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The Advantages of Being an Independent Contractor: Tax Tips and More

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The Advantages of Being an Independent Contractor: Tax Tips and More Presenters: Carolyn R. Stall, Managing Director of UHY Advisors William W. Almond, Financial ... – PowerPoint PPT presentation

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Title: The Advantages of Being an Independent Contractor: Tax Tips and More


1
The Advantages of Being an Independent
Contractor Tax Tips and More
  • Presenters Carolyn R. Stall, Managing Director
    of UHY Advisors
  • William W. Almond,
    Financial Advisor at Strategic Financial Partners

2
About Merchant Warehouse
  • Established in 1998
  • Over 65,000 merchants
  • 170 employees
  • 3.5 billion in annual processing volume
  • 2009 ETA ISO of the Year

3
Agenda
  • The differences between an employee and an
    independent contractor
  • The tax advantages of being self-employed
  • Reducing your tax bill with business related
    deductions
  • Organizing your tax records
  • Managing your cash flow
  • How to choose the best retirement plan
  • Strategies for paying your estimated taxes
  • Internal Revenue Service forms for Independent
    Contractors
  • This presentation is intended to provide
    general information. It should not be construed
    as legal or tax advice. Please consult your legal
    or tax advisor.

4
Employee vs. Independent Contractor
  • Employee
  • Company directs when you work
  • Company directs how you perform the work
  • Company provides equipment, office space, etc.
  • Company pays for your time (by the hour, week,
    month)
  • Company withholds income employment taxes from
    your pay
  • Company pays your business expenses
  • Independent Contractor
  • You decide when you work
  • You decide how work is done and hire assistants
  • You provide equipment, office space, etc.
  • You are paid based on results alone
  • You pay taxes directly to IRS/state
  • You bear the cost of business expenses

5
Advantages
  • You are your own boss
  • Work when you want to work
  • Can set up your own pension plan
  • Personal expenses can become tax deductible
    (office in the home, portion of your auto
    expenses, computer, internet services, etc.)
  • Health insurance and long-term care insurance
    premiums can be deductible
  • Deduct a portion of personal travel expenses if
    your trip has a mixed business/personal purpose
  • Education costs can be deductible
  • Hire your children for legitimate jobs (filing,
    copying, etc.)

6
How to Report Income Expenses
  • Entity organization - Sole Proprietor, LLC,
    Partnership, Corporation
  • Typically a Cash Basis taxpayer
  • Report income when received
  • Report expenses when paid
  • Income - Reported to you on Form 1099 MISC
    "Non employee compensation"
  • Expenses - Keep track of your expenses/retain
    receipts

7
Travel Expenses
  • Auto expense - Standard business mileage rate of
    .50/mile for 2010 or actual expenses including
    gas, oil, repairs, insurance, taxes, etc.
  • Travel expenses such as airfare, train fare,
    parking, taxis, tolls, etc, for any business
    activities to meet with clients or potential
    clients, to attend seminars/training, etc.
  • Hotel expenses and meals while away from home

8
Office Expenses
  • Office-in-your-home expenses such as a portion of
    your real estate taxes, mortgage interest,
    insurance, utilities, etc. based upon a of the
    home that your home office takes up
  • Rent for office space, office equipment
  • Home office equipment such as desks, file
    cabinets, lamps, rugs, etc.
  • Repair and maintenance expenses for business
    equipment
  • Office expenses such as supplies, stationery,
    cards, files, etc.
  • Telephone expenses for dedicated business phone
    line and cell phones (if used for business AND
    personal, only the cost of business calls are
    deductible)
  • Internet access costs such as cable equipment,
    internet provider costs, etc.

9
Other Business Expenses
  • Meals and entertainment expenses
  • Networking events and trade show expenses
  • Legal and accounting fees associated with your
    business
  • Commissions paid to others (Form 1099s)
  • Contract labor (Form 1099s)
  • Pension plan administration expenses
  • Advertising expenses
  • Subscriptions associated with your business
  • License fees and dues
  • Computer equipment including printers, laptop,
    accessories, software, etc.
  • Tools and supplies that are ordinary and
    necessary for your business
  • Interest on business loans and business credit
    card interest and fees

10
Organizing Your Tax Records Getting Started
  • Determine your "entity" structure (sole
    proprietor, LLC, corporation)
  • Register to do business with your state or local
    government
  • Set up a business bank account
  • Consider using QuickBooks or other accounting
    software
  • Use one credit card for all business expenses
  • Try to avoid mixing business and personal
    expenses together
  • Need receipt for expenses over 25
  • File receipts based on type (all meal receipts,
    travel receipts, etc.)
  • Keep files by calendar year
  • Use payroll service to pay employees/pay tax
    withholdings/file employer tax forms

11
Managing Your Cash Flow
  • Accelerate expenses and defer income
  • Credit card expenses considered "paid" when
    charged
  • Quarterly estimated tax payments for federal and
    state income taxes, including self employment
    taxes
  • Build cash reserves
  • Use home equity line rather than credit card debt

12
How to Choose the Best Retirement Plan
Traditional IRA Roth IRA SEP IRA
Who can establish? Individual with earned income Individual with earned income Corps, Sub-Chapter S, Self-employed, Partnerships, etc
Max. eligibility requirements Earned income and under the age 70 1/2 Modified adjusted gross income lt120k for single filers and lt177k for joint Worked for employer during any period of three of the last immediately preceding 5 years, at least 21 years of age, 550 annual compensation
Contribution limits Individual 100 of earned income up to 5,000 per individual to all IRAs Individual 100 of earned income up to 5,000 per individual to all IRAs Employer 25 of each employees compensation (maximum 49,000 245,000 salary cap)
Advantages Pre-tax contributions tax-deferred growth Tax-deferred growth tax-free income Simple to establish and maintain. No annual IRS filing requirements. Contributions deductible for employer
When must the plan be established? 4/15/2010 for 2009 4/15/2010 for 2009 By tax-filing date plus extensions
When must contributions be made? 4/15/2010 for 2009 4/15/2010 for 2009 Employer by tax-filing date plus extensions Employee on deferral basis

13
How to Choose the Best Retirement Plan
Traditional IRA Roth IRA SEP IRA
Distributions before age 59 ½ 10 tax penalty unless the distribution is because of death, disability, a qualifying rollover a direct transfer, the timely withdrawal of an excess contribution, certain qualified medical or educational expenses and a first-time home purchase (10,000 limit in aggregate to all IRAs). Waived if the distribution is part of a series of substantially equal periodic payments made over the individuals life expectancy. 10 tax penalty unless the distribution is because of death, disability, a qualifying rollover a direct transfer, the timely withdrawal of an excess contribution, certain qualified medical or educational expenses and a first-time home purchase (10,000 limit in aggregate to all IRAs). Waived if the distribution is part of a series of substantially equal periodic payments made over the individuals life expectancy. 10 tax penalty utilizing substantially equal payments, death, disability, medical expenses, exceeding 7.5 of AGI or purchase of health insurance while employed
Distributions for ages 59 ½-70 ½ No tax penalty No tax penalty No tax penalty
Distribution after age 70 ½ Required minimum distributions as late as April 1 following the year in which the individual reaches age 701/2 Required minimum distributions as late as April 1 following the year in which the individual reaches age 701/2 Required minimum distributions (may remove aggregate total from one account)
How are distributions taxed? Taxed as ordinary income Principal and earnings withdrawn are tax-free Taxed as ordinary income

14
Strategies for Paying your Estimated Taxes
  • Taxes Include Federal income taxes, State income
    taxes, Self employment tax (FICA and Medicare)
  • Adjust your tax withholding on spouses or 2nd
    job paycheck
  • Use safe harbor method based on prior year tax
    liabilities
  • Pay based on current year projected tax
    liabilities
  • At year end Tax Bonus

15
Internal Revenue Service Forms for ICs
  • Form W-9 - to provide Identification Number to
    Merchant Warehouse
  • Form 1099 MISC - Reports income paid to you
    during calendar year
  • Form 1040 - Schedule C
  • www.irs.gov
  • www.business.gov

16
Merchant Warehouse ISO/Agent Program
  • The security of a financially sound ISO
  • Generous bonuses and benefits
  • Uniquely fair agent contract
  • Innovative technology
  • In-house/dedicated customer and technical support
  • Guaranteed lifetime residuals
  • Marketing support
  • In-depth sales training

17
Questions?
  • Interested in becoming an independent sales agent
    for Merchant Warehouse? Contact
  • Doug Small - 617-896-5590 ext 2535
    dsmall_at_merchantwarehouse.com

Be sure to visit us at the ETA Annual Meeting
Expo, April 13-15th, Mandalay Bay, Las
Vegas Enter for a chance to win our ultimate new
office give-away!
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