W. Edward Newton Jr., CPA, CFP (R) | 13850 Ballantyne Corporate Place, Suite 500 | Charlotte, NC 28277 | 704-552-8689

 


Employee or Independent Contractor?
Know the Rules


We encourage all businesses and business owners to know the rules when it comes to classifying a worker as an employee or an independent contractor.


An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee
.

Employers normally do not have to withhold or pay any taxes on payments to independent contractors.

Here are two key points for small business owners to keep in mind when it comes to classifying workers:

1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker's job, it exercises financial control. This includes:

- The extent of the worker's investment in the facilities or tools used in performing services
- The extent to which the worker makes his or her services available to the relevant market
- How the business pays the worker, and
- The extent to which the worker can realize a profit or incur a loss

2. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:

- Written contracts describing the relationship the parties intended to create
- Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
- The permanency of the relationship, and
- The extent to which services performed by the worker are a key aspect of the regular business of the company
- The extent to which the worker has unreimbursed business expenses

We can help employers determine the status of their workers. Feel free to give us a call if you have a question about this issue.

 


 

Tax Tips to Consider for Cash Intensive Small Businesses in the Sharing Economy

Small business owners that offer goods and services through an online platform may be part of the sharing economy. Some participate part time while others operate full time.

Activities such as ride sharing, freelancing, renting a spare bedroom and crowd funding are usually taxable.

We can provide these taxpayers with the information and help they need to meet their tax obligations.

Some sharing economy tips for small businesses to consider:

1) Taxes. Sharing economy activity is generally taxable. Payments received in the form of money, goods, property or services may require filing a tax return to report that income to the IRS.

Tips. People often conduct sharing-economy activities electronically but tips in cash are still a common occurrence. Tips are generally subject to withholding. Small businesses or self-employed persons should report tips they receive as income on Schedule C or C-EZ.

2) Large Cash Amounts. Any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, within 15 days after receiving payment.

3) Deductions. Expenses to carry on a trade or business are usually deductible. Examples include claiming the 54 cents per mile rate for 2016 when using a car for a ride-sharing business. Or deducting the commission/fee charged by a freelancer marketplace service.

4) Estimated Payments. Small businesses in the sharing economy often need to make quarterly estimated tax payments to cover their tax obligation. We can help to figure these payments.

5) Records. Good records assist in monitoring the progress of a business. Tracking deductible expenses can substantiate items reported on tax returns. A good recordkeeping system includes a summary of all business transactions. Generally, it is best to record transactions on a daily basis.

Feel free to give us a call if you have a question about this particular topic or issue or if you need help or want to get started on tax planning for 2017 already!  If you have comments on the information in these articles, as usual feel free to call our offices.


 

 


 

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As always you can call our offices if you have any questions about these or any other accounting, tax, financial planning or Quickbooks related issues, at 704-552-8689. 

 

Regards, W. Edward Newton Jr., CPA

Certified Public Accountant

 

 

 

 

W. Edward Newton Jr., CPA | Certified Public Accountant

13850 Ballantyne Corporate Place, Suite 500 Charlotte, North Carolina 28277
Phone: (704) 552-8689  |  Email: ed@newtonassociatescpa.com