I am currently an independent contractor/sole proprietor. I'm wondering if incorporating would resolve some of the issues/dangers that companies face by hiring me as an independent contractor. Essentially fear of the IRS determining that I am an employee rather than an independent. I want to enter into a long-term contracting relationship with one specific firm but wonder what the ramifications of that would be as an independent and whether they could be resolved if I incorporated. I do not want to become an employee of this company.Any thoughts are appreciated.Potts
The IRS has publications which list how to tell if you fit the "independent contractor" status under tax code or if you are dangerously near being classified as an employee. The type of business you are in would make a difference, is it typical for your type of business to be sole proprietor or are you on the edge?I am trucking biz and drivers are treated by different companies as employees or independent contractors. The IRS targets our industry for audit. With justification I might add.M
You ask if "incorporating would resolve some of the issues/dangers that companies face by hiring me as an independent contractor. Essentially fear of the IRS determining that I am an employee rather than an independent."It may not resolve the issues but it helps. If you incorporate you are then an employee of the corporation and the client contracts with the corporation to use it's employees.All that said however, the IRS still looks at the relationship between the client and you. Read http://www.irs.gov/prod/forms_pubs/pubs/p15a04.htm for the scoop.SandyThe Weller Group, Inc.
Hi,I'm an independent contractor in the advertising business. As the previous post said, there is a very specific list of criteria that you have to meet to be considered an IC. The IRS has come down very hard on companies who use temporary employees. In the past, companies abused the system, classifying employees as temporary even though they were actually permanent to avoid paying benefits. Now they are so afraid of a costly IRS audit, the companies--at least in advertising--are VERY reluctant to treat you as an IC. I work on very short term assignments, typically 2 weeks to a month, and still ad agencies want to put me on payroll to avoid the potential problem.But I don't want to be an "employee" either for tax and retirement-plan funding reasons. So I do battle with them every time to be treated as an IC.I've been tempted many times to incorporate, as I've been told that this would solve the problem from the companies point of view. So if you can stand the "other stuff" that goes with incorporating, it may help you out. You might want to talk to the companies you're likely to be working for and see if it's necessary.Good luck.Travis Ashby
I have worked this way for years and have consulted CPA's, read about it, etc. Set up my own SEPIRA also.The real danger with the IRS isn't for you but rather the entity who contracts with you!! They would be the party that could be forced to pay to YOU back social sec., unemployment and other employer obligations if an audit of THEIR books determined that you were in fact an employee as per rules that apply! All you have to do is report the 1099 income, pay proper taxes including your own s/s on the net profit after deductions. Disclaimer: This is not advice to act on, consult legal advice or the IRS.
OOPs, I didn't read enough of your question so made a dumb answer regarding this in my first post. The other posts seem right on. I do know that if you are involved in the same status with more than one co. and use only your own office, phones, vehicles, etc. and have "clear" separation (different name, biz cards,etc.)from the contracting entity, it makes sense. Invoice the co. for services in your co. name for payment also rather than accept a payroll check & bill for detailed expenses by invoice just like any service may help if it comes to any problem and you can't afford to incorporate. Also read all the IRS rules as they change from time to time in this area.There are acceptable types of independants. Good luck.
Bloomlate:Do you know of any on-line discount brokers that offer SEPIRA's? I want to set up my SEPIRA so that I can invest in individual stocks (Foolish 4), just like I do on Ameritrade, in the most economical manner.I'm self employed with no employees and already have ROTHIRA's for my wife and I.Any ideas would be greatly appreciated.Thanks,RubenG
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