7 Documents Every Independent Contractor Should Keep

Freelancers and contractors are projected to make up more than 40 percent of the US workforce by the year 2020, likely leading to more scrutinized employment laws. Protect yourself by keeping important documents securely stored and easily accessible.

Keeping track of business documents seems like an obvious obligation for an independent contractor, but the “what”, “why” and “when” of this obligation remains a gray area for many. With Uber’s recent legal challenges concerning the worker classification of independent contractors, documented proof is only sure-fire way to defend against fees and legal claims from the IRS.

But do you know exactly what to keep, and how long to should keep it for? Leaving a paper trail to prove independent contracting work is more important now than ever before, and Shoeboxed wants to make sure you understand the benefits of keeping the following documents safe, secure and accessible:

Invoices (7 years)
Key business ledgers like invoices should be kept for a minimum of seven years, and for good reason. It’s the best way to protect your contracted accounts against a conflict with a client project. Invoice statements also verify that you are subject to profits and losses, which is one of the factors in the Twenty Factor Test for an independent contractor. In the event of an IRS audit, this will help prove your status as a contractor.

Travel Mileage Logs (3 years)
Like any good expense reporting habit, keeping travel mileage logs ensures protection against tax audits and business disputes. They can also be used for travel deductions, earning you up to 57.5 cents for every mile you claim. There are plenty of travel miles that qualify, including business travel to and from airports and hotels, errands and supply runs, travel to client offices, and to and from business meals. Don’t miss out on those valuable deductions!

Business Cards (Forever)
Being a successful contractor requires agile networking skills. At any given moment, there’s a chance that you will stumble across your next great project, partner or client. Unfortunately, contractors collect dozens of business cards every month that are habitually trashed or misplaced. Keeping business cards can help secure resourceful relationships; you never know when one of those contacts will come in handy. Working for multiple clients is also part the IRS’s Twenty Factor Test, and business cards may provide evidence that you are not controlled by a single employer.

Service Advertisements and Listings (Forever)
Keeping copies of past service advertisements and listings is yet another easy way to formally and legally prove a contractor-client relationship. The IRS says that making services available to the general public on a regular and consistent basis demonstrates autonomy in the nature of the work. It also confirms your intent of work in the event that a client wants to claim you as an employee rather than a contractor.

Project Records (7 years)
Contractors are required to fill out form 1099-MISC, a detailed document that asks what you made for each individual job. Project documents, including the contract, change orders, correspondence, logs, monthly reports and schedules provide the specifications and technicalities needed not only to fill out a 1099, but they also provide detailed insight of your contract work to the IRS if your worker classification ever comes into question.

Tax Returns  (3 years)
Due to the IRS statute of limitations, three years from the date of your tax return (or from the date of filing, whichever is later) is typically the standard time to keep business tax returns for tax-related business documents. The statute states that you have three years to file a claim for a refund, and the IRS has three years to appraise a tax if your income was not accurately reported. Even if these two situations don’t apply to you, keeping recent tax records protects you from any doubts that may be raised against your tax filings in the future. (Source)

Professional Licenses and Insurance Certificates (Forever, or until expiration)
Many jobs require contractors to be professionally certified in a given field of work in order to complete a client project. Though the regulations vary state-by-state and city-by-city, having these documents on hand and ready to present to a potential employer streamlines the hiring process, increases the probability of getting hired for the job, and may even increase your potential pay. Clients want to know they are legally protected and are hiring the right person for the job — it pays off to gain their trust from the get-go. (Source)

Lastly
Freelancers and contractors are projected to make up more than 40 percent of the US workforce by the year 2020. Make sure you’re protected against new contract work laws and save your documents for secure and easy access. Shoeboxed offers mail-in services with premium plans, allowing contractors to send in their important documents and never have to worry about being able to find and provide legal supporting documents for their contract work. Focus on working for yourself and doing what you love — we’ll handle the paperwork.





Tax Question: Independent Contractors or Employees?

Many small business that are getting ready to file their taxes wonder whether their workers should be counted as employees or as independent contractors. I wanted to quickly point you to information from the IRS on the subject.

Enjoy!

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Are your workers independent contractors or employees? The answer can have a profound impact on how much tax you pay as a small business owner. Knowing whether your workers are or are not employees will affect the amount of taxes you must withhold from their pay. It will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Employers who misclassify workers as independent contractors can end up with substantial tax bills as well as penalties for failing to pay employment taxes and failing to file required tax forms. Workers can avoid higher tax bills and lost benefits if they know their proper status.

Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

Generally, whether a worker is an employee or an independent contractor depends upon how much control you have as a business owner. If you have the right to control or direct not only what is to be done but also how it is to be done then your workers are most likely employees. If you can direct or control only the result of the work done, and not the means and methods of accomplishing the result, then your workers are probably independent contractors.

Three broad characteristics are used by the IRS to determine the relationship between businesses and workers – Behavioral Control, Financial Control, and the Type of Relationship. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

Knowing the proper worker classification can be critical to your business. Don’t guess. Act now to make certain you know for sure.

You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, and Publication 1779, Independent Contractor or Employee. Both of these publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Links:

* Contractor vs. Employee
* Publication 1779
* Publication 15-A