My Freelancer Can Beat Up Your Employee

We make a bold statement that my freelancer can beat up your employee and here’s why. Are you treated as an independent contractor (“IC”) by your boss for tax purposes? Did you recently find out that your company is going to treat everyone as an IC? Are you considering freelancing on the side to make some extra money? If so, consider yourself lucky! Read on…

Our market surveys indicate that most people consider being an independent contractor worse than being an employee. Certainly there can be some negatives associated with being an IC: potentially irregular income, uncertainty over contract renewals, few protections from “employer”, etc. What we found fascinating is that when asked why being an IC is worse than being an employee, about 80% of respondents believed that ICs pay more in taxes than employees. If an IC is working with the right accountant, the opposite should be true. With proper bookkeeping, payroll, & strategy, ICs should ALWAYS pay less in taxes than their employed colleagues. Let’s explore a few reasons why.

First, we repeat this theme regularly, but S corps allow their owners to avoid (not evade) any extra taxes that an IC might otherwise have to pay. Period. If you need help understanding this, give us a call.

(For more information about S corp, click here)

Second, an employee cannot take advantage of the home-office deduction. Ok. I can almost hear your eyes rolling. Yes, we’ve all heard that the home office deduction is a “red flag”, and yes, taking it does slightly increase your audit risk. However, if you are following the rules, you will be fine. This is a legitimate deduction with significant benefits (particularly if you rent your home) if you make sure to align your operations with the requirements of the law. We can help you do this.

Third, did you know that an independent contractor with children can actually shift their income to their kids, which can be completely tax free. You can pay your children almost $6,000 COMPLETELY tax free. Think about this. If you are in the 30% tax bracket (25% federal, 5% state), and you have two kids, you can save $3,600 ($12,000 x 30%) every year. Be careful to follow the rules. Again, we can help.

Fourth, if you follow the rules properly, you can deduct most of your travel. When you’re an employee, when you wake up in the morning and drag yourself to work, that is called a commute and is not deductible. If you are an independent contractor and you have a home office, your commute is from your bed to your home office (maybe you make a pit stop in the kitchen). If you need to drive to an office, that entire trip is deductible. This can really add up. Again, make sure that you’re following the rules (hint: call us).

This could go on and on, but we hope that you see our point. The key is that you want to make sure you’re working with tax professionals who understand the law, your needs, and provide services at a competitive price. At IC Tax Advisors, we believe that our focus on you, the independent contractor, makes us the perfect fit for you and your business because this is ALL we do.

CLICK HERE FOR A FREE TAX CONSULTATION

Tags: business income as an independent contractor, employee status change, freelance income, freelance work, independent contractor v employee