California Tax Law Blog

Good News for California Truckers and other Independent Contractors

Two recent court decisions are helping to quell the effects of the recently-passed Assembly Bill AB 5 (Gonzales, Chaptered September 18, 2019) in regard to California trucking companies, by determining that federal law preempts the most problematic part of both AB 5 and the 2018 California Supreme Court decision Dynamex West Operation v. California Superior Court. Both Dynamex and AB 5 worked to institute the new California worker classification test, the ABC Test, which provides for the following:

For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity's business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Gig Economy and Other Worker Classification May Differ for Federal and California Purposes

Nearly a year ago, the U.S. Department of Labor issued an opinion that most "gig economy" workers are properly classified as independent contractors.

IRS 2019 Annual Report - Putting Taxpayers First

The IRS issued its 2019 Report with an opening message that, "Our people are the strength of the IRS and we want to do more!" The report provides insight into the extent of the IRS' efforts in helping people throughout the country, and plans to increase efforts in 2020, including implementing provisions in the Taxpayer First Act and the Business Modernization plan.

IRS Warns Risks of Identity Theft to Business Owners

We are used to the IRS advising individuals of how to protect against identity theft, but now businesses are a target of the same threat. As a result, the IRS has increased efforts in cybersecurity to protect the latest targets on business owners. It is crucial that business owners also take action to protect their electronic client and financial data. To read the IRS' recent bulletin, please click here

Good News for the Cannabis Industry?

As recently discussed here, the current state of the law allows business owners in the cannabis industry to take certain deductions on their state income tax returns, but not on their federal tax returns. That may soon change. The House Judiciary Committee approved the MORE Act (Marijuana Opportunity Reinvestment and Expungement Act) yesterday; now the bill will be reviewed by the House. If passed, marijuana will be removed from the list of federally controlled substances allowing business deductions for California cannabis business owners at the federal level. The bill provides for a 5% tax on marijuana products to fund programs to help people impacted by the "war on drugs."

OTA Reverses FTB Assessment of Out-of-State Contractor Income

The California Office of Tax Appeals (OTA) recently reversed a Franchise Tax Board (FTB) proposed assessment of a Texas-based independent contractor working for a California-based company. The OTA found that income reported to the contractor on a Form 1099-MISC did not have a California source because the end clients were located out-of-state, and therefore the contractor had no requirement to file a nonresident California return. To read the decision in full, click here.

How Will California's AB 5 Affect My Business?

Following the California Supreme Court decision in Dynamex Operations v. Superior Court, 4 Cal. 5th 903 (2018), which identified the "ABC Test" for worker classification for the purposes of California's wage and hour determinations under the IWC Wage Orders, and now with the passage and signing into law of Assembly Bill 5 (Gonzales) (2019 Cal ALS 296, 2018 Cal AB 5, 2019 Cal Stats. ch. 296.), which extended the Dynamex ABC Test to apply in workers' compensation insurance and EDD payroll tax determinations of status, we have been inundated with questions and issues arising out of these significant changes to California worker classification law. I have also noticed that California businesses and some experienced California practitioners are misinformed, or simply mistaken, about some elements of AB 5 and its potential effects on California businesses, independent contractors, and employees.

IRS Announces 2020 Annual Inflation Adjustments For Over 60 Tax Provisions

The Internal Revenue Service (IRS) recently announced changes to tax rate schedules and certain tax provisions to adjust for inflation in tax year 2020. The standard deduction for taxpayers who are married filing jointly will increase to $24,800; for taxpayers who are single or married filing separately, the deduction will increase to $12,400; and for taxpayers who are heads of households, the deduction will increase to $18,650. The Alternative Minimum Tax exemption amount for tax year 2020 will increase to $72,900 and begin to phase out at $518,400 (for married couples filing jointly, these amounts increase to $113,400 and $1,036,800, respectively).

FTB Top Tax Debtors Owe California Over $581 Million

The Franchise Tax Board (FTB) recently published its updated lists of California's top 500 individual and top 500 business tax debtors, who now collectively owe the state more than $581 million in income tax. Since October 2007, this list is updated twice annually. Taxpayers who receive notice of the FTB's intent to include them on the list and then make arrangements to pay their tax debt are removed from the publication.

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For more information about our tax law services, or to discuss your tax matter, call our Sacramento office at (916) 488-8501 or toll free at (800) 684-7147. You may also send us an inquiry via email.

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