Dear Karen: Some former employees now work for me as independent contractors. Is this a tax problem?
Answer: Many companies that downsized in recent years are bringing back employees as part-time contractors. The practice allows you to save up to 10% on payroll taxes and workers' compensation, but you must not misclassify them or you could face an unemployment tax audit, said T.J. Moore, an accountant with Citrin Cooperman in New York City.
With states desperate for revenue, more small companies are being audited, Moore said. If an audit determines that you've misclassified an employee as a contractor, your business could be hit with back taxes and fines. For detailed rules, go to http://www.irs.gov/businesses/small/index.html and click "Independent Contractor (Self-Employed) or Employee?"
• Yes, you need business cards
Dear Karen: My business is done almost exclusively online. Do I really need to spend money on business cards and letterhead?