Date: March 4, 2022
Business owners: Are you classifying your employees correctly? If not, it could cost you
Many business owners fear an audit by the IRS, and it is no surprise there. A simple, honest mistake could end up costing you thousands. This is caused mostly due to the complicated, confusing tax code made to purposely fluster people. One common scenario that many business owners face is whether to make an employee a W2 employee or an Independent Contractor. The current rules for classifying your employees correctly are about as clear as a puddle of mud. Business owners know that they must collect and pay payroll taxes for their W2 employees, but not for independent contractors. But it is unclear how to determine whether to class them as W2 or 1099. If you make a mistake in this instance, it could likely cost you hundreds of thousands.
How are you able to avoid the IRS from coming in and determining that your employees need to be reclassed? And when you hire in the future, how do you make sure you are hiring what is best for your business? The wrong classification could result in the IRS assessing thousands in fees and even more in back taxes, interest, and penalties. Luckily, there is a safe harbor just for that – Section 530. What is a safe harbor? Basically, it means that you are legally protected from a penalty IF certain conditions are met. Read more on this here.
If you are concerned about your employees being classified correctly, you are not alone. The best way to avoid any audit headaches is to have a professional in your corner. They can help navigate the complex tax codes and ensure your classifications are correct. Not only that, but the right professional will also offer proactive solutions and implement legal strategies to ensure you are in compliance going forward. What a relief to not have to worry! As the deadline to file your 2021 taxes fast approaches keep in mind that we are here to help you. Click here to speak with one of our tax strategists.