What Is Personal Services Business?

It is not strange for a lot of people to dream of building and having their very own businesses.  Although it is important to have dreams and pursue them whenever possible, it is also important to be realistic what you are dreaming about and face your current reality.  Of course, one  of the most important aspect that will impact your decision when building up a business are the tax consequences that will arise from such.

Oftentimes, people are not aware of the benefits of different tax codes.  The rules involved in Personal Services Business will actually greatly impact your tax situation if it is not properly determined.  This is why it is very critical that you know where you belong so that you not only get tax advantages or incentives, but also that you do not pay more than you really have to.

There actually benefits of tax advantage in being a self-employed individual.  On the other hand, there are certain things to take into consideration with this aspect as well.  The main advantage of being self-employed is that you are able to deduct expenses from your income when the time comes to prepare and file your tax return each year.  The thing is, is self-employed for you?

Independent contractor is another area that needs to be determined properly.  There are determining questions over employee with independent contractor.  The factors considered are:

Control – this is in relation with the degree of control that the hirer can do.  If it is an employee, the hirer is able to control not just what is done, but how it should be done as well.  If it is an independent contractor, the hirer can control how the services should be done.

Ownership of Tools – when a worker owns their own tools, the case is supportive that that person is an independent contractor.  However, if it is the hirer that owns the tools that the worker will be using, then the case is supportive that the person is an employee.

There are different rules specified on personal services business. These rules are intended to prevent individuals from getting access to deductions given to small businesses through the incorporation of their activities.  In addition to this, the restriction of deductible expenses is also implemented.  Generally, personal services business deductions will be limited to salaries that are paid and the benefits provided to employees.  The provision over this is that they are deductible by an employee.

It has been considered in the past that it is actually not a good idea earning income via personal services business due to the many negative tax consequences that arises from the double tax issue, as well as the many major restrictions over deductible expenses going on.  Fortunately, due to the changes made in the taxation dividends and decrease in corporate tax rates, it is now viable to consider personal services business for advantage in tax deferral.