Paying Workers What Can You Write Off

Paying Workers What Can You Write Off



Paying Workers – What Can You Write-Off?
As your business grows, you are going to​ need help .​
This help comes in​ the form of​ employees and independent contractors .​
What you can write-off is​ dependent upon how your helper is​ classified – as​ an​ employee or​ independent contractor.
Independent Contractor
Whenever possible, you want to​ use independent contractors to​ assist you .​
Payments to​ independent contractors are completely deductible .​
You simply claim the deduction on your return .​
If you pay them more than $600 during the tax year, you also must issue a​ 1099-MISC in​ January of​ the following year .​
Importantly, you do not have to​ pay employment taxes or​ make withholding on the compensation.
Unfortunately, the IRS doesn’t allow you to​ randomly classify a​ worker as​ an​ independent contractor .​
The key to​ the determination is​ whether you control the actions of​ the worker .​
Generally, you must be able to​ show the IRS that the worker is​ an​ independent contractor because they have the ability to​ control the details and means by which the work is​ accomplished .​
To this end, it​ is​ helpful to​ show the worker sets their own ours, has a​ work place and risks not getting paid if​ the work is​ below standard.
Employee
If your worker is​ classified as​ an​ employee, the tax burden increases .​
Under federal law, you are responsible for paying employment taxes related to​ the worker, even if​ there is​ only one.
Initially, you must withhold FICA, Social Security and income taxes from employee paychecks .​
As an​ employer, you must also contribute FUTA payments on your own, to​ wit, they are not deducted from the employees pay.
FICA stands for the Federal Insurance Contribution Act .​
This Act created a​ system to​ collect and provide benefits for workers who retire, are injured or​ become disabled .​
FICA is​ better known as​ Medicare.
FUTA stands for the Federal Unemployment Tax Act .​
This Act created a​ system to​ provide unemployed workers with temporary benefits until they obtain a​ new job .​
The system works in​ tandem with state unemployment acts .​
Most consider it​ a​ disaster, but you still have to​ pay.
In Closing
As you can see, it​ is​ cheaper to​ use independent contractors versus employees .​
The tax burden is​ significantly less, but make sure the IRS doesn’t reclassify them as​ employees.




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