Employee or Independent Contractor? The Internal Revenue Service is focusing more efforts on Independent Contractors and the requirement of filing Forms 1099.
Employers have more control over employees vs. independent contractors. Facts that provide evidence of the degree of control and independence fall into 3 categories:
Good records will help you monitor the progress of your business, prepare your financial statements, identify sources of income, keep track of deductible expenses, keep track of your basis in property, prepare your tax returns, and support items reported on your tax returns.
You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
The length of time you should keep a document depends on the action, expense, or event the document records. You must keep your records as long as needed to prove the income or deductions on a tax return.
Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. These documents contain information you need to record in your books.
The responsibility to substantiate entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove certain elements of expenses to deduct them.
Keep all records of employment taxes for at least four years.
A little known loophole exists for employing for own children under the age of 18. You would not be required to withhold Social Security taxes or Medicare taxes on your child. Not only are you shifting income to a very low tax bracket you are also saving on the payroll taxes. If you would like additional information on this strategy please call Matt Shaughnessy, CPA at our office.