If you currently are an employee, you probably are all too aware of how much tax you pay. As an employee, you don’t have the benefit of many legal tax loopholes. The tax breaks come when you’re a business owner.
One quick way to become a business owner is to become an independent contractor instead of an employee. You get to take deductions for things like a home office, business travel, auto deductions and the like. But remember you lose benefits like medical insurance and retirement.
If you’re an employer, turning employees into independent contractors can be a real boon. You’ll save on payroll taxes and you won’t have to include independent contractors in employee benefit programs.
It isn’t quite that simple, though. You need to make sure that the workers really aren’t employees in disguise. Some of the questions in the IRS’s 20 questions to determine whether you have an employee or an independent contractor are whether you set the hours, whether you determine how the worker performs the task, you provide the tools for them to work, restrict them to working just for you, and others that establish you control how, when and where the worker works. If you do that, you’ve got an employee. If they have the freedom of a business owner to make money or lose money, then you’ve got an independent contractor.
Every independent contractor needs an agreement. #7. Independent Contractor Agreement is a good boiler plate, but remember that you will likely want to customize it with the particulars of what responsibilities that independent contractor will have.
I also like to add in #26 Assignment for Work for Intellectual Property. That way if your independent contractor is involved in the creation of intellectual property while working for you, you retain the rights to the IP. Otherwise, you might be giving your systems, patents and unique processes away to the highest bidder!