The Department of Labor doesn’t have a specific test to measure if a worker is an employee or independent contractor. Instead, it focuses on how much control https://www.bookstime.com/articles/how-to-find-good-accounting-firms-for-startups the employee has and how much commitment is required. What matters is that you have the right to control the details of how the services are performed.
The business gets to decide whether to carry you on the books as an employee or contractor. An employee typically performs duties dictated or controlled by others. If you can’t file your taxes by the April 15 deadline, you should use Form 4868 to file for an automatic six-month extension. But that’s only an extension to file your paperwork — if you owe any taxes, you’ll need to pay them by the April 15 deadline to avoid being charged a penalty. You may be a one-person business, but you should never feel alone when filing your business taxes. Get some accounting and tax software to help you organize your independent contract business finances.
Here’s some information to help business owners avoid problems that can result from misclassifying workers.
However, you might pay a higher percentage of your income in taxes due to limited deductions. As a contractor, you have more control over your income and can potentially take advantage of various tax deductions available to business owners. However, you’re responsible for managing your own taxes, including estimated tax payments.
On the other hand, a W2 employee is hired by a company to work under their direction and supervision. They typically work set hours, follow company guidelines, and may be paid a salary or hourly wage. Additional confusion over taxable contract income also comes from the amounts the IRS uses to trigger reporting of accountant for independent contractor the earnings. And that’s why smaller businesses, already operating on tighter margins, might be tempted to go the contractor route even when the job calls for an employee. Although you might do essentially the same work, the IRS views contractors and employees — and the businesses that hire them — differently.
