Construction and Contracting Business. Entrepreneur magazine
the current year and for deferring income into the following year. Obviously, care must be taken, and consultation and advice from your accountant is paramount.
Bankers, Lawyers, Accountants, and Insurance Agents
These specialists are crucial to a new business. However, although they may be experts in their own field, they may not really understand how your business operates. In order to profitably use their intelligence and expertise, the new business entrepreneur must work closely with these professionals; it is usually a mistake to turn a task over to one of them and think “It’s OK, the accountant is handling it.” In particular, tax and labor laws are extremely confusing and are subject to a certain amount of interpretation. Also these laws often change. The business owner must help the lawyer and accountant interpret the myriad rules and regulations as they pertain to her specific contracting business.
A good relationship with a banker can both save money and enable to company to operate more smoothly. When looking for a bank to do business with, take along your business plan, or send a copy in advance of your meeting, so that the bank can better understand your goals and objectives and how you will reach them. When a personal business banker understands the financial status of the business and the owners, he is in a good position to advise the company in a number of areas. Because many businesses borrow money from banks to purchase tools and equipment, the banker is a valuable resource for understanding interest rate trends and projections. Again, presenting a clear business plan assists in obtaining loans with the most favorable terms. The banker can also help establish a line of credit for companies that need ongoing cash to support daily operations.
The final outside professional that contractors must have on their team is the insurance agent. Insurance has become a highly complex and specialized business covering all aspects of American life. Three areas of insurance are of particular interest to contractors: 1) general business and vehicles, 2) workers’ compensation, and 3) health insurance. Rather than working with a single insurance company, it is often advantageous to work with an insurance agent who represents a number of different insurance companies. The agent can compare prices to ensure that the contractor is getting the best coverage at the best cost. Often, contracting companies will work with one agent to handle business, vehicle, and workers’ compensation and another agent for health insurance. In this age of specialization, other agents may be engaged to find life insurance or long-term health insurance coverage if these are benefits that a business owners wishes to offer his employees.
warning
Most contractors have inland marine insurance, which covers equipment other than vehicles. Premiums for this insurance may be based on either replacement cost, which will pay for new equipment to replace destroyed or stolen equipment, or on actual value, which is based on the current depreciated value of the equipment. Actual value insurance has much lower premiums than replacement cost insurance; however, the ultimate cost of replacing equipment is higher. Actual value insurance is usually recommended unless a contracting company generally works in unsafe neighborhoods.
No matter what your political views may be, all business owners must deal with government rules and regulations. Most contractors don’t like it but have little choice except to cope as best they can. Certainly lawyers, accountants, bankers, and insurance agents can assist in the process, but the responsibility of complying with the numerous government rules and ordinances falls squarely on the business owner’s shoulders. Even though following government guidelines can be difficult, especially when rules and regulations are constantly changing, it is important for the contractor-owner to realize that ignorance of laws is never an excuse for noncompliance. Below are some of the common obligations that businesses face. Fortunately, most of the information on such obligations can be found on the internet at www.irs.gov. The accounts and/or forms that most new businesses must use to operate legally are:
– Employer Identification Number (EIN) (used for income tax forms, it is similar to an individual’s Social Security number)
– Federal unemployment (Form 940)
– Income tax withholding, Social Security, Medicare (Form 941)
– Employee income tax reporting (W-2)
– Employer summary of W-2s (W-3)
– Employee withholding form (W-4)
– Employee proof of citizenship (I-9)
– Dividend or similar payments (1099) (actually, at last count, there are 16 different 1099 forms)
Each state has its own forms and regulations; following is a general list:
– State unemployment
– State income tax withholding
– Workers’ compensation (they call it insurance, but in reality it’s a tax)
– New hire reporting
– Sales and use tax: state, county, city, stadium
– Professional licenses (architect, surveyor, landscape architect, and engineer, to mention a few)
– Work permits for employees under the age of 18
– USDOT Number for operation of commercial vehicles; varies by state; visit the Federal Motor Carrier Safety Administration at www.fmcsa.dot.gov for more information.
Following are IRS questions for determining an employee or a contractor. Facts that provide evidence of the degree of control and independence fall into three categories:
1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3. Type of Relationship: Are there written contracts or employee-type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Of course, as is always the case with the IRS, you can find a lot more on this very important topic at www.irs.gov.
While you may start out as a one-person show, chances are you will soon start hiring employees or start working with subcontractors. It’s important that you know the difference, as it matters to the IRS. There are a few key differences between employees and contractors. For example, you control all the jobs and provide the materials for the jobs your employees are responsible for completing. You also take out money for all taxes,