I live in Massachusetts and recently started a small residential cleaning business. Congratulations!
I hire my employees as a contracted position. I want to make sure I am following the law in regards XXXXX XXXXX makes it a contracted position and I also want my employees to keep the correct records for what they can write off on their taxes. Can you help me? See the above with regard to how to run your contractors to ensure that they are, indeed, contractors. Some practical measures that can help ensure that the proofs lean towards 'contractor' vs. employee, include allowing them to choose their hours or jobs they will take, allowing them to decide how they will accomplish the job while pleasing the end client - i.e. giving them latitude on their method of cleaning, even if they must produce a particular result. Also, if they use their own equipment, that can be a big item of proof in favor of being self employed contractor to your business... Of course, what cleaner can afford that? Well, perhaps you pay them more but they are responsible for using or renting the equipment from you or elsewhere. You may be able to be creative.
Country relating to Question: United States
State (if USA): Massachusetts
What have you tried so far?: I filed last year as self employeed and my staff as contracted. Which means that they TOO are self-employed.
No problem with filing by myself and the contractors had no problem. Only one person was told that next year they could not write off their mileage Who told them that? Talk is cheap. They can write off their mileage if that is what they did the prior year - as I recall, the IRS rules on mileage as opposed to "Actual costs" depend on how you did it the prior year - you can only use the standard mileage figures IF you used it prior... Otherwise, a self-employed contractor can use "actual expenses" - i.e. keeping track of gas used on the job, repairs, etc.
that I could Of course.
but they couldn't which doesn't make any sense Yes, until they speak to and use a CPA, which they should if they plan on continuing as an indendent contractor (i.e. self employed as their own little business, with you as their client, so to speak) - I'd not listen to 'friends' opinions.
If they don't have write offs, they are going to have to pay in a lot of money. They will have to pay taxes like the rest of us, and like they do when an employee, when the taxes are "withheld". However, as self-employed people, we are also responsible for the part of the SS tax and Medicare tax that our employer usually pays for us via payroll taxes (in addition to withholding the other 1/2 from our paychecks). So in that sense, yes, they pay more. But, what self-employed small business person, like a contractor, does not carve out a small office space for himself? They can read up on how that can be written off if properly designated. The proportionate amount of household utility bills, and other, attributable to that square footage used exclusively as the office for that business, can be written off. It can help make up and pay for that self-employment tax 1/2 they will have to come up with, in addition to the 1/2 that they pay but that isn't being "withheld". But, also, driving to the "job" can be written off as well. And this past year, 2012, I believe it is about .55 cent/mile. If a job is 20 miles away, that is over $10 written off. If they make $30, $10 is expensed out. Of course, I do hope they don't make the trigger happy decision to write off so much that the venture is not lucrative - because if they don't earn (net after expenses) enough (say, nearly $4700/year) and pay the appropriate self-employment tax (i.e. SS and Medicare), they will find their retirement to be in poverty and their status as insured for Social Security Disability to end - such that should they become disabled later, as so many do, unfortunately, in this day and age, they will NOT have SSDIB benefits to fall back on.