Do things seem a little hazy? Like the picture above, knowing whether that new hire is an employee or an independent contractor can be a little fuzzy. However, mistakenly classifying an employee as an independent contractor can result in significant fines and penalties. There are 20 factors used by the IRS to determine whether you have enough control over a worker to be an employer. Though these rules are intended only as a guide-the IRS says the importance of each factor depends on the individual circumstances-they should be helpful in determining whether you wield enough control to show an employer-employee relationship.
Checklist for Independent Contractor Status
Listed below you will find the a slew of factors with brief explanations of how to interpret each factor. If you answer “Yes” to all of the first four questions, you’re probably dealing with an independent contractor. If you answer “Yes” to any of questions 5 through 20 means your worker is probably an employee.
4 Essential Independent Contractor Tests
In order to be considered an independent contractor you MUST answer “Yes” to the following Items:
- Profit or loss: Can the worker make a profit or suffer a loss as a result of the work, aside from the money earned from the project? (This should involve real economic risk-not just the risk of not getting paid.)
- Investment: Does the worker have an investment in the equipment and facilities used to do the work? (The greater the investment, the more likely independent contractor status.)
- Works for more than one firm: Does the person work for more than one company at a time? (This tends to indicate independent contractor status, but isn’t conclusive since employees can also work for more than one employer.)
- Services offered to the general public: Does the worker offer services to the general public?
Other Tests of Independent vs Employee
To further determine if you might be at risk of having a contractor be considered an Employee by the IRS, you should evaluate him/her based on the following: Continue reading
What is an LLC?
The Limited Liability Company (LLC) is a hybrid between a partnership and the more traditional corporate structure. An LLC is an unincorporated entity. You register an LLC, you don’t incorporate it.
What Are the Biggest Advantages to Forming an LLC?
- Provides the protection of a traditional corporation
- Allows you to maintain the flexibility and “informality” of a traditional partnership
- Cheaper to maintain (in the long term) than a traditional C-corp or S-corp structured business
- Transfer of ownership is easier than traditional corporate structures
- You avoid the double taxation you encounter with C-corps
- No need to file a second tax return, you can take gains/losses on your personal tax return
- No requirement to be a state resident or a US Citizen to form an LLC.
Do I Need An LLC?
If you think you might benefit from an LLC structure for your current or planned business venture, call Brian Bailey. He will be happy to consult with you before you decide to help you determine what the advantages and disadvantages might be in your particular situation.
Business Is In My Blood
I’ve been extremely lucky. I was raised by parents who took the time to pass on their wisdom. My mother, an accountant, has incredible business talent. She used that talent to help my father keep his own books in shape. While working outside the home and working to help my father succeed in his own business, she also managed to find time to recognize and gracefully utilize natural “teaching moments” at home while raising my brother and me.
My father, like my mother, is an inspiration to me. He was a plumber and shared his business wisdom freely and put me to work at a very young age in his entrepreneurial business. By the time I was in high school, he allowed me to take on more responsibility and learn more of his business. He made sure I would have the experience and work ethic that most of my peers didn’t.
I had the opportunity to repay him when his health began to fail. Together, we were able to keep his business open longer than he would have been able to manage alone. But, as his health worsened, he had a choice to make: he could sign up for disability or he could change his career path to a business model he could manage with health issues. My father went back to school in his late 40s and got his degree in Social Work. He became a Family Therapist and retired from that career in his late 60s. Continue reading
What is an S Corporation?
Advantages of Creating an S Corporation
An S corporation is treated by the federal tax system as a pass-through entity in the eyes of the IRS. To achieve this, your business must file Articles of Incorporation with the Secretary of State. Kentucky corporations are also required to file one copy of their Articles of Incorporation in the same county where the registered office is located.
Your company will then issue stock and the business will be governed as a corporation. The shareholders (those holding your stock) are the owners, but are protected from personal liability from the actions of the corporation. For instance, a shareholder’s personal property, bank accounts and other assets cannot be seized to pay off the corporation’s liabilities.
Income and losses are passed on to the shareholders. Each shareholder is responsible for the income or loss received by the corporation, on their own individual tax return. The S corporation eliminates double-taxation – once on the corporate level and once on the individual level, which happens with a regular corporation. Continue reading
Brian Bailey of McClure, McClure, & Bailey is helping entrepreneur Douglas Thornburg II, owner of Southern Safety Innovation Corporation find a location for a new manufacturing facility in the Rockcastle County Industrial Park. Brian Bailey is dedicated to helping business grow. The proposal was outlined in this article from The Mount Vernon Signal, seen below:
What is a C Corporation?
Establishing a C Corporation
A C corporation is a separate legal business entity, the income of which is taxed through the corporation rather than through individual share holders, unlike S Corporations, which pass profits to shareholders who are then responsible for the tax burden of those profits on their personal tax returns. C corporations are named for Subchapter C of the Internal Revenue Code and C corporations are the default corporate type under that code. This means if another type of corporation is not specified, the entity will be a C corporation automatically when it incorporates. This is why C corporations are also called “regular” corporations.
A C corporation’s shareholders must elect a board of directors responsible for making decisions and overseeing policies for the entity. In most cases, a C corporation is required to report to the Kentucky State Attorney General on financial operations. The C corporation is viewed as an individual tax payer by the IRS. As such, C Corporations are subject to “double taxation” — being taxed once at the corporate level and again on the personal level when dividends are distributed to shareholders.
A major advantage of a C corporation is that its owners have limited liability and are not personally liable for any debts incurred by the entity and they cannot be sued individually for corporate wrongdoing. This “corporate veil” means shareholder liability is limited to their investments in the corporation. Additionally, since the corporation is an independent entity, it does not cease to exist when the owners/shareholders change or die. Continue reading
Brian Bailey meets with the Rockcastle Fiscal Court to help a would-be Rockcastle County Business owned by Douglas N. Thornburg II, establish itself and grow. For more information, read this article in the Mount Vernon Signal from July 16, 2015: