Tax Benefits When You Hire Freelancers for Your Business
Guest Writer: Michael Longsdon of ElderFreedom.net*
As a business owner, saving money and time is an important part of maintaining a successful operation. When looking for areas to cut back, your business tax obligations can be a good place to squeeze out some extra savings if you know what you’re doing. One approach you may have overlooked is considering freelancers over hiring full-time employees.
Depending on the type of work required, this move could result in a significant reduction in your time and effort when filing taxes, and it may leave you with a lowered bill.
Freelancers Simplify Your Tax Obligations
Freelancers work for themselves, leaving them entirely responsible for handling their tax obligations. Since they’re not technically employed by your company, you avoid the need to remove any payroll taxes and are free to pay them the flat amount agreed upon for their work. By eliminating the FICA tax contribution, you would normally need to pay on behalf of your employees, payment to the freelancer for services rendered becomes a much cleaner transaction.
This benefit also means the tax forms you complete are simplified, as you won’t need to account for the usual prepaid payroll tax. You will still need to collect W-9 forms for each freelancer and must submit form 1096 to the IRS. Any independent contractor who is paid $600 or more by your company will also need a Form 1099-MISC, but this is still the easier option when filing.
Enjoy Lower Tax Obligations
Unemployment taxes are calculated as a percentage of your payroll. Reducing payments that qualify as payroll will lower or eliminate this obligation. Workers’ compensation insurance premiums are also dependent on gross payroll spending and can be reduced or avoided through working with independent contractors.
Remember that the rules of workers’ compensation insurance vary between states, so check your state’s requirements on this to find out if hiring independent contractors improves your bottom line in this area. On a side note, the simplification of your tax filing can also save you money by reducing filing fees.
Other Great Ways to Maximize Tax Advantages
There are several other simple actions you can take that will help improve your business’ tax position:
- Form an LLC. LLCs can choose how they’re taxed to maximize savings. Find help on Florida LLC registration.
- Maximize deductions. Check for new potential deductions at the beginning of each year so you can take advantage of any that are newly applicable.
- Set up a retirement plan. Business owners have several retirement plan options that offer significant tax savings.
- Set up a health savings account (HSA). HSAs allow you to contribute tax-free money designated for medical care payments. As long as it’s spent on qualified health care expenses, it’s tax-free.
Learn More About Tax Rules Relevant to Your Business
Business taxes are governed by complex rules, so it’s likely there are other areas you can improve to make your tax obligations more favorable. Get a better understanding of taxes in Jacksonville to avoid paying unnecessary penalties and maximize your tax savings.
If you enjoyed this article, explore more tax insight from Briefly Taxing.
*Note from the Editor:
Well, dear readers, this is a first. Briefly Taxing has never published a contributor’s article. We have been told that we need to be better about embracing (read: coping with) change—especially when it’s for the better. We hope you enjoy this article written by Michael Longsdon of ElderFreedom.net. Elder Freedom is an organization of advocates with a mission to help locate resources, events, and engagement opportunities to help enrich the lives of seniors.
Briefly Taxing thanks Mike for reaching out with this great article! If you’d like to contribute to Briefly Taxing, don’t hesitate to email us!Add to favorites