Are you hiring an employee or an independent contractor?

The tax law covering independent contractors is very complicated. Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The tax law covering independent contractors is very complicated. Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be -

An independent contractor
A common-law employee (Employee)
A statutory employee
A statutory nonemployee

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

Who is an Independent Contractor?
A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Example: Steve Smith, a computer programmer, is laid off when Megabyte Inc. downsizes. Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. It is not clear how long it will take to complete the project, and Steve is not guaranteed any minimum payment for the hours spent on the program. Megabyte provides Steve with no instructions beyond the specification for the product itself. Steve and Megabyte have a written contract, which provides that Steve is considered to be an independent contractor, is required to pay Federal and state taxes, and receives no benefits from Megabyte. Megabyte will file a Form 1099-MISC (PDF). Steve does the work on a new high-end computer which cost him $7000. Steve works at home and is not expected or allowed to attend meetings of the software development group. Steve is an independent contractor.

Refer to the page on Paying Independent Contractor if you need information on what your responsibilities are when paying contractors.

Who is a Common-Law Employees (Employee)?
Under common-law rules, anyone who performs services for you is your employee is you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

To determine whether an individual is an employee or independent contractor under the common law, the relationship of the worker and the business must be examined. All evidence of control and independence must be considered. In an employee-independent contractor determination, all information that provides evidence of the degree of control and degree of independence must be considered.

Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Refer to Publication 15-A, Employer’s Supplemental Tax Guide for additional information.

Who is an Employee?
A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done.

Example: Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. She works 6 days a week, and is on duty in Bob’s showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Bob. Bob also pays the cost of health insurance and group-term life insurance for Donna. Donna is an employee of Bob Blue.

Statutory Employees
If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute ( statutory employees ) for certain employment tax purposes if they fall within any one of the following four categories and meet the three conditions described under Social security and Medicare taxes , below.

A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.
A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer s business operation. The work performed for you must be the salesperson s principal business activity. Refer to the Salesperson section located in Publication 15-A, Employer s Supplemental Tax Guide for additional information.
Statutory Nonemployees
There are two categories of statutory nonemployees: direct sellers and licensed real estate agents. They are treated as self-employed for all Federal tax purposes, including income and employment taxes, if:

Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked and
Their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes.
Refer to information on Direct Sellers located in Publication 15-A, Employer s Supplemental Tax Guide for additional information.

What are the employment taxes a small business has to pay?

Small business owners often have great responsibilities while operating and managing a business. Small business owners often have great responsibilities while operating and managing a business. Before you become an employer and hire employees, you need a Federal Employer Identification Number (EIN). If you have employees, you are responsible for several federal, state, and local taxes. As an employer, you must withhold Federal income tax, Social Security and Medicare taxes, and Federal unemployment tax act (FUTA). For more information on these taxes refer to Publication 583, Starting a Business and Keeping Records.

As an employer, you are also responsible for timely depositing and withholding federal income, your matching share of social security and Medicare taxes from your employees’ wages and any federal unemployment tax act (FUTA) taxes. Refer to Publication 15, Circular E, Employers Tax Guide.

Tax Cuts for the Rich… It’s a good thing!!!

I just got this in my inbox, and found it really amusing and enlightening. Anyone who’s been on either side of the the tax cut issues should give this some thought. Tax Cuts for the Rich… It’s a good thing!!!

Sometimes politicians can exclaim; “It’s just a tax cut for the rich!”, and
it is just accepted to be fact. But what does that really mean? Just in
case you are not completely clear on this issue, we hope the following will
help…

Tax Cuts - A Simple Lesson In Economics… This is how the cookie
crumbles… Please read it carefully…

Let’s put tax cuts in terms everyone can understand. Suppose that every
day, ten men go out for dinner. The bill for all ten comes to $100. If
they paid their bill the way we pay our taxes, it would go something like
this:

The first four men (the poorest) would pay nothing!!!

The fifth would pay $1.

The sixth would pay $3.

The seventh $7.

The eighth $12.

The ninth $18.

The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men ate dinner in the restaurant every day and seemed quite happy
with the arrangement, until one day, the owner threw them a curve.

“Since you are all such good customers,” he said, “I’m going to reduce the
cost of your daily meal by $20.”

So, now dinner for the ten only cost $80. The group still wanted to pay
their bill the way we pay our taxes.

So, the first four men were unaffected. They would still eat for free!!!

But what about the other six, the paying customers? How could they divvy
up the $20 windfall so that everyone would get his “fair share”???

The six men realized that $20 divided by six is $3.33. But if they
subtracted that from everybody’s share, then the fifth man and the sixth
man would each end up being “PAID” to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce each
man’s bill by roughly the same %, and he proceeded to work out the amounts
each should pay.

And so the fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33% savings).

The seventh now paid $5 instead of $7 (28% savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before and the first four continued to
eat for free… But once outside the restaurant, the men began to compare
their savings.

“I only got a dollar out of the $20,” declared the sixth man. He pointed
to the tenth man “but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar,
too. It’s unfair that he got ten times more than me!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when
I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “We didn’t get
anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for dinner, so the nine sat
down and ate without him. But when it came time to pay the bill, they
discovered something important. They didn’t have enough money between all
of them for even half of the bill!

And that, boys and girls, journalists, teachers and college professors, is
how our tax system works. The people who pay the highest taxes get the
most benefit from a tax reduction. Tax them too much, attack them for
being wealthy, and they just may not show up at the table anymore. There
are lots of good restaurants in Europe and the Caribbean.

David R. Kamerschen, Ph.D. Distinguished Professor of Economics 536 Brooks
Hall, University of Georgia

More advice from google guy

Here’s another great excerpt from Google Guy Google Guy Wrote:

“”GG, your advice makes a lot of sense for information or content publishers, but how should widget marketers interpret that statement? Are you suggesting that they make their commerce sites more like information sites, using editorial or advertorial content to attract prospects? Or does clearly written, descriptive, and original catalog copy qualify as “good content” from a Googlesque point of view?”
Good question. I think both can qualify as good content. It’s easier for me to think of it as a user though. If I want to buy a diamond for someone, I might go on the web and just search for a place to buy a diamond. But a typical user is also going to want to know about their purchase. Things like color, carats, clarity, and so on that people want to find out about. I probably would want to know about the different organizations that certify diamonds, along with some believable opinions about the organizations themselves and their value.

If you have a “buy it now” site, you’re definitely going to attract a certain type of visitor (maybe the most valuable single type, by the way). But the more unique information you can provide to distinguish your site, the better off you’ll be. A buy-it-now site with nothing but boilerplate or affiliate links doesn’t add a lot of value for a searcher who is looking for context, comparison-shopping, or more background.

This is all just my personal take of course, but I’d recommend building the sort of resource site that people can use to read and research, the sort of site that people bookmark and return to. That can come from original content: a good newsletter, for example, or a forum where people have a good community and discuss the pros and cons of different types of widgets. It can come from honest, unbiased reviews. It can come from providing more information than anyone else about a product. But if there’s nothing that makes a site stand out–if a user perceives it as a cookie cutter site with little additional reason to use it versus another site–then you can see where it’s not of as much use to a searcher.

Again, this is all just my two cents. We want quality sites to do well–ideally without worrying too much about SEO. And if you know of sites that are doing well but appear to be doing it against our guidelines, drop an email to webmaster [at] google.com or do a spamreport and mention the keyword brandyupdate. I’d like to make sure that we keep looking at any issues with our scoring, so that people with good sites can keep working on making their sites better, without worrying about the people trying to take shortcuts. Feedback helped in our last iteration of algorithms, and we appreciate getting it.

By the way, the front page is talking about “The Semantic Web”. I was talking about plain old semantics–understanding documents better, for example. The “Semantic Web” is a different topic altogether–more about RDF and XML and (OWL?) and lots of other things. “

Googleguy on the DMOZ PageRank Boost

I was very interested to see Googleguy comment today on the hypothesis that I’ve seen many times that a listing in the DMOZ gets you a special boost at Google. Here’s Googleguy’s statement.

“When we updated once per month, we’d make sure that we downloaded the newest RDF dump of DMOZ before indexing started. I don’t know when the next update will be. As far as the weight, a link from DMOZ is the same as a link from any other page on the web. DMOZ pages typically have more PageRank, so it helps in that respect, but there’s no extra boost just because the link comes from the Open Directory.”

I hope that sets to rest the theory that you absolutely need a DMOZ listing. Not that I devalue it at all, I try to get all of my sites in. Heck, it’s free advertising. Where I object is when people complain how difficult it is to get listed. It’s not at all difficult. You submit the site, it takes about two minutes. Then, you either get in, or you don’t. The time people spend whining, and submitting over and over again, would be much better spent working on an overall marketing plan for your site. Submit it and forget it (my motto with the DMOZ listings).

Should you register expired domains?

The market for expired domains has become far more complicated than it was just a few months ago. It takes a lot more knowledge to make good use of expired domains. I’ve registered a few expired domains. About 25% of the time it turns out to have been a good move. So, 75% of the time, it’s been wasted money/time/effort. I can do a quick analysis on a domain now, about five minutes, and at under ten bucks there’s not much of an investment. I’ve got a couple of real gems from expired domains that I’ve turned into profitible websites, so it’s worthwhile even with the low success rate. Understand a couple of things, though. First, don’t go into it hoping that you’ll get search engine traffic from an expired domain. You won’t. The best names will be snapped up at places like Pool, and Namewinner. Google is putting a penalty on 99.99% of expiring domains, stripping them of most of the value. The domain is also likely to get ‘red-tagged’ in DMOZ. If you’re starting a fresh website, it’s often better to get a fresh domain. The best reason to take an expired domain is if there was an old website there that was right on the topic of the new website you want to build, but only if that domain has some exisiting backlinks. What that means is that there are other websites that have a link to that domain. You can find out about that using tools such as Marketleap’s popularity checker. The potential traffic you could get from those links could far exceed the cost of the domain in value. You can make a good guess at that traffic by estimating how much traffic the pages that link to the domain are getting. You need to act quickly, though, to get a good website up at that domain because webmasters do check who their linking to and if they find the site expired they’re likely to remove the link.

Forget about keywords

Don’t get bogged down with looking at wordtracker to figure out what keywords you want to target for your website. Spend that time creating content instead. I’d like to suggest people to put some caution on the emphasis on the keywords when building their websites. If you have five hours to put into working on your site this week, and you can chose between spending some or all of that time researching keywords or creating content, just get writing. Write naturally. If your keywords come up naturally when you’re writing, that’s great. Write naturally, because you’ll end up with keywords you wouldn’t have thought of if you spend that time using wordtracker. Don’t obsess over keywords, obsess over creating content. Actually, you’ll be better off in the long-run if you completely forget about keywords and spend all that time writing content for your site. I’ve obsessed plenty over keywords, but have found that my time is best spent when I’m writing and creating content for my websites.