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RD
RD, Certified Public Accountant (CPA)
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Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Independent Contractor vs Subcontractor Am I right to

Resolved Question:

Independent Contractor vs Subcontractor:

Am I right to assume that you are considered an independent contractor if you work for another company as a corporation, such as a S-corp even if you are the only employee and owner of the S-corp. As an independent contractor, you don't get a 1099. But if you work for another company as an individual but not an employee, you will be considered as a subcontractor and you will get a 1099. What are the tax implications of independent contractor vs subcontractor? Is one better than another in terms of amount of tax you pay and chance of being audited?

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Minneapolis, Minnesota

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Submitted: 8 years ago.
Category: Tax
Expert:  RD replied 8 years ago.
A general rule is that the company using the services of the contractor, as the payer, has the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.
In general, anyone who performs services for the company is an employee if the company can control what will be done and how it will be done.
I would suggest you go through the link below to get additional information on independent contractor vs employee
http://www.irs.gov/govt/tribes/article/0,,id=134976,00.html#2
http://www.irs.gov/pub/irs-pdf/p15a.pdf
As long as you can fit into the criteria set up for an independent contractor,   you can work for another company as a corporation, such as a S-corp even if you are the only employee and owner of the S-corp. You cannot be classified as an independent contractor by simply incorporating and providing services through that corporation.
THE IRS'S 20 FACTORS USED TO DETERMINE EMPLOYMENT STATUS can be helpful. You can access these at the following link
http://www.taxprophet.com/apps/active2/indep-mm.html
Independent Contractor Vs. Employee is one of the hot areas of IRS audits.
You should contact an attorney to prepare the independent contractor contracts, checklists and other lists required to support your stand as an independent order. The facts and relationships must strongly support non-employee status. At a minimum the company hiring cannot exercise dominion and control over the work of the contractor. They can specify what is to be done but NOT HOW.
The tax implications of independent contractor vs subcontractor is the same. A subcontractor is considered an independent contractor for IRS tax purposes as far as the criteria is met. They would mean the same thing. Stictly speaking a subcontractor is one who is given work by the general contractor.
IRS Form 1099MISC must be issued to each unincorporated U.S. independent contractor that has received payments in the calendar year that total $600 or more for services in the ordinary course of trade or business. However there is nothing in the law to prevent issuing a Form 1099 to a Corporation. So you may get a Form 1099 even if you are an incorporated entity.
There are certain Reportable payments to corporations that needs to be issued Form 1099. The following payments made to corporations generally must be reported on Form 1099-MISC.
Medical and health care payments reported in box 6.
„FƒnFish purchases for cash reported in box 7.
„FƒnAttorneys¡¦ fees reported in box 7
„FƒnGross proceeds paid to an attorney reported in box 14.
„FƒnSubstitute payments in lieu of dividends or tax-exempt
interest reported in box 8.
„FƒnPayments by a federal executive agency for services


Let me know if you have any question.
XXX@XXXXXX.XXX

Please note: This advice is based on limited facts provided by you. Since it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.





Customer: replied 8 years ago.
You said that there is nothing in the law to prevent issuing a Form 1099 to a Corporation. But if an S-corp does not get a 1099 for the contractor's work, is that a problem? Does IRS always look to match income reported on 1120 S with income reported on 1099, if they don't find one, will it raise a red flag? Thanks,
Expert:  RD replied 8 years ago.
No if an S Corp does not receive a Form 1099 for the contractor's work, its not a problem.

Whether you receive a From 1099 or not, all the income you receive is reportable. Since no Form 1099 has been issued, IRS will not be able to match From 1120S income with the Form 1099.

Let me know if you have any question.
XXX@XXXXXX.XXX

Please note: This advice is based on limited facts provided by you. Since it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.


RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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