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IRS document on Self-Employed vs. Independent Contractor Steve Pope 12-09-2006
Posted by Steve Pope on December 9, 2006, 6:42 am
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 The title of the following IRS document suggests that it is
important to distinguish between self-employed individuals
on the one hand, and independent contractors on the other
hand:

http://www.irs.gov/businesses/small/article/0,,id=115041,00.html

(This link was forwarded to me by a friend as part of a
discussion of self-employment issues.)

My question is that while it's common knowledge that it's
important to distinguish between employees and
non-employees, under what circumstances must one further
differentiate the non-employees into self-employed vs.
independent contractors?

Prior to running across this, I considered "independent
contractor" to be a synonym for "self-employed worker"
(either sole proprietor or one-person corporation) but now
I'm not so sure. Do tax examiners make a distinction here,
and apply different rules to the two situation?

Not a question I critically need an answer to, but I find
the title and purpose of this document to be a bit confusing.

Thanks

Steve

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Posted by Stuart A. Bronstein on December 10, 2006, 8:26 pm
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 spope33@speedymail.org (Steve Pope) wrote:

> My question is that while it's common knowledge that it's
> important to distinguish between employees and
> non-employees, under what circumstances must one further
> differentiate the non-employees into self-employed vs.
> independent contractors?

Except that "self employed" often need local business
licenses and independent contractors may not, I can't think
of any time a distinction is made.

> Prior to running across this, I considered "independent
> contractor" to be a synonym for "self-employed worker"
> (either sole proprietor or one-person corporation) but now
> I'm not so sure. Do tax examiners make a distinction here,
> and apply different rules to the two situation?

I think the IRS is making the distinction to indicate to
people that the line between employee and self-employed is
not as clear as we might think it ought to be. For some -
those in independent recognized businesses, it's easy to
tell. But for freelancers it's not always.

But aside from that, they both file Schedule C's and are
otherwise equivalent.

Stu

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Mike Wellman on December 10, 2006, 8:26 pm
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Steve Pope wrote:

> My question is that while it's common knowledge that it's
> important to distinguish between employees and
> non-employees, under what circumstances must one further
> differentiate the non-employees into self-employed vs.
> independent contractors?

They are the same thing.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Harlan Lunsford on December 10, 2006, 8:26 pm
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Steve Pope wrote:

> The title of the following IRS document suggests that it is
> important to distinguish between self-employed individuals
> on the one hand, and independent contractors on the other
> hand:
>
> http://www.irs.gov/businesses/small/article/0,,id=115041,00.html
>
> (This link was forwarded to me by a friend as part of a
> discussion of self-employment issues.)
>
> My question is that while it's common knowledge that it's
> important to distinguish between employees and
> non-employees, under what circumstances must one further
> differentiate the non-employees into self-employed vs.
> independent contractors?
>
> Prior to running across this, I considered "independent
> contractor" to be a synonym for "self-employed worker"
> (either sole proprietor or one-person corporation) but now
> I'm not so sure. Do tax examiners make a distinction here,
> and apply different rules to the two situation?

I consider a self employed person to be one needing a
business license and one who holds himself out to the public
as being a separate business.

Therefore a self employed person can be an independent
contractor, whereas all independent contractors are not
subject to business licensing requirements. It's all facts
and circumstances.

One client hired a worker to work in his laundramat along
side the other regular employee. I asked why no taxes taken
out and he replied that she prefers to be an independent
contractor and "pay her own taxes at the end of the years.
AGGGGHHHH!!!! Yea, sure she will.

As to the cite above, this is interesting:

"You are a member of a partnership or limited liability
company that files a Form 1065, U.S. Return of Partnership,
that carries on a trade or business;....."

Looks like IRS is resolving any previous debate over whether
or not LLC members have to pay SE tax.

ChEAr$,
Harlan Lunsord, EA n LA

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by A.G. Kalman on December 10, 2006, 8:26 pm
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Steve Pope wrote:

> The title of the following IRS document suggests that it is
> important to distinguish between self-employed individuals
> on the one hand, and independent contractors on the other
> hand:
>
> http://www.irs.gov/businesses/small/article/0,,id=115041,00.html
>
> (This link was forwarded to me by a friend as part of a
> discussion of self-employment issues.)
>
> My question is that while it's common knowledge that it's
> important to distinguish between employees and
> non-employees, under what circumstances must one further
> differentiate the non-employees into self-employed vs.
> independent contractors?

None.

> Prior to running across this, I considered "independent
> contractor" to be a synonym for "self-employed worker"
> (either sole proprietor or one-person corporation) but now
> I'm not so sure. Do tax examiners make a distinction here,
> and apply different rules to the two situation?

I know of many one person C Corporations and the one person
executive is an employee, not a sole proprietor. There is no
Schedule C filed by the one-person.

The issue is whether a person you hire to perform services
for you is either an independent contractor or a statutory
nonemployee and therefore is treated as being responsible
for their own employment taxes and reporting their own gross
receipts or the person is a common law employee or a
statutory employee and you both share responsibility for the
employment taxes and you issue a W-2.

I believe the point the IRS is trying to make, is that when
one is operating an unincorporated trade or business solely
owned by one person, that person is self-employed and files
Schedule C or C-EZ. When one offers to perform certain
services for you, the facts and circumstances of each case
will determine whether you have an employee or an
independent contractor. If an independent contractor, then
the independent contractor files tax returns in the same
manner that a sole proprietor files tax returns. You can
hire a sole proprietor to perform work for you and if you
create a certain set of facts, you can find that you have a
common law employee.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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