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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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Dear Ed, A follow-up remarks/question re your response.

Customer Question

Dear Ed,

A follow-up remarks/question re your response. I stated your response to those who would pay me at the Univ. Their comments are as follows. Do you have any other further thoughts I should know of? Will once again, purchase cc to pay you. Thanks! Trine

1) "In my opinion if you set up an "LLC" for yourself it would be easier to bill the people you teach CPR for. Similar to what (outside contractor X) does with her billing.

2) Y has the "LLC" because she is limited to the number of hours she can work in a pay period. She teaches rec and is a supervisor. (The Univ.) won't pay her over x amount of hours. As for Z, I don't know why he has one you should ask him."

3) Z STATED: "I started an S Corp chiefly in order to facilitate work I do as a photographer/videographer. One of my clients is... Rather than get a special appointment every time I work for them, they just pay the Corp for services rendered. The S Corp enables me to write off related expenses and protects me from personal liability (an unlikely event, but you never know). All things considered, it's a bit cumbersome - particularly the taxes. I'll probably be dropping the S corp in favor of a DBA at some point this year."

Thanks again Ed.
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

DearCustomer

1. Item 1: ease of billing: I do not see a significant difference in ease of billing whether you ar an LLC, S, or DBA. Remember, the issues I raised had to do with the benefits of incorporation verses remaining a DBA or contract employee paid on 1099.

I am getting confused to exactly what your relationship is with the red cross. You started out saying in the begining, a contract employee, and then wanted to know the benefit of forming a corporation as the best way of doing things. In some circumstances it is a mute point, because of the exact nature of the relationship with the Red Cross as employer.

Here is the IRS interpretation of the relational issues with regard to your employment status. http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

You can be an independent contractor to the Red Cross, where the Red CRoss is paying you; or you can be authorized to teach the classes where you contract with your own customer base. There is a difference.

However it is done you can still bill.

2. Not sure I understand this statement. If the university limits number of hours they will pay, I would think it would not matter if they were paying hours worked by an independent contractor, sole proprietor or DBA, or number of hours based rates for contracted LLC or S corp. I do not get how this would matter. If any form of business, they can work as many hours as they like, but will that increase the hours for a contract for which she is paid. This does not make since to me. It would not matter if you were any of the busiess forms; if you are allowed to contract work indpendent of the red cross or the university, you can contract as many clients as you like. It only matter if you are an employee of the red cross or an employee of the univercity. If the university and the red cross control the number of hours work, unless as part of a signed contract, then by definition, you may actually be an employee, required to be paid on W-2. Check out the definition and discussion provied at the link above.

On the other hand....if a person is personally employed by the univiersty, then the university may have an issue with regard to moonlighting rules, that prohibit them from hiring her personally to do a job. But, the university could pay the red cross who could pay her; But if she gets a seperate tax ID number and operated as a DBA, they would be hiring the named business, not her to do the job. Unless there were something quirky about the University rules, that would require them to hire a business name that is a corporation of some kind. But I not sure that would be the case. If it is, then in this instance, I guess the corporation is forcing someone to incorporate; but my guess is, that unless someone in the business office is not clear about the regulations, the univerisy could hire a business name.

Special NOTE: regardless if it is a DBA, LLC, or S, if the university is concerned about conflicts of interest, then any business form, where she is a 50% or higher owner, would cause conflict of inteterest; where the equal or majority owner was also an employee of the university.

3: Z's S corp: Regardless of how you conduct business operations, you are able to write off all business expenses related to the work. The only thing that changes in this regard is the form used to do that. AS a DBA, or sole proprietor, or for income reported on 1099 for work performed as a photogropher, artist, or CPR instructor, you would be able to write off all related expenses including home office and vehicle use on schedule C: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

As I previously discusses, forming an S corporation as a single owner or even as not, does not gaurantee protection from personal liablity. Remember the discussion about piercing the corporate vail, and the issue that corporate officers can still be held responsible for the things they have direct control over. As a single person S or two person S or LLC, you would be held as the responsible officer for most transactions. About the only way to ensure those kinds of protections, to the greatest degree, your one or two person LLC or S would have to have a 3 member board of directors having true corporate governance. Remember, most people are surprised to find that the corporate vail can be so easily peirced.

See this case law involving a 3 member corporation, where the bankruptsy court pierced the corporate vail, based on officer responsibility:

http://caselaw.lp.findlaw.com/scripts/cases/clcc.html?court=8th&navby=case&no=973819p

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 5 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Ed, I have to reread your answer but...
I work for the Univ. and am an authorized ARC instructor to be hired/payed by the Univ. to instruct staff members. I did not want my payment to be included in my salary. I prefer to be paid /hr/class. Otherwise, they'd include additional classes without compensation. The notion of outside contractor is included and used with instructors, not academic, but for our (Univ.)purposes. It was then suggested I be a separate entity and be an outside contractor. As such, I agree my boss response re hours perplexed me. Circumventing # XXXXX hrs with an alias within your own co./univ. seems unnecessary, unwarranted, or...(possibly to the IRS interpretation)just idiotic. As to why Z did form a corp., might make sense, but as you stated, I don't believe affords him an protection as he thinks gives him.
Expert:  Ed Johnson replied 5 years ago.

DearCustomer

There are some DOL rulse regarding hours worked by an employee for an employer.

One can not for example, volunteer to work for an organization, even a non-profit like a public univeristy, or a private university, in a position that would otherwise be paid.

An employee can not volunteer hours, even for his own employer...by law, hours worked must be logged and paid, and if warranted, attract overtime treatment.

But these kinds of conflict of interest would still, legally be evident, if you are in a single person pass through entity, or partnership entity where you are a 50% owner or greater.

so now, we are really down to dissecting the relationship between you and the univercity. with respect to DOL issues related to conflict of interest and labor law.

(I love this....this is great....I am bouncy butt over this question). This is the best question all year. I love it.

Look, I have to go work out a the gym for a couple of hours, but I will be back.

In the mean time, I need to know:

1. Is this as state university or private univercity?

2. do you know or have access to the conflict of interest rules for the univercity reference moonlighting.

 

 

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