Newspaper article THE JOURNAL RECORD

Taxes or Tea Leaves?

Newspaper article THE JOURNAL RECORD

Taxes or Tea Leaves?

Article excerpt

The Boston Tea Party was basically a taxpayer's revolt -- taxation without representation. A frequent focus of Internal Revenue Service audits today is for representation without taxation. In other words, for businesses not paying taxes on a person who works for them but whom they do not view as an employee -- the independent contractor (or icon).

Icons are outside specialists you utilize on a part-time basis for various activities within your business where a full-time employee is not justified (examples might include bookkeeping, cleaning, and other specialties). Since you don't pay taxes and benefits for these folks, the IRS scrutinizes them carefully.

Any time you utilize independent contractors, they must pass a series of "tests" with the IRS. If they actually work for another company (such as a janitorial service) or if they perform the same service for other companies, it's more clear-cut. However, this category of person can be a mine field for small business owners if they don't know and follow the rules. Whenever you utilize the services of icons, you should insist on having a written agreement with them that is signed by both parties. If and when you are audited by the IRS, you don't want to lose on this issue, because if you do, the IRS may assess your business a tidy sum for back-withholding and penalties. Make a list of the people who periodically work with your organization but whom you don't have on your payroll as employees. If you are paying their company for your services and they do this work for a number of organizations, you are probably on solid ground. However, if you are dealing directly with individuals, you had better get a written agreement with them fast, and this agreement had better include several key elements. When dealing with an icon, the key word is "independent." In other words, you cannot TELL them what to do, the way you would an employee. Here are some of the criteria the IRS might use to determine if this person is really your employee (and a single "YES" answer can spell trouble): Is the worker required to follow your direction as to when, where and how the work must be done? …

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