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Taxes Information |
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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. Richard Chapo is with http://www.businesstaxrecovery.com - recovering overpaid taxes for small businesses. Visit our article page - http://www.businesstaxrecovery.com/articles - to read more tax articles.
MORE RESOURCES: One state lawmaker wants to impose a tax on strip club patrons. Another plans to call for higher cigarette taxes. A third will propose putting the state's four percent sales tax back on all groceries. With the state facing a $2 billion to $2.5 billion shortfall this fiscal year and possibly worse financial news next year, lawmakers are searching for ways to fill gaps to avoid slashing education, ... Some out-of-work residents choose not to have taxes withheld from their unemployment checks, but that can be dangerous. Property taxes for the third installment are January 5 and should be postmakred or received by January 15th to avoid a penalty. Property owners are seeking payment plans on their taxes in Wake County. SHELBY - Long lines formed at the Cleveland County Administrative building Monday as people paid their property taxes at the last minute.Jan. 5 is the final day to pay before interest begins to accrue.Derek Mauney, waiting in a line that stretched down A new poll shows that registered voters in New York appear willing to pay higher taxes in order to prevent spending cuts in the state’s massive Medicaid program. Antrim Township in Franklin County is eliminating property taxes. LANCASTER, Pa. -- The Lancaster City Council unanimously passed Mayor Rick Gray's 2009 budget. The $46 million spending plan calls for a 5 percent increase in property taxes. With the economy struggling, Hoosiers have more on their minds: more jobs, more efficient government and surprisingly, more taxes. Being self-employed can bring a strong sense of independence and ownership. But like every business, self-employed individuals still must pay taxes. |
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