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Hiring independent contractors is a popular choice for business owners looking for a way to reduce their tax burden, but misclassifying your workers can lead to serious problems with the IRS. Knowing who qualifies as an employee, who is classified as a contractor, and what forms to fill out will reduce confusion when filing your returns and ensure you stay compliant with the code. If you’re not sure whether a worker is an employee or a contractor, you may want to speak to a business accountant before filing your taxes.

Contractors vs. Employees: What You Need to Know for Tax Purposes

What Is an Employee?

If you have control over a worker’s behavior and how they go about performing their duties, they’re considered an employee according to IRS guidelines. Even if you decide to give them a Form 1099 instead of a W-2, workers are still considered employees if you set their schedule, provide detailed instructions on how work should be done, and invest in the equipment they use. The IRS may also consider a worker an employee if their activities are a key part of the business.

How Independent Contractors Differ

business accountantWith an independent contractor, you may describe the desired result, but the person can choose how they go about doing the work. They might use their own tools and software, and they typically set their own schedules. If you give a deadline and a description of a finished product or service to individuals that don't perform work for your company on a regular basis, your business accountant will likely recommend classifying those workers as contractors.

If your company employs both full-time and contracted workers, a business accountant can ensure you don’t make any mistakes when filing your taxes. With offices in Greensboro and High Point, NC, the team at Sharrard, McGee & Co., PA provides effective tax services and insightful guidance to companies throughout the Triad. Their team of experienced professionals has more than 40 years of experience and can assist with almost any tax issue, from simple preparation to complex problem-solving. Visit their website for more on their services, or connect on Facebook for more tips and company updates. To discuss your needs with a business accountant today, call (336) 884-0410 in High Point or (336) 272-9777 in Greensboro.

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