Contractor vs Employee From the Worker Viewpoint

Want to pay less taxes? Start a business. If it seems that tax laws aren’t fair, guess what. They aren’t! They are weighed toward business owners.

And when it comes to business tax breaks: big business = small business = home based business.

Now this is where, as an employee, you may want to consider becoming an independent contractor instead.

The downside:

You will be responsible for calculating and paying your own federal and state income tax
You will need to track business deductions.
You will lose employee benefits.

The benefit:

You will be responsible for calculating and paying your own federal and state income tax. Yep, that really is a benefit because it means YOU get to be strategic in taking deductions. That reduces your taxes.
You need to have your own set of records. In order to take a deduction for things like your home office, computer, cell phone, printer, car, paying your kids, etc.. you need to track those expenses. This means less tax for you.
Control.

In today’s economy, I don’t like to tell anyone to quit their job, but if you have a chance to exchange employment for your own business as an independent contractor, you have the opportunity to make more money and pay less tax.

Some of the things you’ll need to be able to prove to the IRS if they challenge you on the independent contractor vs. employee question:

You need to show that you are working independently. You control when, how and where you work.
You use your own tools for work.
You operate in a business structure.
You have a written agreement.

The IRS would love to prove that you really are an employee. That means they can collect more taxes from you and more in taxes from the people who employ you. For your part, if you’re serious about the business, you’ll pay a whole lot less in tax.

The Trust Sandwich: A New Strategy to Protect Assets and Save Money

Sidestreaming Income: How to Reduce Your Tax Burden

Nexus Strategies for 2011 and Beyond