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Start The Year Out Right

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Don't Mess With The IRS

Follow IRS Rules

Now is the time to save yourself trouble for 2016. Start the year out right by properly handling independent contractors. The first thing to do is to determine whether or not they really are independent contractors. That is not as easy as it sounds. The IRS has a publication called the Employer’s Supplemental Tax Guide – Publication 15A that gives guidelines to follow. I have copied the IRS narrative about common law rules for this and also some of the guidelines below and also have a link to the IRS website where the document can be found. The guidelines are on page 7 of the document.

To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered.

Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. These facts are discussed next.

A few guidelines are:

  • Behavioral control
  • Instructions the business gives to the worker
  • Training the business gives to the worker
  • Financial Control
  • The extent the worker has unreimbursed business expenses
  • The extent of the workers investment

Read the entire relevant information by clicking here

After the hard part of determining the contractor/employee status the next important thing to do if they are determined to be a contractor is to provide them with an IRS form W-9 (Request for Taxpayer Identification Number and Certification) and ask them to return it completed to you before you pay them the first time.

If you do both of those steps, you will not be in trouble with the IRS for a misclassified employee and you will have all the data you need at year-end to send out your 1099-Misc forms to the vendor. Good luck with your 2015 1099 preparation and following these 2 steps will make next year’s filing much easier.


Written by pacelinebiz

January 4, 2016 at 8:01 am

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