You may be working for a company as an independent contractor but do you realize this means you are a business owner?
It’s important to know if you are working as an independent contractor, you are in fact, a business owner. You can decide if you or the business works for more than one company, if it will have multiple revenue sources, how it is formed and structured and you get to manage it the way you want. You are your own boss! Being a business owner also comes with responsibilities and steps you need to follow to set up your business.
This blog covers what you need to know when working as an independent contractor for other businesses. There are significant more rules and factors to consider if you are hiring an independent contractor. For more information, see this blog: Employee or Independent Contractor: Factors and Decisions
If you are reviewing or plan to sign a contract for work, it is wise to consult with an attorney familiar with your state laws.
An independent contractor is a business that contracts with another business for work. Here are some examples:
- An attorney with their own firm and 50 business clients is an independent contractor to each business client.
- A psychologist who performs an occasional evaluation for the client of another clinical private practice, and is paid by the private practice, is an independent contractor to the private practice business.
- A plumber who is self-employed and works for two large commercial properties is an independent contractor to each property.
- An individual who does fix-it work for several businesses and isn’t employed by any of them, is self-employed and an independent contractor.
From an accounting and tax standpoint, there is no difference between an independent contractor and any other business owner. Businesses regularly contract to hire professionals such as attorneys, accountants, business coaches, plumbers and painters, and those professionals are operating their own separate business while under contract.
Typically an independent contractor will provide an invoice, statement or work order detailing the work performed and the cost in order to get paid and the contractor decides if they want to accept payment via cash, check or credit.
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