2 Tax policy to remember when entertaining employees and hiring contractors

There are two tax strategies to be aware of when entertaining employees and hiring contract employers.

Strategy - Avoid "reciprocal entertainment arrangements" between business partners.

The IRS prohibits the expansion of entertainment and food expenses based on pre-arranged and continued "rolling lunch or entertainment" relationships between you and another business partner. "I will take you to lunch, then you will take me to lunch [or participate in an entertainment event] so that we can cancel these fees because it is related to business. "It is not allowed to create tax breaks for you and your colleagues. The best way to avoid this prohibition is to change your entertainment and food practices to include many business partners, not just one or two. If you are certain that entertainment and/or food is directly related to your business, you can only deduct entertainment and/or food. You must have more than expected general income, or some other specific business benefit from entertainment and/or food.

Strategy - Avoid contract worker traps.

Often, the motivation behind treating an individual as a contractor [independent contractor] comes from the individual. You may have someone to say something about it; "I will take care of my taxes." This may sound good at first because it eliminates the need for all the paperwork you need to hire an employee. In addition, if a person is really a contractor, you will save the costs associated with:

Matching part of social security

Federal unemployment

National unemployment

Workers' compensation

Health insurance

Disability insurance

Life insurance

Non-production time

Vacation time

Sick pay

Reduce your potential business risks in negligent litigation

Contact with employee litigation

However, you must be careful to train individuals as contract workers. If you treat someone as an independent contractor and later the US Internal Revenue Service [or the State Unemployment Office] finds that the individual is "actually" an employee and should always be treated as a person, then you may be accountable to the employee – Related taxes and fees. In addition, the IRS may personally charge you a fine for social security taxes that are not paid to the IRS. Since you don't want this to happen, the IRS will not do this, so they have 20 factors that indicate whether the individual is an employee or an independent contractor.

Note: Employees must follow instructions on when, where, and how to work. Even if no instructions are given, if the employer has the right to issue instructions, there will be a controlling factor.

Training: Employees receive training and provide services in a specific way. Independent contractors typically use their own methods and do not accept the training of the buyers of their services.

Integration: Employee services are integrated into business operations because services are critical to the success or sustainability of the business. This shows that employees are guided and controlled.

Personally presented services: employees present services in person. This shows that employers are interested in methods and results.

Recruitment Assistant: Employees work for employers who hire, supervise and pay assistants. The independent contractor hires, supervises and pays the assistant under the contract, which requires him or her to provide materials and labor and is solely responsible for the results.

Continuing relationships: Employees maintain an ongoing relationship with their employers. There may be a persistent relationship in which work is performed at frequently repeated but irregular intervals.

Set working hours: Employees set the working hours established by the employer. An independent contractor is the owner of his or her own time.

Full-time work: Employees usually work full-time for employers. An independent contractor can work for anyone he or she chooses.

Work done in the house: The employee is engaged in the promotion of the employer, working on the route, or working at a location designated by the employer.

Order or sequence set: Employees must perform the service in the order or order set by the employer. This shows that employees are guided and controlled.

Report: Employees submit reports to employers. This means that employees must explain their actions to the employer.

Payment: Regular payment by employees - for example by hour, week or month.

Cost: The employee's business and travel expenses are paid by the employer. This shows that employees are regulated.

Tools and materials: Employers provide employees with important tools, materials and other equipment.

Investment: An independent contractor invests heavily in the facilities used to provide services to others.

Profit and loss: Independent contractors can make a profit or loss.

Applicable to multiple people or companies: Independent contractors provide services to two or more unrelated people or businesses at the same time.

Providing services to the public: Independent contractors provide their services to the public.

Dismissal rights: Employees can be dismissed by their employer. As long as he or she produces results that meet the contract specifications, the independent contractor cannot be fired.

Right to opt out: Employees can withdraw from their work at any time without liability.

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