Tax Question: Are you a contractor or an employee?

During this time of labor transition, many Denver Technical Professionals are offered jobs as a "contractor" rather than an "employee". The tax consequences matter. So we asked a tax expert a few general questions. Here is a response from Daniel Lowenthal, who is an Enrolled Agent. What is an Enrolled Agent? See the text below:

"Enrolled Agent (EA): (is) a federally licensed tax practitioner who has technical expertise in the field of taxation and is empowered by the U.S. Department of the Treasury to represent taxpayers for audits,collections and appeals before all administrative levels of the Internal Revenue Service," according to his Linkedin Summary statement.

dhlowenthal@hotmail.com

QUICK QUESTIONS:

1. Are Contract Jobs Taxable? The employer may provide a (1099 form) vs (W2).
2. Are Educational expenses deductible?
3. What is the importance of record keeping? Can I use basic Quicken QuickBooks?
4. Do I need Tax advice?

Reply:

The answers to all these questions are general in nature and are no indication of specific advice that can be represented on a tax return or a tax position.

1. Contract labor is often considered self-employment income and one should receive from the person for which one is performing the contract a 1099MISC. As such contract labor is in most cases subject to both income tax and self-employment taxes i.e.( Social Security and Medicare taxes.) In contrast W2 one is considered an employee.

2. Educational expenses may be deductible but there are numerous considerations as such one should talk to a competent tax advisor. If one has a specific question with their individual circumstance I can address it in more details.

3. Record keeping is vital because one has to be able to demonstrate to the tax authorities, the method taxable income was determined. Under examination (Audit) the IRS and state and local tax agencies may want to see the records.

Please do your books or have me do them. You can use all the mentioned software. Getting tax advice is recommended because you may need tax planning. Remember these two quotes.

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

Sourced

Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

“The difference between tax avoidance and tax evasion is the thickness of a prison wall.”

Unsourced

Denis Healey, former UK Chancellor of the Exchequer.

(Equivalent to the US Treasury Secretary)

Written Communication Disclaimer:

Pursuant to the requirements related to practice before the Internal Revenue Service., and tax advice contained in this communication (Including any attachments) is not intended to be used , and cannot be used, for purposes of (1) avoiding penalties imposed under the United States Internal Revenue Code (USC 26) or (ii) promoting or recommending to another person any tax related matter.