As a business owner, there comes a time when you are faced with a big decision. You have to determine how you are going to move forward with your growth. You can choose between an employee or a contractor to help you provide your customer base with the services they pay you for. There are some key differences between an employee and contractor as far as tax implications go. When determining which direction you would like to move it, you need to know what the clear differences are going to be. Propel Your Accounting is here to talk about the different tax planning that is going to be involved in employees versus contractors for business owners.
Difference Between Employees & Contractors
It is important that business owners know the key differences between employees and contractors.
– Employees: An employee is someone that works for an employer and their schedule is determined said employer. The employer will provide them with any necessary training and equipment that is needed to fulfill orders or provide services for the company they are working for.
– Contractors: On the other hand, contractors may provide services to multiple businesses at once. They are in charge of their schedules as well as the training needed to master their art. If there is equipment needed for the services they provide, it will be their responsibility to find that necessary equipment.
Tax Implications for Employees & Contractors
Just like there are differences between employees and contractors, there are also going to be different tax implications for the two.
– Contractors: A contractor is going to receive all the payments in full that businesses pay them for their services. However, this also means that no one is helping with the taxes that they owe. A contractor is required to make tax payments quarterly to the IRS to keep up with the taxes they owe. They will be given a 1099 form that they can use when filing taxes.
– Employees: On the flip side, one of the benefits of being an employee is that your employer is going to cover half the cost of your social security and Medicare costs. At the end of the year, your employer will provide you with a W-2 form that clearly states the taxes that were withheld from your paycheck and the amount of money you earned throughout the year. Taxes are far less complicated for employees than they are for contractors because of the lack of paperwork that is involved.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If you are in need to tax planning, filing and other accounting services, you can turn to Propel Your Accounting to take care of you. We will ensure you are paying the taxes that are required for your business and will also help you forecast for growth to help you reach your goals. We will help you find success. Call us today!
