As a business owner, you’re likely very aware of the various ways you can save money throughout the year. You might not realize just how beneficial it can be to find multiple tax advantages, however, or how to get started. When it comes to saving time and money where the IRS is concerned, there are several things to consider. Hiring freelancers is a great start since they don’t have the same legal requirements that a full-time employee does.
You can also look for helpful resources for your tax and insurance questions. Take a look at the advantages that come with hiring freelancers and find out how to avoid the costly mistake of misclassifying the people you hire with the IRS:
Simplify your tax forms
One of the many benefits that come with hiring freelancers is that they take care of their own tax responsibilities once they earn a certain amount, so you don’t have to worry about filling out complicated forms or keeping up with W-2 paperwork. Not only does this give you less to keep track of, it also saves you valuable time that could be spent focusing on other things.
Your tax responsibilities, including payroll tax, are a major concern throughout the year, as you don’t want to make a costly mistake or miss out on a money-saving opportunity, so it’s important to look for other advantages that can help you retain healthy cash flow. By starting an LLC, you’ll ensure that your business isn’t doubly taxed the way most corporations are.
Make payroll less complicated
Another aspect of your business that becomes simplified with freelancers is your payroll since you aren’t required to take taxes out of their checks. Most freelancers set up quarterly tax payments with the IRS and take care of what they owe throughout the year, so you never have to worry about getting the right amounts deducted from their paychecks.
Another perk for your payroll system is that you won’t have to worry about making a FICA or unemployment contribution for freelancers, and you also aren’t required to carry worker’s compensation insurance on them. Keep in mind that while the government passed a bill allowing freelancers to collect unemployment during the height of the pandemic, it was only temporary.
Know the legalities
Hiring freelancers, independent contractors, and temporary employees can become complicated because different states have varying rules about how each one is classified. When an employer uses the wrong classification for tax purposes, ADP points out that they can be subject to penalties, so it’s important to know the difference. An independent contractor typically uses their own tools to complete a job and dictates the hours they work as well as how the job is done, while a freelancer may use their own tools but has very specific guidelines for completing a project.
Choose the right type of employee for your needs
Freelancers and contractors are extremely beneficial for small business owners because they are largely self-sufficient and can save quite a bit of money throughout the year, both on taxes and on daily work requirements. However, it’s important to consider your specific needs before hiring, as every type of employee comes with advantages and disadvantages, notes Clarion Technologies.
A freelancer can be the perfect choice for a specific task but may have their attention divided between other clients; a full-time employee can help you develop stronger customer ties, but they typically require a much bigger financial investment on your part. Keep in mind that in order to save money on employees, you also have the option to hire a full-time remote worker who doesn’t need the financial investment that other full-timers do.
Choosing the right kind of employees for your business can take some time, so do a little research on the benefits that come with each one and how much they’ll affect your financial wellness. With a little careful planning, you can make sure you have the best people on the job.
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