One of the most confusing aspects to working from home for yourself is how you file your taxes and what your position title actually is.
Are you an employee or an independent contractor?
There’s quite a few important differences between these two positions and it’s important that you fully understand exactly what is required of you in regards to filing your taxes and being able to claim business expenses.
Here is a quick overview of the differences between Employees versus an Independent Contractors:
1) As an employee, you are usually provided with all of the equipment, tools, supplies and resources you need in order to do the job. If you are an independent contractor, you are responsible for purchasing and maintaining all of the tools you need in order to complete your projects and assignments.
2) As an employee, you are usually provided with benefits including vacation pay, medical plans, extended health benefits, pension plans and even workers compensation. If you are an independent contractor, you are rarely given these added benefits and are responsible for purchasing your own medical and insurance plans.
3) As an employee, very few expenses are tax deductible, as the company or employee would purchase these items on your behalf and claim the expenses themselves. As an independent contractor, you are often able to claim a portion of business expenses on your tax return.
4) As an employee, your employer typically sets your work schedules and hours, and provides you with a structured work plan, whereas if you are an independent contractor, you are able to set your own schedules, determine your own vacation time, and work as much or as little as you wish.
5) As an employee, you are usually paid a set wage, determined based on commission or on time spent (hourly). If you are an independent contractor, you determine your own pay structure, set your own prices and are responsible for filing all taxable income yourself.