Paying Workers ? What Can You Write-Off?

As your business grows, you are going to need help. This help comes in the form of employees and independent contractors. What you can write-off is dependent upon how your helper is classified ? as an employee or independent contractor.

Independent Contractor

Whenever possible, you want to use independent contractors to assist you. Payments to independent contractors are completely deductible. You simply claim the deduction on your return. If you pay them more than $600 during the tax year, you also must issue a 1099-MISC in January of the following year. Importantly, you do not have to pay employment taxes or make withholding on the compensation.

Unfortunately, the IRS doesn't allow you to randomly classify a worker as an independent contractor. The key to the determination is whether you "control" the actions of the worker. Generally, you must be able to show the IRS that the worker is an independent contractor because they have the ability to control the details and means by which the work is accomplished. To this end, it is helpful to show the worker sets their own ours, has a work place and risks not getting paid if the work is below standard.


If your worker is classified as an employee, the tax burden increases. Under federal law, you are responsible for paying employment taxes related to the worker, even if there is only one.

Initially, you must withhold FICA, Social Security and income taxes from employee paychecks. As an employer, you must also contribute FUTA payments on your own, to wit, they are not deducted from the employees pay.

FICA stands for the Federal Insurance Contribution Act. This Act created a system to collect and provide benefits for workers who retire, are injured or become disabled. FICA is better known as Medicare.

FUTA stands for the Federal Unemployment Tax Act. This Act created a system to provide unemployed workers with temporary benefits until they obtain a new job. The system works in tandem with state unemployment acts. Most consider it a disaster, but you still have to pay.

In Closing

As you can see, it is cheaper to use independent contractors versus employees. The tax burden is significantly less, but make sure the IRS doesn't reclassify them as employees.

Richard Chapo is with - recovering overpaid taxes for small businesses. Visit our article page - - to read more tax articles.

In The News:

Greed, not taxes, will ruin this country |
When the privileged belittle those who are struggling and tell them to work harder, it shows how ignorant they are. National's campaign strategy, which is to ...

and more »

Concord Monitor

President aims to achieve balancing act on taxes
Concord Monitor
In this Sept. 22, 2017, photo President Donald Trump speaks at a campaign rally in Huntsville, Ala. Trump says he wants to lure Democratic lawmakers to sign on to a Republican-crafted tax overhaul plan. But negotiators must grapple with the reality ...
Trump aims to achieve congressional balancing act on taxesMinneapolis Star Tribune
Trump, Republicans to showcase tax cut for businessesReuters
GOP eyes corporate tax rate of 20 percent, retreating from Trump's lofty goalWashington Post
all 76 news articles »

Kirkwood police warn residents of scam involving delinquent taxes
The Kirkwood Police Department is warning that someone is scamming residents. The police phone number will show up on caller ID. The person on the line identifies himself or herself as an IRS agent and says the resident owes delinquent taxes from a ...

Newnan Times-Herald

County cracking down on unpaid taxes
Newnan Times-Herald
After the first year, the tax deed owner can take action to “foreclose on the right to redeem.” That requires notice to the property owner and a legal advertisement in The Newnan Times-Herald. Once the right to redeem has been foreclosed upon, the tax ...

and more »

Local leaders warn: Your property taxes will rise unless this happens
TRENTON -- New Jersey's 2 percent cap on police and firefighter arbitration awards must be renewed, or else taxpayers will see their services cut and property taxes rise, local government leaders said Friday. The cap on awards police and fire unions ...

Springfield News-Leader

Higgins, Reed to meet with Trump on taxes
Buffalo News
WASHINGTON – Two of Western New York's House members will head to the White House Tuesday to talk about tax reform with President Trump. Rep. Brian Higgins and Rep. Tom Reed are among several members of the tax-writing House Ways and ...
The tax reform we'd like to seeSpringfield News-Leader
Six ways Trump could hit the rich with tax planThe Hill
Presidential Tax Relief and Reform: Vital for Economic Growth, American JobsCourier-Times (subscription)
Reason (blog)
all 23 news articles »

The Korea Herald

Korea slaps more than W1.3tr in taxes on offshore tax evaders
The Korea Herald
The National Tax Service has collected only 1.067 trillion won in taxes as some people filed complaints with the country's Tax Tribunal against its decisions to slap taxes on offshore tax evaders, said Park Myung-jae, a lawmaker of the Liberty Korea ...

and more »

The Real Deal Magazine

How UK landlords and wealthy home buyers are avoiding property taxes
The Real Deal Magazine
Lawyers say they've found a technical loophole in the UK stamp duty tax laws: if buyers package their new home with a forested plot of land — even if the two lots are in different parts of the country — they could avoid “tens of thousands of pounds ...

and more »

The Gazette: Eastern Iowa Breaking News and Headlines

GOP priorities of lowering taxes, increasing school choice at risk in Iowa
The Gazette: Eastern Iowa Breaking News and Headlines
Yet more difficulties lurk ahead that are likely to cause lawmakers to rethink how and whether they approach priorities for them like reducing taxes and increasing ways for parents to choose private or religious schools with public help. When lawmakers ...

and more »

All taxes trickle down to consumers
The Decatur Daily
The people who developed the Fair Tax proposal discovered that, on average, the cost of goods and services carry a hidden federal tax burden of approximately 22 percent. And this was before Barack Obama; it has likely risen. But increasing costs are ...

Google News

Tax Tips for Home-Based Business Owners

As tax time approaches, many home-based business owners begin completing... Read More

Deducting Points On Home Refinances

Deduction of Refinance PointsAny points that you pay in the... Read More

How to Cut Duty Cost and Increase Profit as an Importer

Import duties continue to be significant elements in the cost... Read More

The Annual Gift Tax Exclusion: Getting The Edge

Whether helping the kids with a down payment on their... Read More

How Home-Based Businesses Can Avoid Giving Uncle Sam More than His Share

How Home-Based Businesses Can Avoid Giving Uncle Sam... Read More

IRS Statute of Limitations: Do Taxes Ever Expire?

Many Americans believe that an IRS debt is a debt... Read More

10 Thoughts on Tax Offer in Compromise

Beware of advertisements that claim to settle tax debts for... Read More

IRS Reports Tax Gap of $300 Billion

The Internal Revenue Service is reporting that the difference between... Read More

IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters

The IRS has obtained civil injunctions against more than 100... Read More

What to Do If You Can?t Pay Your Taxes

The end of tax filing extensions is quickly approaching. What... Read More

IRS Offer-in-Compromise, Hype or Hope?

"Settle for Pennies on the Dollar! IRS debts settled for... Read More

Take Control of Your Taxes

As everyone in the U.S. knows, we have just passed... Read More

Tax Trap #3 -- IRS Penalties, Interest and Love Letters

As a small business owner or self-employed person, one of... Read More

Donating Cars To Charity - New Tax Rules

On June 3, 2005, the IRS released guidance on charitable... Read More

Electronic Commerce Taxation and Pakistan

Assume a buyer in Pakistan downloads software from the Internet... Read More

Surprising Truths About Tax Preparers

Choosing the right tax preparer for your business is a... Read More

What Is Tax Law?

The federal tax code is complex. This complexity generally arises... Read More

Marriage or Divorce ? Check Your Social Security Number

Newlyweds and the recently divorced should make sure that names... Read More

Rearrange Your Affairs For Maximum Tax Savings

One way to maximize your business profits is by reducing... Read More

Anticipating Your IRS Refund Can Cost You Plenty

While accountants are reaching for aspirin, millions of Americans are... Read More

How Likely Are You To Be Audited?

Statistics for IndividualsUnfortunately, the IRS increased its rate of auditing... Read More

Tax Records - What You Should Keep And For How Long

Many taxpayers are confused about how long they should keep... Read More

Amending Procedural Laws for Collection of E-taxation

The electronic transaction ordinance defines the certificated copies in which... Read More

Back To School ? Educators Deduct School Expenses

As teachers and students head back to school following a... Read More

Six Urban Myths About Taxation

Six Urban Myths ? Taxation"I am proud to be paying... Read More