Tax season is upon us…yay?
- this is your first year of running your own photography business.
- this is your first year having used ‘outside help’ for your business.
- you have been winging it with your taxes before and now that your business is taking off you are more concerned with how tax law may apply to you.
Whatever the case, you are now wondering if you, or your ‘outside help’, are legally considered an independent contractor.
What is an Independent Contractor?
According to the Internal Revenue Service (IRS), the general rule is, if the person paying ONLY has the right to control the result of the work and not how it is completed, then the payee is an independent contractor.
Some examples of professions that are generally considered independent contractors are:
- Contractors and subcontractors
If an employer-employee relationship exists, then you are NOT an independent contractor. Such a relationship exists if you are a photographer working for an employer that can legally control the details of how you perform the service of taking photos. IRS Definition
What does this mean for a photographer?
If you have complete control over your creative process, then you are most likely an independent contractor. For example, taking photos of a couple for their engagement. While many decisions are discussed and mutually agreed upon, you have the majority of the creative control and do not have to take the assignment. In the opposing case, if your work is controlled by another, then you are most likely in an employer-employee relationship. For example, a photographer for a newspaper is likely an employee. They are told what to shoot, how to shoot it, what equipment to use, when it is due, etc.
Independent Contractor or Employer-Employee Relationship?
The IRS recommends weighing three factors in making the determination of independent contractor or employer-employee relationship. The IRS’s factors are:
- Behavioral: Does the company control, or have the right to control, what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
IRS Determination of Your Status
If you still aren’t sure whether or not you or your ‘outside help’ are an independent contractor using the above factors, then you can ask the IRS for an official determination. Either you or the ‘outside help’ can file a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and the IRS will review your particular circumstances and make an official finding. This can take up to six months, so if you are concerned, make sure to complete this early!
Taxes as an Independent Contractor
There is NO minimum amount that you can exclude from reporting as part of your gross income on your taxes. Many people have heard that if your income is under $600.00 per payer or if you do not receive a 1099-MISC, Miscellaneous Income form, then you do not have to report, but that is not true. All taxable income, even that gained as an independent contractor, must be reported on Form 1040. What is taxable income you ask? In general, all income received in monetary form, property form, or through services is taxable unless there is a specific exemption. Some examples of non-taxable income are child-support, welfare benefits, and cash rebates from a manufacturer. IRS & Reporting Miscellaneous Income
An independent contractor is subject to Self-Employment Tax (SE tax). SE tax is Social Security and Medicare tax, similar to that paid by those in employer-employee relationships. Those that must pay SE tax are required to file an annual return and pay taxes quarterly. A 1040 Schedule SE will be required if your net profit is over $400.00 for the year. In addition, you will also have to pay income tax.
Taxes for Your Independent Contractor
If you have determined that your ‘outside help’ is an independent contractor, you may have to file a Form 1099-MISC. According to the IRS, this form will be required if the following four factors are met:
- You made the payment to someone who is not your employee;
- You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
- You made the payment to an individual, partnership, estate, or in some cases, a corporation; and
- You made payments to the payee of at least $600 during the year.
Haven’t gotten your fill of fun tax law? Here is a helpful link to more information about self-employment taxes from the IRS.