A Los Angeles CPA Firm Can Protect You From the IRS!
Most small business owners pay people to perform a variety of jobs for their business. From hiring a Los Angeles CPA to do their taxes to hiring a Web designer to build their Web site, small business owners need help to successfully run their business. How do you classify people who work for you? Are they employees or independent contractors? There’s a big difference from a tax liability perspective, and what you don’t know can hurt you. If you’re unsure whether a person working for you is an employee or an independent contractor, ask a Los Angeles CPA firm to explain the laws and tax implications. You’ll be glad you did, because the IRS can levy large fines if you don’t get it right. Generally speaking, a Los Angeles CPA will tell you that an employee is someone you can hire, fire, and essentially control what they will do and how they will do it. Conversely, an independent contractor is someone who agrees to perform a job for you, but you cannot tell them how to do it. Independent contractors will use their own equipment or tools (whether it’s a computer or a hammer), and consider themselves as being self-employed. A Los Angeles CPA firm will advise you to take these distinctions seriously because the IRS is cracking down on small businesses who are misclassifying workers as independent contractors versus employees (and vice versa). For federal tax purposes, the IRS takes many factors into account when classifying an employee and an independent contractor. A Los Angeles CPA can provide you with all of the factors, but here are a few questions to ask yourself:
- Do you have the right to control how the person performs the tasks you ask him to do?
- Can you control the person’s hours (when they have to work and when they can stop)?
- Do you provide health insurance or other benefits?
- Do you own or provide the tools or supplies the person uses?
- Can you fire the person for any reason, at any time?
These are all important questions you should ask your Los Angeles CPA if you don’t already know the answers. Another distinction is that employees receive a W-2 Form that informs them of the wages paid over the course of the year and the taxes that were withheld, whereas independent contractors receive a 1099-MISC Form if they were paid $600 or more over the course of the year. Your Los Angeles CPA will probably advise you to hire independent contractors whenever possible, because there aren’t as many tax obligations. For instance, when you hire independent contractors you don’t have to withhold federal, state, and local income taxes; federal or state unemployment taxes; Social Security and Medicare taxes; and other tax liabilities. Any Los Angeles CPA will tell you that you must treat employees and independent contractors differently. They may perform similar tasks, but your tax obligations are vastly different. If you regard an employee as an independent contractor, you may get an unwelcome call from the IRS informing you that you must pay a fine and the worker’s employment taxes. Not sure whether one of your workers is an employee or an independent contractor? Call a Los Angeles CPA for more information on ways to avoid getting into trouble with the IRS. Visit www.RickNorrisCPA.com, a Los Angeles CPA firm experienced in accounting, tax preparation, and many other services to assist your business.