Accounting can seem like a minefield full of complicated lingo and confusing rules, especially if you are busy with your job and family or running a business. #AskDave is here to answer your pressing accounting and tax questions — and hopefully make the whole endeavor seem less complicated.
Dave Wendell, of Elite Accounting, built a full-service accounting firm while managing another business and earning a bachelor's in accounting from DeVry University and an MBA from Keller Graduate school of management. Based in downtown Twin Falls, he's committed to helping his clients reach their personal and professional goals.
In this first installment of #AskDave, he tackles a question facing many small businesses: Is the person doing work for me an employee or subcontractor? What documentation do I need for each?
“To determine whether that worker is an employee or subcontractor, you would have to consider several things. Who controls when they go to work, who controls the work being done, and who controls the end product?
The IRS looks at facts that provide evidence of control within three categories: relationship type, financial and behavioral. The behavioral looks at who has control of what and how the worker does their job. If the worker controls their job, then they would be a subcontractor. The financial aspect looks at who controls the money. If the company controls how the money is spent and what materials are purchased as well as how the worker is paid, this will mean that this worker is an employee. The relationship factor takes into consideration how the worker continues working. Will the relationship stop at the end of a particular project or is it ongoing? If it is ongoing, then this worker is most likely an employee.
The entire relationship should be taken into consideration. If you review these areas and are still unclear as to how to proceed, you can reach out to your accountant. You also could file form SS-8 with the IRS, but keep in mind it could take several weeks to get an answer. If you incorrectly classify a worker as a subcontractor, keep in mind you, the employer, could be held liable for the employment taxes for that employee.
Some common documents that are needed for your employees are W4s (make sure to use the proper new forms for both federal and state) and I9s. The subcontractor should be filling out a W9 for you; this form gives you the pertinent information to properly submit the 1099 NEC at the end of the year.”
Dave has owned and operated Elite Accounting since 2008, adding the payroll service in 2011 and tax services in 2011. He's also an IRS Enrolled Agent, so he can help businesses and individuals with more serious tax matters, too. If you'd like to set up a consultation to learn how he can help you or your business, simply call 208-825-1641 or fill out this form.
In addition, Dave loves answering questions! Click here to submit to #AskDave and he just might answer your question in a future article.