Let’s face it, hiring employees can be expensive; not just the cost of the services provided, but all of the administration that surrounds it, like payroll taxes and unemployment taxes. Now, at least in Colorado, add to that a state assessed fine beginning July 1, 2009 for all situations where the Division of Employment finds that an employer “with willful disregard of the law, misclassified employees” as independent contractors. And the fines are steep: $5,000 for each misclassified employee the first time, and $25,000 for each misclassified employee for the second and subsequent violations. OUCH!

In determining whether an independent contractor relationship exists, the sincle most important test is the amount of control maintained by the employer. If the employer controls the contractor then generally an employment relationship exists. In order to substantiate a contractor relationship, we suggest documenting the specific reasons why each independent contractor is not being classified as an employee, focusing on the lack of employer control.

Effective January 1, 2009, the IRS has started to automatically assess a $10,000 penalty for each late filed Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The penalty has been on the books for years, but has rarely been enforced. Now, in order to encourage greater compliance, the IRS is automatically assessing a $10,000 penalty for each Form 5471 that is filed late. Another reason to file extensions and returns on a timely basis, even if there is no tax due.

Still haven’t filed your 2008 Colorado corporation income tax return? If you apportion your income to a number of states, maximize your 2008 Colorado NOL carryover by calculating the year’s loss under both the two factor and three factor method; choose the method that provides the greatest loss. Colorado has adopted the single factor method of apportionment for multi-state companies for years beginning after January 1, 2009. There is no limitation on the NOL carryover based on the method chosen in a prior year. This means a company can maximize their NOL for 2008 even if it is a different method than utilized in a prior year.