees?
- We’ll explain the important “ABC test.” Under the ABC test, someone is defined as an independent contractor if they meet three criteria called ABC “prongs.” (The test conflicts with the IRS rules and could stick you with a bad law!) All will be explained when you read the full article.
- We’ll list AB 5 exceptions. Here’s a bit of good news. There are quite a few professions that are exempt from meeting the ABC requirements. Doctors and lawyers are exempt. So are commercial fisherman, artists, and others. (Strange but true.) We’ll provide a comprehensive and useful list of exempt professions when you read the full article.