1- In chapter 8 we discuss Capital Gains and Losses. . First, review this article which looks at long-term and short-term capital gains. http://taxes.about.com/video/What-Are-Long-Term-and-Short-Term-Capital-Gains-Tax-Rates-.htm . Then, identify capital assets that exist in your current, past or future job. How does the tax treatment differ on a long-term versus short-term capital gain? What is the tax treatment of net capital losses, including any unused capital losses in a particular year? 2- You are a CPA being paid to prepare a tax return for a client. Your client has a maid that cleans their house twice a week, and is paid about $3,000 per year. You notice your client has not been reporting, withholding, or paying any taxes on the wages of this household employee. When you bring this issue up to your client, they are quick to reply that the maid is a part-time employee and not subject to the “nanny tax”. Is your client right? What would you do in this case?

Taxation

Part 1

Capital assets that exist in my current job include buildings, computer equipment, machinery, vehicles and the like. Long-term capital gains are taxed using a lower rate than regular income. Long-term capital gains are taxed at 20% in the highest tax bracket, but most taxpayers qualify to pay 15% on their capital gains (Stiglitz, 2018). Taxpayers who are in the tax bracket of 10% and 15%, however, pay a tax charged at 0% rate on capital gains.

Short-term capital gains are taxed on ordinary basis considering the individual’s tax filing status and adjusted gross income.  Capital gains on short-term capital assets attract a higher tax rate than taxes on long-term gains. Net capital losses including any capital losses in a particular year are reported in the investor’s tax returns as deductions.

Part 2

According to the IRS regulations for 2018, any individual employed to provide services in a home and paid directly any money amounting to $2,100 and above must receive a W-2 from the family he/she is working for (Philips, 2018). Also, the household employer must pay the payroll taxes on behalf of the individual. The US Department of Labor employee and independent contractor advice that most workers are employees under the FLSA’s road definitions; even those classified as independent contractors (Philips, 2018).  The description states that these employees must pay taxes such as Social Security and Medicare taxes, State Unemployment taxes where required and Federal Unemployment Tax where required.

Based on this Act, the client is wrong. I would advise the client to start paying the taxes or start deducting the required taxes from the maid’s payroll. Failure to do this will make my client subject to tax evasion.

References

Stiglitz, J. E. (2000). Capital market liberalization, economic growth, and instability. World

development, 28(6), 1075-1086.

http://taxes.about.com/video/What-Are-Long-Term-and-Short-Term-Capital-Gains-Tax-Rates-.htm

Philips, K. (2018, Mar 7). New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More. Taxtime. Retrieved from https://www.forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/#4274bee73133