Tax Law

Employee or Independent Contractor? The Internal Revenue Service is focusing more efforts on Independent Contractors and the requirement of filing Forms 1099.

Is this individual that I am paying an employee or an Independent Contractor?

Employers have more control over employees vs. independent contractors. Facts that provide evidence of the degree of control and independence fall into 3 categories:

  • Behavioral - Does the company control or have the right to control what the worker does and how the worker does his job?
  • Financial - Are the business aspects of the worker's job controlled by the payer?
  • Type of Relationship - Are there written contracts or employee type benefits? Will the relationship continue and is the work performed a key aspect of the business?

It is not a good idea to pay and treat the same individual as both an employee and independent contractor. The penalty for not filing Forms 1099 can be as high as 28% of the amount paid to the independent contractor.


Why should I keep records?

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.

What kinds of records should I keep?

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.

How long should I keep records?

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.

How should I record my business transactions?

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.

What is the burden of proof?

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.

How long should I keep employment tax records?

Keep all records of employment taxes for at least four years.

Hiring Your Own Children

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.