Hiring freelancers is a common tactic business owners use when they want to save money or time on a project, and it’s often done on a temporary basis. What many fail to realize, however, is that making use of freelancers throughout the year can provide hefty tax benefits that continue to pay off. They also allow you to outsource specific tasks, which relieves some of the burden from your shoulders and allows you to focus on other things.
Think about it: how many hours does your company put into preparing and handling tax forms? Keeping up with your employees’ information is time-consuming, and small mistakes can add up to big problems for both of you down the road. Hiring a freelancer instead of a full-time employee means much simpler tax requirements, and because they’re self-employed, they’ll do the majority of the work themselves. Not only that, your payroll will be simplified as well. In fact, many employers who hire freelancers simply use a money transfer service, such as PayPal or Venmo, to pay for services rendered.
For those remaining employees on your books, find the right software to keep all of your records in order. HRTech247.com offers a virtual exhibition hall where you can pursue and select the best HR and payroll software for your business. Look for options that will help you to manage permanent and freelance employee information so you aren’t caught off guard come tax season.
There are other payroll benefits that come with hiring freelancers, as well. Not only are you not required to pay unemployment tax for independent contractors, you also don’t have to worry about worker’s compensation insurance, paid vacation or sick time, or retirement benefits. Your business also won’t contribute to FICA taxes for freelancers.
It’s essential to keep in mind that there are several differences between an independent contractor and an employee. Remote explains that many businesses are unaware that they have mistakenly classified a worker as such, but the penalties can be steep if the IRS discovers this discrepancy, including payment of back taxes, fines, and even prison time. There are a few questions you’ll need to ask yourself in order to make sure all of your employees and contractors have the right classification, including whether you dictate where and when they work or how and when they’re paid, and whether their work forms a large part of your business.
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While hiring freelancers is a great way to save money on your tax responsibilities, there are several other ways your business can benefit come tax season. It pays to do some research on the best types of deductions – as well as the worst – so you’ll be prepared at the end of the year. These might include accounting or marketing costs, business-related travel expenses, or setting up a home office for yourself, but it’s essential to hold onto all your receipts, keep them neat and organized, and make sure your accountant itemizes everything.
Another easy way to save during tax time is to set up an LLC if you haven’t already, which will allow you to choose the way our business is taxed. Forming an LLC will also provide several deductions, including the cost of the formation itself. An online formation service can help you through the process, as well. Remember to look for one that offers lower prices and greater customer support throughout the life of your business. For example, weigh the pros and cons between Legalzoom vs Zenbusiness to determine which offers the best service.
There are many ways to save money for your business where taxes are concerned, but outsourcing specific tasks and services can be one of the easiest. Look online for qualified freelancers so you can get the best person for the job every time. But don’t forget to keep your records updated with the right accounting software!
This post was supplied to HRTech247.com by Mindy Bartley of Startup-Steps