Every business owner knows it is less expensive to use independent
contractors than it is to hire employees. Because employees cost the
business owner FICA, worker�s compensation premiums and other
expenses, the cost of employees frequently soars above an average
cost of 25% of the actual payroll amount. Independent contractors,
on the other hand, cost only the amount of their contract fees since
they are responsible for their own employee taxes.
An independent contractor who belongs to a trade exchange, and who
accepts trade dollars for certain services has created evidence of
being in business � much the same as if he or she has a business
license or rents office space.
Because the aforementioned are things that business owners do, an
independent contractor who does them has shown a strong indication
of being a business owner. As opposed to someone who simply performs
tasks for another, yet claims to be an independent contactor.
Trade dollars spent on improvements increase one�s �basis� (purchase
price plus value of improvements) and therefore lowers the tax bill
when selling. Consider the business owner who wanted to make
improvements on her real estate investment, knowing she would be
selling the property in the future. Because she did not intend to
�roll over� the property on a tax-free exchange, she would have a
capital gains tax on any amount received above her basis.
But with a creative use of the trade dollars, she used trade dollars
to lower the tax liability, while at the same time making valuable
improvements that increased the property�s marketability and value.
Consequently, when she finally sold the property her tax bill was
nearly eliminated with the increased basis.