With part-time employment, contract work and freelance opportunities, more and more people are considering themselves self-employed. And while the term may be true for your own classification, claiming self-employment to the IRS is a tricky one, and one that most people often get wrong.
Unfortunately, misclassifying yourself on your taxes can cause a lot of problems down the line. Whether it’s your mistake or the mistake of your employer or the business you are contracted to, the IRS will penalize you.
Employees pay half of their income taxes, leaving the other half to their employer to pay. But, when you classify as self-employed, this means that the entire tax burden is on your shoulders, resulting in more money going towards your taxes and less or no tax return. The IRS is also highly concerned with this because misclassifications often result in lost tax revenue for them.
How Do I know if I am Self-Employed?
If you are self-employed, you are most likely receiving a 1099 form rather than a W2. But, often, employers classify their employees and independent contractors incorrectly and send out the wrong form. A few ways to tell if you are misclassified as an independent contractor are:
• If the company provided training before you started the job and continues to have control over your day-to-day activities.
• If you receive employee benefits such as paid vacation or insurance.
• If your expenses are reimbursed or the company provides you with tools you need to do the job, such as a computer or vehicle.
• You don’t submit invoices for your services. Independent contractors and self-employed workers usually submit an invoice either weekly or monthly.
• You have a work schedule that requires you to punch in and out or report and leave at a certain time each day.
While these items are a few ways to determine if you are an independent contractor, the lines are blurry. Usually, the IRS looks at how many factors you qualify for to make a decision on your status. If you are unsure of where you stand, talk to a tax professional like Levy & Associates before you file your tax return for the new year. This will avoid any headaches that could come up after the return has been filed. Contact us today to learn more.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.