A growing number of businesses are opting out of hiring full-time employees. It’s all about the gig economy, and the most significant part of that is hiring freelancers. Today, finding and selecting top freelance talent is easier than ever thanks to remote online job portals like Upwork that feature talent marketplaces. It’s possible to gauge costs, whether per hour or per project, before even making contact by reading through each potential hire’s profile.
Independent contractors are a great way to access talent outside the local employment pool, providing better outcomes with fewer associated costs. But one of the biggest perks of hiring freelancers is the tax benefits.
Freelancers Pay Their Own Taxes
A study conducted by the Freelance Union and Upwork demonstrated that 54 million Americans engage in freelance work each year. Employers nationwide are turning to independent contractors to fulfill tasks. One of the main reasons is that freelancers are responsible for their own tax contributions, which can significantly reduce the financial burden on employers. Thus, your contractor will be responsible for paying federal, local, and state taxes – including Medicare and Social Security. The typical 7.65% employer FICA tax contribution is nullified with freelancers, which is tremendous savings – especially for small businesses.
You Don’t Need to Worry About Benefits
In addition to tax, according to the Boston Business Journal, business owners pay over 1.25 to 1.4 times the base salary in employee benefits. With freelance contractors, you won’t have to offer paid time off or health insurance. You won’t have to pay unemployment taxes or worker’s compensation insurance either. Thus, hiring a freelancer can significantly reduce your expenditure on employee benefits and the associated taxations irrespective of the hours worked.
Reduced Tax Effort
Hiring full-time employees often comes with complex payroll processing. However, with independent contractors, employers can remit payment and let the freelancer handle the taxes. This helps in simplifying the payroll process, along with the tax benefits. In addition, employers will need to collect W-9 forms from freelancers and submit and send the form 1096 and form 1099-MISC to the IRS. However, the tax forms are more straightforward to work through, which will save your business billable accounting dollars in the long run.
Other Strategies to Save On Taxes
Looking for some other ways to save taxes? Start by determining if your business could potentially qualify for different tax treatments. For example, this could be based on industry qualification, as some sectors like accounting and legal practices benefit from lower tax rates. Another tax tip is to defer expenses to accelerate income – this will allow your payment to be taxed at a lower rate when you most need it.
Forming an LLC for your business is another excellent strategy, as it will afford you pass-through taxation. This means you’ll pay your taxes at an individual income tax rate instead of the corporate federal income tax rate.
Hiring freelancers is the way to grow your business to new heights. Hiring a full-time employee means investing in their professional growth and development, a process that will take time and money. On the other hand, freelancers offer immediate skills to get the job done quickly and efficiently while bringing in those much-needed tax perks.