Employers (Dental Practices) Engaging Independent Contractors are Prone to Scrutiny

The government acts strictly with employers who make attempts at evading taxes by resorting to unscrupulous means.  Many employers project their permanent employees as being independent contractors in order to avoid employment tax.

Hiring independent contractors is legal in certain businesses and professions, provided the conditions allowing for the same are adequately satisfied.  Dentistry also falls under the same purview. The government is liable to identify and arrest any practice by an employer wherein he manipulates or misuses this provision of law with an intention of avoiding employment tax.

To be considered as an independent contractor, one needs to fulfill certain conditions, so that status as an independent contractor can be defended in the court of law if the need arises.  The conditions which validates a person as a contractor require include the ability of the person to work freely in the premises of the owner, is liable to be paid by the owner for the project based on any frequency other than on an hourly basis, the person uses his own appurtenances, recruits and pays for his own employees, and has a control on the final product of the service he is giving.

The person who doesn’t fulfill the stated criteria cannot be validated as an independent contractor.  Let’s consider a case of a dental specialist. He doesn’t practice on his own as an individual practitioner but work in the facility owned by some other practitioner. He is compensated for his services separately from the regular employees of the facility owner, He comes with his own team – which does not fall under the owner’s supervision – and is totally responsible for the quality of the services he provides.

The owner cannot supervise his work and operates as a business entity; thus his company has signed a contract with the owner’s entity for delivering a certain service for a particular period.  The way the workers connect to the owner’s facility in terms of financial and business relations is what decides the exact status of the worker.

The owner who wrongly classifies an employee as an independent contractor can be assessed for social security and medicare tax attributed to the employer. The owner can also be held responsible for the employee portion of Medicare and social security taxes.

The owner can also be additionally penalized for not covering the wrongly classified employee under any benefit plans like health and retirement. An independent contractor is a self employed individual, and has certain tax obligations to be met, which are listed on the IRS website’s Self Employed Tax Centre page.

Any worker that does not fulfill the criteria required of an independent contractor will be deemed as being wrongly classified by the employer. Even an associate uses the employer’s resources and his work is dirigible by the employer, keeping him out of the purview of being an independent contractor.

In case of any discrepancies are proved related to the same, the onus of taking the beating would fall on the owner. There have been cases where larger firms have been penalized for classifying an employee as an independent contractor due to the inconsistencies being discovered in their terms of employment by the IRS. Such owners had been forced to pay the payroll taxes and related penalties.




Things to Know Before Hiring an Independent Contractor

Hiring an independent contractor for jobs around the home or the office is the easiest thing to do when trying to complete non-essential business jobs such as remodelling. Depending on the type of contractor that you seek out and hire, you may get either good quality work or poor quality work. So what are some of the things that you need to put in mind before deciding on which contractor to hire. These things to look out for usually go a long way in helping you determine the suitability of a particular contractor and assure you of quality work once the job is done.

First of all, you should consider the work that is required and whether the contractor has the capacity to complete it. Most contractors will overstate their capability to handle a particular job. As such, it is up to you to perform a due diligence analysis and set a threshold that will assure you of the capacity of the contractor. Ni addition, some contractors may be blacklisted by the professional associations due to poor business practices. It is therefore important to ask for references before a contractor can begin handling a particular task.

The amount of money that you are willing to pay should also be taken into account. All things constant, money is the bottom line of all the transactions that take place between contractors and yourself. Depending on the amount of money that you are willing to spend, you should find a contractor who is willing to do the kind of job that you want at the price that you are willing to pay. You should also come up with a way to determine the quality of the job and the payment model, especially for the jobs that take a long time.

Copyrights are the ownership rights that an individual takes upon completion of a job. It is important that you and the contractor discuss  the copyrights and the extent to which either of you is going own that piece of work. In most cases, the contractor owns the resultant piece of work until such a time that the final payment is made. This should be taken into the same consideration as the implication with regard to taxes that are likely to come from having such a transaction. Taxation issues account for a very large potion of the business costs that different business meet over time.

You should account for the fact that contractors can quit at any time they wish to. This means that there is a very high likelihood that the job will not be completed on time. Most of the time, if you are paying the contractor per day, then it is most likely that they will extend the duration during which the work is to be done in order to earn a few more dollars. Such issues with contractors should be taken into account before the contract has been signed, and execution has begun.

Solo 401k Plan Explained for Self Employed

Last week I talked about 401K plan and how shared an example explaining how your 401k plan contribution can earn you 25% return on investment.

Today, I want to continue with that conversation and how explain how an independent contractor or self employed person can save even more taxes by investing in their solo 401k plan.

In today’s video, I am going to explain the following.

A.) How much money can you contribute to your solo 401k plan?

B.) What are some of the limitations  with solo 401k plan?

C.) Where to open a solo 401k plan?

D.) How much does it cost to open a 401k plan?

E.) What kind of tax benefit  you can get by investing in your 401k plan?

We have about 2 months before the end of this tax year.  Self employed personals can contribute up to $50,000 to their solo 401k plan and reduce their tax liability accordingly.

There are fees associated with the solo 401k plan, but you can borrow funds from your 401k to help you with cash flow and you can pay the money back with in 5 years.  You can also move the 401k plan to another company if future.  In the video, I will tell you how you can open a solo 401k plan for free.

Self employed person with income of $75,000 will have to pay about $7500 in federal income tax.  However, this person can contribute up to  $30,941 to the solo 401k plan and reduce the fedral income tax to only $2,304. Savings of over $5000.

Moreover, contribution to 401k plan can be made as profit sharing.  In this case,  Up to $13,941 can be contributed as profit share further reducing the tax to about $600.

In other words, you can earn up to $75,000 and pay almost no federal income tax if you contribute fully to your 401k plan and take advantage of few other deductions.


Have you checked your retirement plan this year?

This is a good time to review your retirement account for the year 2012.  Single tax filers can contribute up to $17,000  to their 401k retirement plan.  Contributing to your 401k can significantly reduce your tax liability for the year 2012.

1099 Contractors and Small Business Owners can also reduce their tax liability by taking advantage of various retirement plans.  You still have time to set up proper retirement plan for this year and save thousands of dollars in taxes.

Want to come in for consultation to discuss your retirement plan?  Please make sure to bring your retirement statement and current year income statement.

Free Solo 401k plan for self employed

Watch this video to learn how you can deduct up to $50,000 this year.

1099 Independent Contractor Tax Deduction

Recently we got a question asking about the tax deduction for the 1099 contractor. Caller wanted to know if he can deduct the travel expense from his home to his office.

In San Francisco Bay Area, many of us are 1099 contractors, working for consulting companies or own our small business. With gas prices reaching $5 per gallon, it is no wonder that we are starting to pay special attention to the travel expenses.

 Small answer, like always, to this question is – Yes, but it depends.

You can deduct travel expense from your office to your client site. Meaning, if you have a home office and you travel from your home office to your work than that expense can be deducted.

However, if you simply travel from your home to your work than that expense is not tax deductible.

 Set Up A Home Office To Take Tax Deduction.

Your home office should be separate place in your home that is dedicated as your office. There is no special rule that define what furniture or equipment you need to buy to claim a place as your office. However, your office should serve as your “HOME OFFICE”. Meaning you should be able to do operational task from such place. Moreover, this office space should not be used for personal use. It should be dedicated forth office use only.

With increasing number of audits from the IRS, I suggest that you keep a picture of when your office was set up. Taking your home office pictures can also help strengthen your position in case of the audit. Making a list of things you do from your home office can also help you establish your home office.




Understanding Self Employment Tax

The word tax never fails to not to scare us right? No matter however much money we are paying to the government as tax it seems that when ever it’s time to pay back to the government there is some shiver that goes down the spine. But much of the fear is allayed when the necessary taxes are deducted from the salary itself and you don’t have to bother much about paying them yourself. But when the case is otherwise and you have to yourself tell the government about your earnings and then pay the relevant taxes, it becomes a bit scary then. So definitely it not only sounds scary but quite draining as well.

How Does One Go About Paying The Self Employment Taxes?

If you are self employed and you do not draw monthly cheques under a company then you have to individually make arrangements for getting your taxes paid. This may sound tough but as you systematize and organize the important documents, the task of you paying your taxes is not that difficult anymore.  What is important is knowing when to pay them

If you are self employed then such taxes may be paid throughout the year. If you are making a good living out of your self employed incomes or earnings, which is again registered as your primary income then probably you have pay the scary taxes. Also you can only skip the quarterly taxes at the risk of paying heavy fines during tax paying time.

As a self employed individual one has to also pay social security and medicare to the government out of their incomes. The best thing to allay your self paying tax fears is to stash away those essential bucks to be used only during tax time.

Not all is bad for self employed persons!

Yes in such cases you may have to pay only half of the entire tax burden. Also you are liable to face deductions if you are using your home office, other business expenses or purchasing your own health insurance schemes. The only thing that ought to be kept in mind here is keeping all the papers ready for audit time.

If all the above is little complicated for you then you better consult an attorney to secure legal advice.