Frequently Asked Questions

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Standard mileage rates have increased to 70 cents per mile for business use of a personal vehicle. 

As soon as you start to think about starting a business, you should meet with an accounting professional who can help you take the next steps. You can discuss your business's organization, bookkeeping, taxes, payroll and operations, along with target pricing and profit margins.  

Does your accountant return your calls? Do you feel comfortable asking them a question? Do you feel heard? With the right accounting professional, the answers should be a resounding "Yes!"

Here are the top 5 reasons people change accountants.

1. My accountant only meets with me at tax time. By then it's too late to make changes that will improve my tax return.
2. I don't think my accountant understands, or even cares about, my business.
3. My accountant is too hard to reach.
4. My accountant doesn't provide the type of help I had hoped for.
5. My accountant's fees are too high for the service I'm being provided.

First you can check out the IRS resources to get a good overview. Next talk to an accounting firm that has helped start many businesses. We recommend you talk to Compass Accounting Group.

Get some impartial advice from an accountant before you consult a bank or investors. Put a meaningful business plan together that gives the lender/investor confidence that your business idea is worth the risk. 

Check out what the IRS has to say about starting a business. Keep in mind, many small businesses are setup as an LLC because of the cost of doing payroll. If your business has net profits that exceed $15,000 per year, you could be paying too much in taxes. 

When deciding if someone should get a 1099 (independent contractor) or be on payroll as a W-2 employee, there are

two sets of rules to follow: 

1. State Department of Labor (DOL) for wage and hour protections like minimum wage overtime. 
2. IRS – for tax purposes. 

Right now, the DOL is using its older, long-standing rules (from before 2021)because newer rules are on hold.

DOL Test – “Economic Realities”

The DOL looks at the overall working relationship to see if the worker is truly in business for themselves or dependent

on you for their livelihood. They’ll ask questions like:

• Is their work a key part of your business? (If yes, more likely an employee)
• Can they make more money or lose money based on how well they manage their work?
• Who pays for the tools, equipment, and supplies?
• Is this a one-time or short-term project, or an ongoing arrangement?
• Who decides how, when, and where the work gets done?
• Do they bring special skills and take initiative, or do they mainly follow your instructions?

IRS Test – “Control”

The IRS looks at control in three areas:

• Behavioral Control – Do you tell them exactly how to do the work?
• Financial Control – Do they invest in their own tools, pay their own expenses, and have a chance to make or lose
• money?
• Relationship – Is there a written agreement? Do they get benefits? Is this an ongoing job that’s part of your core
• business?

Easy Way to Think About It

If you decide what work gets done but not how it gets done, they probably can be a 1099. If you direct and control their daily work, provide tools, and they work only for you long-term, they’re probably an employee.

Why It Matters

 Misclassifying someone can lead to big bills for back wages, payroll taxes, penalties, and interest. - Just calling someone a “contractor” in a contract does not make them one. The law looks at the facts of the working relationship.

Only certain employees can be exempt from overtime and minimum wage. The U.S. Department of Labor has issued a Fact Sheet.

Avoid problems in calculating and tracking shareholders' basis.

Find out more about hiring family.