As the owner of a business, from a tax standpoint, you want everybody who works for you to be an independent contractor. If your workers are employees, you must pay social security and unemployment taxes on their wages, collect and account for withholding taxes, possibly provide health insurance and pension benefits (particularly if you wish to provide these benefits to yourself), and keep track of all these taxes and benefits. To do this requires that you conquer a mountain of paperwork. When your workers are independent contractors, on the other hand, the cost of taxes and benefits, and the paperwork, disappear. You simply pay an independent contractor what you agreed to pay him. The rest of the problems are his. He's responsible for his own social security and income taxes, and he must buy his own medical insurance and start his own pension plan.
Many employees also prefer to be independent contractors, although it is not always clear why. Probably they like not having income taxes and social security taxes withheld from their paychecks (though they still must pay all of these taxes themselves), and they may have their own pension plan (though they don't get any contributions to it from
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Publication information: Book title: Don't Let the IRS Destroy Your Small Business:Seventy-Six Mistakes to Avoid. Contributors: Michael Savage - Author. Publisher: Perseus Publishing. Place of publication: Cambridge, MA. Publication year: 1998. Page number: 16.
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