Independent Contractor status, 1099's

[powerage]

I'll go on record and say I really hate this. IMHO, most IC's I run across should be classified as employees. I've been classified like this also with 2 previous jobs. One was iffy, and the other was really beneficial, because I was in construction and did a lot of driving and bought my own supplies.

I had one today, 1099-MISC, Box 7. This job has employee written all over it, and his girlfriend is unhappy about it also, seeing how they will be getting married later this year. It is 70 miles round trip, and he cannot deduct mileage because it is considered a commute. I'm going to call him tomorrow and have him establish a legit home office, just so he can deduct these miles, in case his boss does not change the status.

As a tax pro, I disagree with this part of the IRC. If you are labeled as an IC, you should be able to deduct mileage, period. You are paying even more in taxes, just because of the taxes on gas. Provided you have ample proof of your mileage or expenses, of course. Trust me, I practice DD. I have to around here.

And something that happened last year. Taxpayer was a W-2 employee, but yet was paid on a 1099-MISC, Box 7, for a good size bonus from same employer. Sorry dude, but you gotta pay tax on it. He wasn't happy.

1099-MISC reminds me of MFS. Only beneficial if you know the tax code.

[ChEAr$]

puzzled

I'll go on record and say I really hate this. IMHO, most IC's I run across should be classified as employees. I've been classified like this also with 2 previous jobs. One was iffy, and the other was really beneficial, because I was in construction and did a lot of driving and bought my own supplies.

I had one today, 1099-MISC, Box 7. This job has employee written all over it, and his girlfriend is unhappy about it also, seeing how they will be getting married later this year. It is 70 miles round trip, and he cannot deduct mileage because it is considered a commute. I'm going to call him tomorrow and have him establish a legit home office, just so he can deduct these miles, in case his boss does not change the status.

(snipped....

Just why would he need a "home office"? What activities would he transact there?
You're advocating calling some of the premises an "office" just to justify deducting
mileage? I don't think that will fly.

If indeed he IS an employee, treat him so, use that new form for reporting his share of
the FICA, fill out an SS8 form and that saves him money.

[taxea]

If he is an employee why isn't he getting a W-2? If he is not an employee then the person that sent the 1099 needs to issue one without employee written all over it. taxea

[David1980]

If he had a W-2 instead of a 1099-MISC, how would that change the mileage situation?

Seems like commuting miles either way.

[powerage]

This is why I'm here. I have a pretty good understanding of the tax code, but because it is so complicated, I get confused sometimes. And yes I hate IC status, but I tell the taxpayer themselves to take it up with the IRS.

From the interview, the client has to travel to his place of work, even on his day off. He told me he works 6 days a week, and he goes to the same site 365 days a year, and he has to keep deposits in his home until he can get to the bank. He was not expecting to be a 1099-MISC. Work deposits you carry home means that a person should use a spare room just for this business. You go to your home office in the morning, work for a bit, and then go to the next job later, and reverse the process in the afternoon. Under the IRC, this is a legal deduction,as long as everything is properly documented. I went through this 3 years ago, my tax job was W-2 and my second job was IC, and I went from 1 job to the other without stopping at home.

[Snaggletooth]

Won't Fly

Powerage this guy can't drive to the same place every day and avoid being classified as a "commuter." IRS has never allowed commuting mileage, and has gone to lengths to make sure it doesn't favor drivers just because they are self-employed.

Special driving, such as after-hours, odd days, bank deposits, etc. are deductible. That would include weekends, duplicate trips, and whatever incremental mileage to the bank could be supported.

Even under this approach there is a significant benefit to being self-employed. A W-2 employee would have to deduct this on a 2106 as an itemized deduction, meaning he loses at least 2% of his AGI.

This client appears to want to create the illusion of deductible situations, but I believe this would wilt under any scrutiny whatsoever. Creating a "home office", for example, does not change his tax home if he is driving to one place every day. And if he is working 365 days on the road, it doesn't sound like he would meet the criteria of a "home office" anyway.

Does he have a mileage log? If not, his preparer would be subject to a new $1000 penalty. I can tell you from experience that when you confront him, he will have an elaborate argument in the wings, such as "my brother-in-law's accountant told him HE could deduct this-and-that." He might even add what he believes to be the ultimate slam-dunk and say "...and he's a LAWYER!!"

Doesn't matter, my friend. This guy would be low-hanging fruit for an auditor. It's even worse than that, he would be the butt of office jokes when the auditor returned to his office. And, oh yes, "Go Steelers!!"

[RitaB]

Good one

If he is an employee why isn't he getting a W-2? If he is not an employee then the person that sent the 1099 needs to issue one without employee written all over it. taxea

Oh My Lanta! That is hilarious! Thanks, I needed that.



I had a guy come in yesterday, with HIS snippy girlfriend (not clients). They just couldn't believe that the issuer of the 1099-Misc did that to him! The problem here is usually NOT that he didn't get a W-2, but that he GOT a form, so now he has to report income. Let's face it, he agreed to the situation, knew the whole time that taxes were not withheld, etc. Bet if he got no form at all, he would have been just fine with that, and he would not report the income anywhere.

If the girlfriend hadn't been so hateful, I would have explained that on $10,000, for example, you are paying an additional $765. The rest of the liability would have been deducted from YOUR compensation. Plus, any expenses that you actually have will be 100% deductible for both income AND SS/MC tax purposes. Way better than employee expenses.

Bet the issuer also paid him more, too, than he would have if the guy was paid as an employee. (It's easier to multiply $10 times 32 hours than $9.65 times 31.75 hours, for example.)

Snippy was also outraged that boyfriend can't draw unemployment or file a workers comp claim. (Apparently he is no longer, ahem, "employed.")

Welcome to my world, I said.

[DaveO]

Had a guy come in last week. He has worked for the same place for the last 3 years (construction). The owner came around with 1099 misc forms instead of W-2 forms and annouced that everyone is now independent contractors. No pay stubs were ever given but he is certain that the "employer" was withholding on him all year.

I think the owner hit a cash flow crunch and stopped filing his employment taxes. Also think it's going to blow up on him sooner rather than later.

[BP.]

I think the owner hit a cash flow crunch and stopped filing his employment taxes.

Already seeing some of this as well.

Client had W-2 & 1099-Misc from same company. She said rather than lay off, boss let her distribute flyers & other marketing materials on her own schedule, in her car, and paid her on a 1099-Misc. In boss's effort to minimize the sting of the 1099-Misc, he typed a very nice lengthy letter on letterhead detailing her mileage log to use for her taxes. In the spririt of "no good deed goes unpunished," without that log she would have qualified for more EIC.

[taxea]

If he has received W-2 from this company in past years and is suddenly receiving a 1099 he needs to report this to the IRS, tell his employer he needs a W-2 and then file his taxes. taxea

[Burke]

These are the employers that the IRS, with the states' help, are targeting for audits. The state office for unemployment taxes & benefits goes out and reviews tax returns, W-2's, 941/940 reports, 1099's, independent contractor agreements (you better have one for every IC worker), and determines if SUTA should have been paid. Collects that from employer plus penalties, then reports all to IRS for further fed action. Targeted businesses are construction, real estate agents, etc.

[Snaggletooth]

Turn 'em in

Yes, turn in these unscrupulous and unsavory employers who bilk the public trust by issuing 1099s instead of payroll W-2s, right?

Better think again. Who should "turn 'em in?" Tax preparers? How many of you are interested in doing this and getting the reputation in your town for being a whistleblower for the state?

Recipients? Recipients who make their living by working for the payer and negotiating his payments with the same guy they're going to turn in?

I'm not defending the 1099 practice, but just whose dog is it, Charlie Brown? A real-world reality check.

[taxea]

Let me try this again...if the client is, by the rules, an employee and the employer refuses to change the 1099 to a W-2 don't you think he deserves to be turned in?

the IRS rule, this year, for substitute W-2's requires that the employee report the employer as part of the requirements for filing a substitute W-2 so it stands to reason they would want the 1099 issuer reported.

I have no problem with turning the employer in...he is not my client and he is causing probable problems for my client in the future. Also he is the reason why everyone else is paying more taxes than we should be.taxea

[ChEAr$]

Say what?

Let me try this again...if the client is, by the rules, an employee and the employer refuses to change the 1099 to a W-2 don't you think he deserves to be turned in?

the IRS rule, this year, for substitute W-2's requires that the employee report the employer as part of the requirements for filing a substitute W-2 so it stands to reason they would want the 1099 issuer reported.

I have no problem with turning the employer in...he is not my client and he is causing probable problems for my client in the future. Also he is the reason why everyone else is paying more taxes than we should be.taxea

This year, IRS requires employee report the employer....?? when did this change?
And just how is this done?
First I've heard of it.

[taxea]

research the post on substitute W-2. This is where the IRS requires the taxpayer notify the IRS.

for the post " If you are labeled as an IC, you should be able to deduct mileage, period"

The IRS cares not what we think is fair but, rather, expects us to follow their rules.taxea