| Expensive
Mistakes
Independent Contractors
The use of independent contractors is an
acceptable practice if they are in fact independent. However, the IRS and the
California Employment Development Department will be very aggressive to dispute
your "independent" claim. California's requirements are more
restrictive. Paying someone as an independent contractor when you shouldn't be,
can become very expensive. The contractor may file an unemployment claim that
leads to an audit of your business. You may be liable to pay both the employer's
share of payroll taxes plus what should have been withheld. If the
contractor is injured while working for you, they may not be covered by your
insurance. A guide, DE 38, is available at the Employment Development
Department's web site http://www.edd.ca.gov/
. A licensed construction contractor is subject to even tighter restrictions.
Payroll Taxes
The rules for depositing payroll taxes are
complex and confusing. Not paying payroll taxes on time results in penalties and
interest. Since the majority of payroll taxes to be deposited are someone else's
money (withholding), the government is unforgiving for late payments. The person
who signs checks can be held personally responsible even in a corporation, LLC
or a non-profit group. If money is tight, not paying payroll taxes should be the
last option.
Paying Your Bills
Good credit is essential for a business to be
successful. Don't allow credit card companies to steal your money with
high interest rates and late fees because your payment is late. Your vendors and
suppliers may not charge interest but they will not give you the best prices and
service if you are a slow pay. Complete and accurate accounting records can help
you manage your cash flow and keep your bills paid.
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