The Advantages of Being an Independent Contractor: Tax Tips and More

1. The Advantages of Being an Independent Contractor: Tax Tips and More Presenters: Carolyn R. Stall, Managing Director of UHY Advisors William W. Almond, Financial Advisor at Strategic Financial Partners

2. About Merchant Warehouse • Established in 1998 • Over 65,000 merchants • 170+ employees • 3.5 billion in annual processing volume • 2009 ETA ISO of the Year

3. Agenda • The differences between an employee and an independent contractor • The tax advantages of being self-employed • Reducing your tax bill with business related deductions • Organizing your tax records • Managing your cash flow • How to choose the best retirement plan • Strategies for paying your estimated taxes • Internal Revenue Service forms for Independent Contractors ***This presentation is intended to provide general information. It should not be construed as legal or tax advice. Please consult your legal or tax advisor.

4. Employee Company directs when you work Company directs how you perform the work Company provides equipment, office space, etc. Company pays for your time (by the hour, week, month) Company withholds income & employment taxes from your pay Company pays your business expenses Independent Contractor You decide when you work You decide how work is done and hire assistants You provide equipment, office space, etc. You are paid based on results alone You pay taxes directly to IRS/state You bear the cost of business expenses Employee vs. Independent Contractor

5. Advantages • You are your own boss • Work when you want to work • Can set up your own pension plan • Personal expenses can become tax deductible (office in the home, portion of your auto expenses, computer, internet services, etc.) • Health insurance and long-term care insurance premiums can be deductible • Deduct a portion of personal travel expenses if your trip has a mixed business/personal purpose • Education costs can be deductible • Hire your children for legitimate jobs (filing, copying, etc.)

6. How to Report Income & Expenses • Entity organization - Sole Proprietor, LLC, Partnership, Corporation • Typically a Cash Basis taxpayer • Report income when received • Report expenses when paid • Income - Reported to you on Form 1099 MISC "Non employee compensation" • Expenses - Keep track of your expenses/retain receipts

7. Travel Expenses • Auto expense - Standard business mileage rate of $.50/mile for 2010 or actual expenses including gas, oil, repairs, insurance, taxes, etc. • Travel expenses such as airfare, train fare, parking, taxis, tolls, etc, for any business activities: to meet with clients or potential clients, to attend seminars/training, etc. • Hotel expenses and meals while away from home

8. Office Expenses • Office-in-your-home expenses such as a portion of your real estate taxes, mortgage interest, insurance, utilities, etc. based upon a % of the home that your home office takes up • Rent for office space, office equipment • Home office equipment such as desks, file cabinets, lamps, rugs, etc. • Repair and maintenance expenses for business equipment • Office expenses such as supplies, stationery, cards, files, etc. • Telephone expenses for dedicated business phone line and cell phones (if used for business AND personal, only the cost of business calls are deductible) • Internet access costs such as cable equipment, internet provider costs, etc.

9. Other Business Expenses • Meals and entertainment expenses • Networking events and trade show expenses • Legal and accounting fees associated with your business • Commissions paid to others (Form 1099s) • Contract labor (Form 1099s) • Pension plan administration expenses • Advertising expenses • Subscriptions associated with your business • License fees and dues • Computer equipment including printers, laptop, accessories, software, etc. • Tools and supplies that are ordinary and necessary for your business • Interest on business loans and business credit card interest and fees

10. Organizing Your Tax Records & Getting Started • Determine your "entity" structure (sole proprietor, LLC, corporation) • Register to do business with your state or local government • Set up a business bank account • Consider using QuickBooks or other accounting software • Use one credit card for all business expenses • Try to avoid mixing business and personal expenses together • Need receipt for expenses over $25 • File receipts based on type (all meal receipts, travel receipts, etc.) • Keep files by calendar year • Use payroll service to pay employees/pay tax withholdings/file employer tax forms

11. Managing Your Cash Flow • Accelerate expenses and defer income • Credit card expenses considered "paid" when charged • Quarterly estimated tax payments for federal and state income taxes, including self employment taxes • Build cash reserves • Use home equity line rather than credit card debt

12. How to Choose the Best Retirement Plan [

13. How to Choose the Best Retirement Plan [

14. Strategies for Paying your Estimated Taxes Taxes Include: Federal income taxes, State income taxes, Self employment tax (FICA and Medicare) • Adjust your tax withholding on spouse’s or 2nd job paycheck • Use “safe harbor” method based on prior year tax liabilities • Pay based on current year projected tax liabilities • At year end – “Tax Bonus”

15. Internal Revenue Service Forms for ICs • Form W-9 - to provide Identification Number to Merchant Warehouse • Form 1099 MISC - Reports income paid to you during calendar year • Form 1040 - Schedule C • www.irs.gov • www.business.gov

16. Merchant Warehouse ISO/Agent Program • The security of a financially sound ISO • Generous bonuses and benefits • Uniquely fair agent contract • Innovative technology • In-house/dedicated customer and technical support • Guaranteed lifetime residuals • Marketing support • In-depth sales training

17. Questions? Interested in becoming an independent sales agent for Merchant Warehouse? Contact: • Doug Small - 617-896-5590 ext 2535 dsmall@merchantwarehouse.com Be sure to visit us at the ETA Annual Meeting & Expo, April 13-15th, Mandalay Bay, Las Vegas Enter for a chance to win our ultimate new office give-away!