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Hiring Independent Contractors as an LLC

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LLCs don’t always have the ability to hire a part- or full-time employee for a project. Here’s how it works when you are hiring independent contractors as an LLC. Get It in Writing Just as you should always have a clear contract when you are an employer or employee, or even just entering into a good-faith partnership for a limited time, you should know your rights and be transparent with your expectations. For your own safety and peace of mind, you should have a written contract drawn up any time you hire an independent contractor (even if that person is your family member or friend). You’ll also want to make sure you have proof of a real and separate business. Whether this comes in the form of a project estimate complete with letterhead and logo or you take a screenshot of an applicable landing page on the independent contractor’s website. Make Sure They are Considered a True Independent Contractor There isn’t a perfect set of criteria that defines what an independent contractor is. That means you have to do your research – make sure they qualify as an independent contractor. Legal Zoom has some great examples of circumstances that might raise red flags as far as determining an independent contractor’s status: A former employee is rehired to do work similar to their old job, even if temporary or part-time  An intern is doing actual work, not just shadowing or learning; be sure to check the six criteria related to interns You provide the equipment, supplies, tools, or ongoing office space the worker uses  The worker replaces one of your employees or supervises any of your employees The relationship is ongoing and long-term, not project-based Keep Up on Department of Labor Standards The Balance SMB recently reported that the Department of Labor has developed new standards for determining independent contractor vs. employee status. The ruling was set to go into effect in March of 2021, but currently, all regulations were frozen by …

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Ultimate Guide to 1099s

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There are lots of different 1099s and we wanted to help you better understand them, so we’ve put together this guide of eFile360 resources to help you grow your understanding. 1099s: The Basics First thing’s first – what is a 1099? It is, at its most basic form, a tax document that is used to report miscellaneous payments made to individuals who are not employed by your business. Any non-employee who receives more than $600 from you in any given tax year should receive a 1099 from you. There are more than a dozen different types of 1099 forms, the most popular include 1099-MISC (and now 1099-NEC), 1099-INT, 1099-DIV, 1099-K, 1099-B, 1099-G, and 1099-R. For a full list of 1099s and what each one is used for, check out this blog post. Typically, the deadline for filing 1099s with the IRS and also sending them to each independent contractor recipient is January 31. Here’s a quick resource on common 1099 questions. The New Kid: 1099-NEC In tax year 2020, the 1099-NEC was brought back to take the place of Box 7 on form 1099-MISC. The 1099-NEC did not replace the 1099-MISC, it was just reinstated to help streamline the process for filing non-employee compensation. Some examples of non-employee compensation include professional service fees to accountants, attorneys, architects, contractors, engineers, and more; payments for services like parts or materials used to complete the services, director’s fees, and other payments made to freelancers and independent contractors. For more about who fills out the 1099-NEC, click here. We also put together a great list of dos and don’ts as it pertains to the form 1099-NEC. You can read it here. 1099 FAQs The IRS has a ton of great insights into frequently asked questions about 1099s, including: What's the difference between a Form W-2 and a Form 1099-MISC or Form 1099-NEC? How do you determine if a worker is an employee or an independent contractor? I received a Form 1099-NEC instead of a Form W-2. …

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Hiring Independent Contractors – What You Need to Know

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Hiring an independent contractor is a great way to get a temporary or occasional job done when your staff doesn’t have the time or expertise to do a specific job. Here’s what you need to know about hiring independent contractors. Why Hire Independent Contractors Independent contractors are great when you need a specific, but often not permanent or daily, job to be done. Hiring independent contractors can save your company time and money by having skilled professionals on hand to analyze problems and find quick solutions. It also helps by keeping projects that are unrelated to your staff’s core duties off their proverbial desk. No need to pull a vital employee from their normal job to have them try and perform a task they are not familiar or comfortable with, or in some cases qualified for. This also allows you to pay an individual for their services without having to add the financial and resource burden of another employee. Pros and Cons of Hiring Independent Contractors Like with anything, there are pros and cons to hiring independent contractors for your business. Pros: You’ll likely save money: Though you’ll be paying more per hour with an independent contractor, you don’t have to pay a number of expenses associated with hiring an employee, like Social Security tax, Medicare tax, unemployment compensation, worker’s compensation, etc.  It’s more flexible: Hiring and letting go of staff members is hard. With independent contractors, you can feasibly hire double (or half) the contractors on a day-to-day or job-to-job basis, without the attachment issues and repercussions. Cons: You have less control: Since an independent contractor is just that, independent, you don’t have as much say in how and when things get done.  Your workers are more apt to come and go: You trade consistency for efficiency – you may not know which person will show up on a given day to work on a project.   For more pros and cons of hiring an independent …

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Tips for Minimizing Your Taxes

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We all do it – we arrive at a deadline and wish we hadn’t procrastinated until the last minute – and your taxes are no different. Here are some year-round tips for minimizing your taxes. Learn Which Life Events Affect Taxes – and How While you probably aren’t thinking of it at the time, most major life events also come with tax changes. If you get married, divorced, have a child or adopt one, or experience other big changes this year, your taxes will be affected. Take the time to do some research beforehand. Knowing how your big life events will affect your taxes can help you start planning for those changes earlier, which only makes it easier for you and your family in the long run. Use the IRS Tax Withholding Estimator If you want to get way ahead of the curve, you can use the IRS’s free Tax Withholding Estimator tool. Having an accurate estimate of your withholding can do a few things. It can help you catch paycheck withholding errors quickly, and it can also ensure that you are not withholding too little tax, and thus creating a large tax bill for yourself next year. Reduce Gross Income Subject to Taxes Investopedia recently shared three moves to help reduce your taxable income and cut your taxes: Increase retirement contributions: one of the easiest ways to reduce taxable income is to increase your contributions to an employer-sponsored retirement plan or an individually held traditional IRA. Recently, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 states that for 2020 and beyond, the age restriction of 70 ½ years has been lifted, allowing seniors to contribute to IRA accounts indefinitely.  Increase your contribution (or start contributing to Roth 401(k) or Roth 403(b): These employer-sponsored plan contributions are made through your paycheck, and while they don’t provide up-front tax benefits, they do allow for tax-free withdrawals later.  Profit from your losses: On the individual level, losses on …

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Tax Breaks for Tax Year 2021

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2020 made us all look long and hard at the current state of our business industries and our personal finances. And with that came new laws and tax breaks that you may be eligible for. Charitable Contribution Tax Breaks The Taxpayer Certainty and Disaster Relief Act of 2020 allows you to take up to $300 in charitable contributions as a tax deduction for the tax years 2020 and 2021, without itemizing. This change was made to help charities that were struggling during the pandemic, which means your charitable giving benefits you while also helping spur more momentum for philanthropy in these difficult times. It’s also worth noting that if you are able to itemize your charitable giving, the CARES Act allows you to deduct 100% of your adjusted Gross Income (AGI) in 2021, rather than the standard 60% deduction rate. Credit for Health Insurance Costs If your medical expenses exceed 7.5% of your AGI, and you itemize your deductions, you can deduct them. This percentage was set to go up in 2021 to 10%, but the passing of the latest act made this lower rate permanent. Medical expenses could include things like medical office fees, dental expenses, copays, health insurance payments, eyeglasses and eye exams, and more. You can also get a refundable credit (known as the HCTC or health coverage tax credit) that equals 72.5% of premiums paid by certain taxpayers for coverage of the individual and any qualifying family members under qualified health insurance. Temporary – Full Deduction of Business Meals For 2021 and 2022, the Taxpayer Certainty and Disaster Relief Act has provided a 100% deduction for business meal food and beverage expenses, which is a big jump from previous years where the standard deduction was 50%. Keep in mind, this provision is still considered temporary. Saver’s Tax Credit If you are 18 or older and you make eligible contributions to your IRA or employer-sponsored retirement plan in tax year 2021, you can claim 10%, 20%, or 50% of your …

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8 Common Tax Myths

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Taxes are complicated and confusing for non-professionals. We wanted to take some time to dispel the most common tax myths for you. Myth: Tax Filing is Voluntary When it comes to tax filing, the word “voluntary” doesn’t mean you only have to file if you want to. It simply means you are responsible for calculating (or hiring someone to calculate) the correct amount of taxes you and/or your business owe. The only people not required by law to file their taxes are those individuals who make too little income to file. Myth: Cash Transactions Don’t Have to Be Included in Your Taxes There is a reason many cash transactions are dubbed “under the table.” No matter whether there is little to no paper trail for a transaction, income is income and should be reported on your taxes for the applicable year. Myth: You Can Claim Home Office Deductions As a Result of the Pandemic Many people found out the hard way when filing their 2020 taxes that just because you have a home office does not necessarily qualify you for home office deductions. From tax years 2018 to 2025, whether your employee requires it or you request it, employees who work from home (not independent contractors, freelancers, or small business owners) can no longer claim the home office deduction. While many government and tax programs were amended to make exceptions for pandemic-induced hardships, the home office deduction was not among those amendments. Myth: Filing for an Extension Will Put You at Higher Risk for an Audit Many people are told that if you file an extension on your taxes, you are more likely to be audited. Studies have shown, however, that there is no correlation between extension filing and audits conducted. You can rest easy knowing that your extension is just that – an extension. Myth: Your Fur Babies Can Be Claimed as Dependents Even if they eat at the kitchen table and have their own bedroom, you can’t claim your pets as dependents. But here are some great tax deductions …

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