Tax Guide: Are Virtual Assistants Tax Deductible?
At this point, working from home is nothing new, but the concept has accelerated during and even after the recent global pandemic. Two types of work dynamics have emerged.
First, businesses have moved home. This means all operative tasks can be completed remotely.
Second, single or groups of tasks can be outsourced to remote workers. These new virtual administrative assistants, or VAs, handle all kinds of things. But do we as business owners need to do anything special when hiring a virtual executive assistant?
GUIDE: How VA’s Help with Your CRM
Understanding Tax Deductions for Virtual Assistants
Navigating tax regulations can be complex, especially when it comes to hiring virtual assistants. These professionals handle a range of tasks remotely, making it essential to understand how their services can be categorized for tax purposes.
Are Virtual Assistants Tax-deductible?
We now know what other benefits there are when hiring virtual assistants. Here, we’ll focus on anything tax-related when considering hiring a virtual assistant.
Tax regulations vary from state to state and are constantly subject to changes or modifications.
States can recognize virtual assistants differently, and we recommend you consult with a tax expert.
She’s A Given can undoubtedly help you with your questions about virtual assistants and taxes. To simplify the tax guide, we’ll focus on the state of Washington as She’s A Given is a Washington-based company. Our virtual assistants are all US-based and scattered around the country.
Is a personal assistant a business expense?
Yes, virtual assistant expenses are business expenses. A virtual assistant’s fees and related expenses can typically be considered legitimate business expenses and may be tax-deductible for your business.
However, the deductibility of these expenses depends on several factors, including the nature of the work performed, how the virtual assistant is classified (employee or independent contractor), and your business’s tax situation.
Federal Tax Deductions for Virtual Assistants
Under U.S. federal tax law, businesses can generally deduct wages, salaries, and other compensation paid to virtual assistants as ordinary and necessary business expenses. Proper documentation is crucial to support these deductions and ensure compliance with IRS regulations.
State-Specific Tax Considerations
Tax regulations vary from state to state and are constantly subject to changes. For instance, She’s A Given is a Washington-based company, and while Washington does not have a state income tax, other states may have different rules. Consulting with a tax expert can help you navigate these variations.
Document your expenses
It’s absolutely essential to maintain detailed records of all payments to virtual assistants and related business expenses for your deductions and also in case of an audit.
IRS forms
Employers may need to file specific tax forms to report compensation and comply with IRS requirements. More on that below.
Virtual assistant as an Independent contractor
You’ve decided to work with a virtual assistant, and if the person is classified as an independent contractor, you can generally deduct the fees you pay them as a legitimate business expense.
The expenses are typically reported on IRS Form 1099-NEC if the total payments to the independent contractor exceed $600 in a calendar year.
You can deduct fees for the virtual assistant’s services, as well as any other business-related expenses you have while you work with the assistant.
This can include things like software programs or communication tools you might provide.
Virtual assistant as an employee
If you hire a virtual assistant as an employee, their wages and related expenses are typically deductible as business expenses.
This will include their salary, as well as benefits and anything provided like equipment.
You will need to withhold and pay payroll taxes, including Social Security and Medicare taxes, on behalf of the employee, and you may be eligible for certain employer tax credits or deductions such as the Work Opportunity Tax Credit (WOTC).
Unemployment insurance is another form of payroll tax that employers are required to pay. Finally, one must add state taxes depending on where the employee lives.
Avoiding Payroll Taxes
Worker Classification
The IRS provides the guidelines for classifying workers as employees or independent contractors.
If virtual assistants are correctly classified as independent contractors, you are not typically responsible for withholding or paying their Social Security, Medicare, and other payroll taxes.
What if you misclassify?
You may face penalties and legal consequences for that. So, it’s crucial to work with the IRS guidelines and seek legal advice if you’re unsure about a worker’s classification.
How do I classify a virtual assistant?
Government agencies like the Internal Revenue Service (IRS) and the Department of Labor (DOL) provide guidelines and tests to help determine worker classification, but these tests can vary by location.
We recommend consulting with legal and tax professionals to ensure compliance with relevant regulations and laws.
The general assumption is that, in the majority of situations, individuals providing services are considered employees.
However, in certain states, there is a condition where the income generated by your business for the virtual assistant must not exceed 80% of their overall income from services.
If this threshold is crossed, the virtual assistant is classified as an employee.
Tax Credits and Incentives
Washington State does not have a state income tax. However, businesses in cities like Seattle may benefit from various local incentives or credits offered by the city or county government.
These incentives can include property tax exemptions or credits for certain industries or types of job creation.
Here are some potential tax credits and incentives that businesses might consider when hiring virtual assistants:
Work Opportunity Tax Credit (WOTC)
We’ve already mentioned that one. WOTC is a federal tax credit available to employers who hire workers from certain target groups, including qualified veterans.
While virtual assistants may not always fall into these categories, it’s worth exploring if your virtual assistant qualifies for this credit.
Plus, it’s always great to provide opportunities and increase the diversity of your workforce, not just for tax purposes but for business in general.
State and Local Incentives
As stated above, these incentives can vary according to location. It's important that you check with local agencies or tax authorities to see if there are programs that may apply to your situation.
Research and Development tax credits
If your virtual assistant is involved in research and development activities that actually improve your product or service, you may be eligible for an R&D tax credit.
This would reduce your tax liability.
Small business health care tax credit
If your virtual assistant is treated as your employee and you provide health insurance, you may qualify for a tax credit to offset this cost of the health coverage.
This applies to small businesses only.
Apprenticeship programs
If you hire a virtual assistant through an apprenticeship program, you may get a tax credit that supports continued training.
Startup incentives
If you are a startup, you should get all the help you can get. Some locations offer incentives to encourage entrepreneurship and innovation. These incentives can include tax credits.
She’s A Given can pair you with a tax pro in your area. A consultation can help you with the knowledge about relevant tax laws and regulations.
An expert can assist in identifying opportunities for tax savings and ensure compliance with all rules.
1099 personal assistant
When you hire a personal assistant who is an independent contractor, and you pay them more than $600 per calendar year for their services, you may need to provide them with a Form 1099-NEC (Nonemployee Compensation).
This form is used to report payments made to virtual assistants if they are classified as independent contractors.
First, determine how much you have paid your virtual assistants. If it’s more than $600 in that previous calendar year, you will need to provide a 1099.
Then, you request a W-9 form from your personal assistant that includes their information like their Taxpayer Identification Number or Social Security Number.
Finally, you’ll report the payments.
Tax laws and reporting requirements can change, so talk to a tax pro to make sure you are okay with the most current IRS regulations regarding Form 1099-NEC and other tax obligations when working with virtual assistants.
Why are Virtual Assistants so important right now?
Work Trends
It’s a global world, and people like to work remotely. These trends are far from over.
Virtual assistance allows organizations to tap into a bigger talent pool. This assists with diversity in the workforce.
It’s the costs
Working with a virtual assistant can have an effect on your wallet. It’s a cost-effective alternative to hiring an in-person assistant.
Personal assistants require office space and increased overhead. Virtual assistants are very flexible. They can even provide service in different time zones.
Scale it
Virtual assistants provide scalability. This means they can offer on-demand service whenever needed. This allows companies major flexibility.
Special skills
Whenever someone with a specialized skillset is not available locally, you can find it somewhere else, unbound by logistics.
Virtual assistants are experts in their fields and are a highly valuable asset to your team.
Work with happy people
When you employ a virtual assistant, you will work with someone who is in control of their time management.
This could lead to a better work-life balance for them and for you. Who doesn’t like to employ happy workers?
What are the benefits of hiring a virtual assistant?
Most of the points above are also major benefits for businesses. Let’s dive a bit deeper.
Cost savings
Apart from reducing overhead costs, which include utilities and equipment, labor costs also go down.
Virtual assistants often have competitive hourly rates or salaries compared to on-site workers. You’ll probably hire them on a part-time or project basis, which further reduces labor costs.
The rising case of efficiency
Virtual assistants are proven to be amazing multi-taskers, so they can handle much of what you need to get done.
They can provide assistance with administrative tasks that are more routine things, giving you more time to focus on the important parts of your core business.
Talent pool
We’ve touched on that above, too. Since you can select virtual assistants from anywhere with a very specialized skillset, you have endless options.
Do you need web design help? Or do you need to translate documents into foreign languages? Do you need someone to do your accounting tasks or book your business travel?
Virtual assistants are there to do it all.
Flexibility and Productivity
With virtual assistants in different time zones, you can actually extend your business hours and provide customer support around the clock if needed.
Productivity improves because your virtual workforce doesn’t have to commute. This saves time and energy. We also don’t want to forget about the reduced environmental footprint, an added benefit of working with a virtual assistant.
Business goes on
As the pandemic has taught us, it’s better to be prepared for circumstances that cannot be planned. With virtual assistants, however, some of your risk can be mitigated.
Therefore, it’s a sound business decision to hire a virtual assistant.
Training
Training a virtual assistant also takes less time than training someone on-site. Most material can be shared online and gives employers lots of flexibility.
Virtual work is attractive
Top talent might be interested in remote work. Offering a fully remote or hybrid work schedule might attract the talent you are looking for.
It’s the taxes
In the United States, there are generally no specific federal tax advantages solely for hiring remote assistants.
However, there are some indirect tax implications and considerations that may apply when hiring remote workers.
She’s A Given
While tax incentives can be a valuable consideration, they should be part of a broader evaluation process when deciding to hire a virtual assistant.
It’s important to weigh all the relevant factors, assess your business’s unique needs, and ensure that hiring a remote assistant aligns with your long-term goals and operational requirements.
This is where She’s A Given comes in. We provide highly skilled and US-based virtual assistants that will help your business.
Let’s set up a call and discuss your options. She’s A Given is here to release you from tax stress. Don’t worry about it and let us handle all of the 1099-NEC compliance issues.
And that is the name of the game: No stress for the next tax season.
Special thanks to Erin Pohan at Upkeeping for her tax advice!
