(208) 425-1545 contact@cdaaccounting.com

One potential Coeur d’Alene business tax reduction strategy is to hire independent contractors instead of employees.

Misclassified

If a worker’s classification fits within the tax law, it’s a legitimate strategy that can save you thousands of dollars.

  • But sometimes the classification isn’t clear-cut.

You may think you have the independent contractor classification correct, but when the IRS does the audit, you could learn the IRS considers those contactors W-2 employees.

  • This can cost you a huge sum of money in back payroll taxes, fines, fees, and penalties.

You Will Owe the Entire 15.3%

The law requires that you withhold taxes on the wages you pay to your employees.

  • If you don’t, you are liable for 100% of the withholdings of FICA (i.e., Social Security and Medicare) taxes that you neglected to remit to the IRS.
  • Thus, if the IRS reclassifies your independent contractors as W-2 employees, you are on the hook for the taxes you should have taken from the paychecks.

A Way Around This Issue

If you can show the Coeur d’Alene 1099-worker paid the taxes, then you aren’t liable for them. This rule prevents the taxes from being paid twice. For this favorable treatment, which is on a worker-by-worker basis, you need the worker to sign IRS Form 4669, Statement of Payments Received.

For Tax Resolution or Tax Preparation services in Coeur d’Alene Idaho click here.