One of the hot topics on the First Class Lounge Forum this week has been the question of whether the person we might have working for us should be an independent contractor or employee. There are actually two sides to this question. If you have an independent contractor working for you, you don’t need to cover them for payroll taxes or benefits.
But, here’s the trick. You don’t get to choose whether the person working for you is an independent contractor or employee. The IRS chooses and sometimes they change their mind.
There are actually 20 different items that the IRS looks at in making the determination. You can also ask the IRS whether the person working for you would qualify as an independent contractor or employee. That’s what Federal Express did for their long distance truckers. The IRS said they were independent contractors and now they are going back to Federal Express for back taxes, penalties and interest.
I can’t wait to see more about this case. The part that really strikes me is the fact that the IRS could give an opinion and then penalize a company because they followed it.
But, what if you work for someone else? Is it better for you to be an employee or an independent contractor? Well, from a tax perspective, you’re better off as an independent contractor because you can then take advantage of a lot of deductions such as a home office, computer, travel, and the like. Of course the deductions all need to be business-related. You do lose the benefits though.
For more information on these, as well as seeing what some of our First Class Members have to say about it all, check out the First Class Lounge Forum.