How to Pass the Independent Contractor Test

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6-7-11We’re looking at Audit Red Flags, Audit Defense and, in general, Audit Survival this month as part of US Tax Aid Coaching.

There are almost 100 items that the IRS is focusing on for their audit teams right now. On Tues, we’ll go over those during our live coaching session. Of course, you can pick up the manual and taped session anytime.

One of the items that the IRS is going to target will be question whether you have an Independent Contractor or an employee.

6-7-2Generally speaking, it’s better for you if you have an independent Contractor. You don’t have to pay payroll taxes and you don’t have to cover benefits. And if your worker understands the basics of having a business, he’ll be happier being an Independent Contractor as well. That’s because he’ll be able to turn many partially deductible employee expenses into full-fledged business deductions. Plus he can establish his own pension plan and depending on his business structure, take a whole bunch of deductions.

But what does it take to have true Independent Contractor status with your worker? The IRS has some general guidelines for determining Independent Contractor status.

The main issues all center around how you treat the worker – like they’re independent or like they’re an employee and how the worker treats her business – like an employee or like it really is a business. Do you follow regular business practices? For example, do you have an Independent Contractor Agreement? If not, you could be risking a lot if you get an IRS audit.

winningicThere are a lot of reasons to have Independent Contractors instead of employees, but if you’re not prepared to treat them like they are separate and they understand completely that they are a business, and not an employee, it’s not going to work out in the long run.

We’ve got the IRS requirements distilled down to the 20 key factors along with real life examples of what works and what doesn’t. Plus, we’ve included a template for an Independent Contractor Agreement that works as part of the “Winning the Independent Contractor Agreement” manual and workbook.

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