Businesses

Employees vs Independent Contractors: What’s the Difference?

The terms “employees” and “independent contractors” are often used interchangeably describe workers whom a business hires. However, there are some stark differences between them, specifically in regards to how they treated by the Internal Revenue Service (IRS). As a business owner, you might be wondering how exactly employees differ from independent contractors. Below, you’ll learn more about these two classifications of workers and their respective nuances.

What Is an Independent Contractor?

An independent contractor is a non-employee worker who has control over the work he or she performs. The IRS explains that, as a general rule, a worker is considered an independent contractor if he or she can control their work. In other words, independent contractors can choose whether or not to perform a work-related task and when to perform it. His or her employer — known simply as a payer — cannot require the independent contractor to perform ongoing or otherwise pre-scheduled work.

What Is a Employee?

An employee, on the other hand, is a worker who doesn’t have control of his or her work. A worker is considered an employee if his or her employer can dictate their work. Employees typically have little or no say regarding their work schedule. Rather, they are required to perform specific tasks at specific times.

Differences Between Independent Contractors and Employees

Aside from the terminology differences, the IRS treats employees and independent contractors very differently from each other. If you hire an independent contractor, he or she will be responsible for withholding and paying their own income taxes and Social Security. If you hire an employee, however, you must withhold and pay the employee’s income taxes and Social Security.

Furthermore, employees are entitled to certain benefits in the United States that aren’t offered to independent contractors. There’s both a federal minimum wage and state-specific minimum wages that all employers must follow when paying their employees. Independent contractors aren’t subject to these minimum wages. Employers can technically pay them less.

Employees are also eligible for overtime pay. Under the Fair Labor Standards Act (FLSA), all employees who work over 40 hours in a single week are entitled are overtime pay of at least 1.5 times than their standard pay. These are just a few benefits that are only offered to employees. Employers aren’t required to offer these benefits to workers who are classified as independent contractors.

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Tax Audits: 6 Ways to Lower Your Risk

With April right around the corner, you might be wondering how to lower your risk of being audited by the Internal Revenue Service (IRS). Statistics show the IRS audits about 0.5% of all federal tax returns in any given year. The good news is that you can lower your risk of being audited by following these six tips.

#1) File a Return

You can’t outrun Uncle Sam. If you don’t file a tax return — and you had income that was reported to the IRS for that year — you’ll raise a red flag with the IRS. Upon discovering that you didn’t file a tax return, the IRS may audit you. Therefore, you should always file a tax return to minimize your risk of being audited.

#2) Double-Check Your Income and Expenses

Before filing your tax return, double-check all your income and expenses to ensure the information is correct. If the income reported to the IRS doesn’t match the income on your tax return, the agency may audit you.

#3) Form an LLC or Corp

If you currently operate as an independent contractor or a sole proprietorship, consider forming either a limited liability company (LLC) or a corporation. Research shows independent contractors and sole proprietorships have the highest audit rate. By forming an LLC or a corporation, you can lower your risk of being audited.

#4) Choose the Right Tax Preparer

Don’t underestimate the importance of choosing the right tax preparer. There are thousands of tax preparation businesses in the United States that specialize in preparing, as well as filing, tax returns. Unfortunately, though, not all of them are credible or legitimate. If you choose a questionable tax preparer such as this, they may make mistakes with your return that results in an audit from the IRS.

#5) File Online

You might be surprised to learn that filing your tax return online can lower your risk of being audited. According to Intuit, roughly one in five mail-filed returns have an error, compared to just 0.5% with e-filed returns. The IRS’s e-filing system has safeguards in place to protect against common filing errors. If the system detects an error, it will notify you — or the preparer who’s filing your return — so that you can fix it.

#6) Complete All Required Fields

While this may sound like common sense, it’s worth mentioning that you should complete all required fields on your tax return. Leaving just one field blank is often enough to trigger an audit.

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How to Promote Your Small Business on Facebook

Reaching over 2.3 billion people globally, Facebook has become the world’s most popular social media network. In the United States, statistics show two in three adults use it regularly. If you run a small business, you should consider using Facebook as a promotional channel. With so many people using it, it’s safe to assume your small business’s target audience actively uses Facebook as well. However, there’s a wrong way and a right way to promote small businesses on Facebook.

Don’t Use Your Profile

What’s wrong with using your Facebook profile to promote your small business? Well, doing so poses several problems, one of which is the fact that users can’t “like” your small business on the social media network. They can befriend your small business by sending a friend request, but users won’t be able to “like” it if you use a profile. More importantly, Facebook’s terms and conditions prohibit businesses from using a profile.

Use a Page

Rather than a profile, you should use a Facebook Page to promote your small business. Unlike profiles, Pages can be used to promote businesses on Facebook. You can set up a Facebook Page for your small business — it’s free by the way — by following this link.

Post Regularly

You can’t expect users to “like” your small business on Facebook unless you post content to your Page regularly. Without content, there’s really no incentive for users to connect with your small business. For an effective Facebook marketing strategy, you should get into the habit of logging in to your Facebook Page to post new content at least twice a week. Of course, you can post content more frequently, but twice weekly is a good starting point for most small businesses.

Share Trending Content

In addition to posting unique content, consider sharing other users’ content on your small business’s Facebook Page. If a particular post is relevant to your small business’s audience, consider sharing it on your small business’s Facebook Page. You can easily share trending content on Facebook by clicking the “share” button, at which point it will appear on your small business’s Facebook Page.

Paid Ads

You can maximize your small business’s visibility on Facebook using paid ads. The social media network offers a paid advertising service known as Facebook Ads. Using this service, you can create custom ads that target specific users o the social media network.

Have any other Facebook marketing tips that you’d like to share? Let us know in the comments section below!

The 4 Types of Business Expenses

When running a business, you’ll have to purchase goods and services from other vendors. Known as expenses, they are essential to all businesses’ operations. Whether you run a retail store, a restaurant, a landscaping company or any other business, you’ll incur certain expenses associated to your business’s operations. With that said, there are four different types of business expenses, each of which works in a different way. To learn more about the four types of business expenses, keep reading.

#1) Variable Expenses

A variable expense is a business-related expense that, as the name suggests, can change over time. If you purchase goods or services with a fluctuating, non-static price, you should record those transactions as a variable expense. Production materials, for instance, are considered a variable expense. The cost of production materials often varies depending on the purchase volume, contract length and other factors. Credit card fees can also be considered a variable expense. Since credit card fees fluctuate, you should record them as a variable expense.

#2) Fixed Expenses

A fixed expense, on the other hand, is a business-related expense that does not change over time. Lease payments, for example, are a fixed expense. If you lease a commercial building or office in which to run your business, the monthly lease payments are considered a fixed expense. Equipment leases are another common type of fixed expense. When you lease equipment, you’ll typically pay the same amount each month.

#3) Accrued Expenses

Another type of business-related expense is accrued. Accrued expenses include expenses incurred by your business for which you haven’t paid. Not all vendors require customers to pay for their goods or services upfront. Some allow them to pay at a later date. If you purchase goods or services for your business but don’t immediately pay for them, you should record the transaction as an accrued expense.

#4) Operational Expenses

Finally, an operational expense is a business-related expense that’s not directly linked to your business’s production activities. Instead, it’s incurred as a part of your business’s normal, day-to-day operations. Common examples of operational expenses include marketing and advertising, insurance, research and development and equipment.

To recap, the four primary types of business expenses include variable, fixed, accrued and operational. Variable expenses are characterized by their ability to change over time. Fixed expenses, on the other hand, do not change over time. Accrued expenses are unique because they involve debt, while operational expenses aren’t linked to your business’s production activities.

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5 Ways to Save Money on Shipping Costs

Does your small business ship products directly to customers? Well, you aren’t alone. With the rise of e-commerce, many brick-and-mortar businesses have since taken their operations online. Selling products online allows you to reach a larger audience. The downside, however, is that you’ll have to ship products, which can quickly eat into your operational budget. The good news is that you can save money on your small business’s shipping costs by following these five tips.

#1) Ship Multiple Products Together

If a customer purchases two or more products, consider shipping them together in the same package. Conventional wisdom should lead you to believe that it will cost less to ship one package rather than two packages. You can even pass some of these savings along to the customer, who may feel compelled to leave a positive review for your small business.

#2) Compare Flat Rates vs Standard Rates

Many shipping companies, including the United States Postal Service (USPS), offer both flat rates and standard rates. If you’re shipping a small and lightweight product, you may want to use the standard rate. If you’re shipping a large and heavy product, on the other hand, a flat-rate box may cost less. The only way you’ll know is by comparing the shipping company’s flat rates to its standard rates.

#3) Purchase Insurance Through a Third Party

As a small business owner, you should insure your packages to protect against financial loss. Shipping companies are bound to make mistakes. Maybe they accidentally lose one of your packages, or perhaps they send it to the wrong address. With insurance, you can rest assured knowing that you’ll be financially compensated in cases such as these. Rather than purchasing insurance directly through the shipping company, though, consider using a third-party insurance provider. They typically offer cheaper rates,

#4) Reuse Bubble Wrap and Boxes

To say packaging supplies is expensive would be an understatement. Depending on sales volume, some small businesses spend thousands of dollars on packaging supplies each year. You can cut this cost, however, by reusing bubble wrap and boxes. When you receive a shipment of products from a supplier, save these supplies so that you can reuse them later.

#5) Get Multiple Quotes

Don’t forget to get multiple quotes on shipping costs from different shipping companies. Contrary to what some small business owners believe, the USPS doesn’t always offer the lowest rates. Other shipping companies to consider include UPS, FedEx and DHL. By obtaining multiple quotes, you’ll be able to see firsthand which shipping company offers the lowest rate for your small business.

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6 Benefits of VOIP for Your Small Business

What type of phone system does your small business use? If you’re stilling using a traditional landline, you should consider upgrading to a voice-over-internet-protocol (VOIP) line. While both types will allow your small business to place and receive calls, VOIP offers several noteworthy benefits.

#1) Record Conversations

With VOIP, you can set up your small business’s phone system to record calls automatically. Why is this important? By automatically recording conversations, you can gain a better understanding of your customers’ or clients’ needs.

#2) Increased Accessibility

VOIP is more accessible than traditional landlines. A landline, of course, requires a physical connection with each phone. If you want to use three phones at your small business, you must run a cable to each of the three phones. In comparison, VOIP only requires internet access, such as Wi-Fi.

#3) Support for Smartphone

You might be surprised to learn that you can use your smartphone for VOIP. Of course, this isn’t possible with a traditional landline. Landlines only support basic, non-mobile phones. A VOIP, on the other hand, allows you to use any internet-connected phone to place or receive calls.

#4) Video Conference

VOIP systems come with a myriad of features, one of which is video conferencing. Also known as telepresence, video conference allows you to host video-based calls in real time with other employees, customers, clients or vendors. Assuming your phone supports video — meaning it has a display — you should be able to host a video conference call with it. To do so, though, you’ll need to choose a VOIP phone system for your small business rather than a traditional landline.

#5) Scalable

VOIP is scalable, so you can rest assured knowing that you getting the best value for your money. If your small business rarely uses the phone, you can choose a low-tiered VOIP service. If your small business frequently uses the phone, on the other hand, you can choose a high-tiered VOIP service. You won’t find this level of scalability with traditional landlines, which is just one more reason to consider VOIP.

#6) Productivity

You may notice that a VOIP has a positive impact on your small business’s productivity. You’ll be able to make calls from any phone, assuming it’s connected to the internet. As a result, VOIP can make you, as well as your employees, more productive.

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Choosing the Right Payment Solutions for Your Business

What forms of payment does your small business accept? Not all customers will use the same method of payment. If a customer prefers a specific payment that’s not offered by your small business, he or she may leave and visit a competitor’s business from which to purchase the product or service. So, what type of payment solutions should your small business accept?

Cash

Even with the advent of digital payments, cash remains the preferred form of payment among most consumers. According to one study, 30% of all transactions involve cash. It’s a universally known and recognized payment solution that keeps the wheels of commerce turning. Cash offers an unparalleled level of convenience when compared to other forms of payment. As long as a customer has cash, he or she can make a purchase. As a result, your small business needs to accept cash payments. Otherwise, you’ll struggle to attract and retain customers.

Check

In addition to cash, you should consider accepting check payments at your small business. Assuming you have a checking account at a bank, you should be able to deposit check payments received from your small business’s customers. You may incur checking account fees, but most banks don’t charge for check deposits. The downside to accepting check payments, of course, is the potential for a bounced check. If the customer has insufficient funds in his or her account, the check may not clear.

Credit Card

All small businesses can benefit from embracing credit card payments. According to Fundera, over three in four consumers have at least one open credit card. With credit card payments, you’ll typically have a pay a fee per each transaction. Depending on the specific type of credit card payment solution, you can expect a per-transaction fee of around 25 cents and 3%.

Mobile Payment

In recent years, more and more businesses have embraced mobile payment solutions. What is a mobile payment exactly? As the name suggests, it’s a type of digital payment that requires a smartphone, tablet or other mobile device. The customer must first install and set up an app on his or her mobile device. Once configured, the customer can use the app to purchase products or services.

Whether your small business operates locally at a brick-and-mortar location or on the internet, you should consider accepting multiple forms of payment.

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Is Your Small Business Vulnerable to Cyber Attack?

As a small business owner, you might assume that your business is safe from cyber attacks. After all, large companies typically have more money, as well as more data, than smaller businesses, so conventional wisdom may lead you to believe that only large companies are targeted. The reality, however, is that all types of businesses are targeted by hackers, including small businesses.

The Rise of Small Business Cyber Attacks

You might be surprised to learn that cyber attacks against small businesses has increased over the years. According to research cited by Forbes, over half of all intrusions, malware insertions and other forms of commercially-focused cyber attacks last year targeted small businesses. With cyber attacks against small businesses on the rise, you should use this opportunity to evaluate your small business’s cybersecurity strategy.

Create Strong Passwords

The first layer of protection against a cyber attack is strong passwords. Short passwords are undoubtedly easier to remember than long passwords. Unfortunately, though, they offer minimal protection against cyber attacks. Hackers may perform a brute-force attack against your small business that involves guessing the correct password. If it’s short or otherwise weak, a brute-force attack could lead to serious consequences for your small business.

Change Passwords Every Few Months

In addition to creating strong passwords for all your small business’s login-protected accounts, you should change your passwords at least once every two to three months. Failure to change your passwords on a regular basis could result in a hacker guessing or otherwise identifying the correct password for one of your accounts.

Install Anti-Malware Software

Anti-malware software can help protect your small business from cyber attacks. Anti-malware software, of course, is software that protects against malware. It designed to both prevent and treat malware infections. If a hacker tries to deploy malware on one of your small business’s computer, anti-malware software should block the attack.

Use a Firewall

Finally, using a firewall can strengthen your small business’s security and, therefore, lower the risk of a cyber attack. What is a firewall exactly? When used in the context of information technology (IT), a firewall is a type of software application that’s designed to filter malicious and potentially malicious traffic. It automatically scans all incoming and outgoing traffic for signs of a cyber attack. If the firewall detects a potential attack, it will block the traffic.

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5 Lead Generation Strategies for Small Businesses

Are you struggling to generate leads for your small business? Regardless of what your small business sells, you’ll need high-quality sales to whom you can pitch your products or services. Unfortunately, many small businesses have a lackluster lead generation that hinders their ability to succeed. If this sounds familiar, you should consider the five following strategies to generate more leads for your small business.

#1) Direct Mail

Direct mail offers a highly effective channel for generating leads. Statistics show that over one in two consumers believe print-based ads, including direct mail, are the most trustworthy of all marketing channels. With direct mail, you’ll be able to target households within your small business’s key market regions, allowing for high-quality leads that are easy to convert into customers.

#2) Email

Along with direct mail, you can use email to generate more leads for your small business. One report found that that email is the single most popular lead generation channel for business-to-business (B2B) businesses. Whether your business sells to other businesses or consumers, though, you can use email to attract more leads. Just set up a newsletter, at which point prospective customers can provide their email addresses to receive updates and news via email.

#3) Social Media

Of course, social media has become an increasingly popular lead generation channel among small businesses. Statistics show over three in four U.S. adults have a Facebook account. Facebook, however, is just one of many social media networks. By creating an active presence on the leading social media networks, including Facebook, you’ll attract more leads to your small business.

#4) Ask in Person

Assuming your small business operates locally, you can ask prospective customers for their information in person. Even if a shopper doesn’t make a purchase, you can still ask for his or her contact information so that you can reach out with deals and promotions in the future. If the shopper obliges, you’ll have a new lead to whom you can pitch your small business’s products or services.

#5) Blog

Does your small business have a blog? If not, you should consider creating one. A form of content marketing, blogging is a highly effective lead generation strategy. As you create high-quality posts that are relevant to your small business’s audience, you’ll create a steady flow of new, high-quality leads.

Know any other lead generation strategies that you’d like to share with our readers? Let us know in the comments section below!

Personal vs Business Credit: What’s the Difference?

As a business owner, you probably know the importance of maintaining good credit. With bad credit — or no credit for that matter — you’ll struggle to secure financing. Whether you’re applying for a loan, a credit card or a line of credit, you’ll have a better chance of getting approved if you have good credit. With that said, it’s important to familiarize yourself with the differences between personal credit and business credit.

What Is Personal Credit?

Personal credit refers to the credit-based financial metric of an individual. In the United States, it’s linked to a person’s Social Security Number. When you apply for a mortgage or any other loan, you’ll have to provide the lender with your SSN. The lender will then check your credit score, as well as your credit history, to determine whether to approve or deny your application.

You can obtain a report of your personal credit for free once a year by visiting AnnualCreditReport.com. Available by clicking the aforementioned link, it’s operated jointly by the three major credit bureaus, including Equifax, Experian and TransUnion. Even if you don’t plan on using your personal credit, you should still get into the habit of checking it on a regular basis. Using AnnualCreditReport.com, you can obtain a copy of your personal credit from all three credit bureaus for free.

What Is Business Credit?

Business credit, on the other hand, is a credit-based financial metric of a business entity. Unlike with personal credit, business credit isn’t linked to a person’s SSN. Instead, it’s linked to a person’s Employee Identification Number (EIN).

With the exception of sole proprietorships, most U.S. businesses have an EIN. Also known as a Federal Employer Identification Number or Federal Tax Identification Number, it’s assigned to businesses for tax purposes. The Internal Revenue Service (IRS) gives each U.S. business a unique EIN. In addition to being used for tax filings, though, EINs are also used for business credit.

To check your business credit, you’ll need to purchase a copy from one or more credit bureaus.

The Bottom Line

Personal and business credit are pretty much the same, with the only difference being that personal credit is linked to a person’s SSN, whereas business credit is linked to a business entity’s EIN. Keep in mind that some lenders may look at both types of credit when you apply for a business loan. Therefore, you should actively monitor, as well as improve, your personal credit and business credit.

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