I originally wrote these rants with arts and crafts professionals in mind. This was a period when I was educating these folks on how to run their studios as the small businesses they in fact are. Bear that in mind as you read about craft widgets and retail shows. The principles, however, are the same as with any small business, and apply whether dealing with the manufacture of art or industrial widgets or service businesses selling time and expertise instead of goods. These are practical tools to help any businessperson manage a business better.
More home businesses get in trouble with the Internal Revenue Service for miss-classifying their workers than for any other reason. Typically the outside help works in the studio on a full- or part-time basis using the business owner’s tools and equipment, and is paid an hourly wage with no deductions taken. When the IRS discovers this (and they will find out!) the so-called contract worker is reclassified as an employee, federal employment taxes are imputed (social security, Medicare and unemployment), interest and penalties are accessed, and the business owner discovers that the effective rate being paid the newly-promoted employee is double what he thought.
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More home businesses get in trouble with the Internal Revenue Service for miss-classifying their workers than for any other reason. (more…)
