IRS Provides Template For Employee vs. Contractor

From Forbes come some helpful information on determining if your homeschool co-op teacher is an employee of independent contractor.

 

Determining who is a true independent contractor and who is really an employee involves more than labels. The IRS, Department of Labor, state labor and employment boards, unemployment insurance and worker’s compensation authorities all investigate this. It also comes up in private lawsuits over benefits, liability, and more. See Winning Independent Contractor Battles.

The IRS recently issued a template focused on evaluating your own status. In IRS Publication 1779, the IRS looks at three areas: behavioral control; financial control; and the relationship of the parties to determine worker classification.

Behavioral Control. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done—as long as the employer has the right to direct and control the work.

• Instructions. If you receive extensive instructions on how work is to be done, this suggests you are an employee. Instructions can cover a wide range of topics, such as:

1. How, when, or where to do the work;

2. What tools or equipment to use;

3. What assistants to hire to help with the work; and

4. Where to purchase supplies and services.

If you receive less extensive instructions about what should be done, but not how it should be done, you may be an independent contractor. For instance, instructions about time and place may be less important than directions on how the work is performed.

• Training. If the business provides you with training about required procedures and methods, this indicates that the business wants the work done in a certain way

Financial Control. These facts show whether there is a right to direct or control the business part of the work. Consider:

• Significant Investment. If you have a significant investment in your work, you may be an independent contractor. While there is no precise dollar test, the investment must have substance. However, a significant investment is not necessary to be an independent contractor.
• Expenses. If you are not reimbursed for some or all business expenses, then you may be an independent contractor, especially if your unreimbursed business expenses are high.
• Opportunity for Profit or Loss. If you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor.

Relationship of the Parties. These facts illustrate how the business and the worker  their relationship. For example:

• Employee Benefits. If you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee. If you do not receive benefits, however, you could be either an employee or an independent contractor.
• Written Contracts. A written contract may show what both you and the business intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts. See Ten Tips for Drafting Independent Contractor Agreements.

 

Robert W. Wood practices law with Wood LLP, in San Francisco.  The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at Wood@WoodLLP.com.  This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

How You or Your Child Can Become a Published Author (live session free)

Join me LIVE Wednesday May 2 at 11 am ET as I present

How You (or Your Child) Can Be a Published Author

at the 2012 Ultimate Homeschool Expo

This Expo allows you to listen to over 20 sessions live for free.

Or buy a ticket and listen to over 80 workshops from speakers such as Carol Topp, the HomeschoolCPA, Jeannie Fullbright with Apologia, Cathy Duffy, Maggie Hogan with Bright Ideas Press, Felice Gerwitz, and SO Many More!

My sessions include:

How You (or Your Child) Can Be a Published Author Listen LIVE May 2 at 11 am ET. Click here

The IRS and Your Homeschool Organization Buy a ticket to hear this pre-recorded session

What Your Teenager Can Learn from Starting a Micro Business Buy a ticket to hear this pre-recorded session

I hope lots of you can join me at the Ultimate Homeschool Expo 2012 live!

Carol Topp

Meet Carol Topp HomeschoolCPA in Cincinnati!

 

This week April 19-21 is the Midwest Homeschool Convention in Cincinnati.

 

Come by my booth #405, near the front of the exhibit hall.

 

Then hear me speak on the following topics:

What Your Teenager Can Learn from Starting a Micro Business Friday April 20 at 1:00 pm in the Millennium Hotel Colonnade room

Homeschool Co-ops: How to Start Them, Run Them, and Not Burn Out Friday April 20 at 2:30 pm in Duke Convention Center Room 250

The IRS and Your Homeschool Group Saturday April 21 at 10:00 am in Duke 234

How You (or Your Child) Can be a Published Author Saturday April 21 at 4:00 pm in in the Millennium Hotel Colonnade room

 

Carol Topp, CPA

 

 

Sessions for homeschool leaders at the Midwest Homeschool Convention

 

Anyone going to the Midwest Homeschool Convention in Cincinnati this week?

There is a session on Thursday April 19, 2012 from 2-3 pm just for group leaders with Jen Henricksen, a seasoned homeschool group leader.

Register here (free) http://www.greathomeschoolconventions.com/group-leader-track.

They’re giving away a laptop!
Also, I’ll be giving a workshop on Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out on Friday at 2:30 pm

and another workshop, The IRS and Your Homeschool Organization on Saturday at 10 am.

 

Grab a copy of the handouts here.

 

I hope to meet some of you there!

Should my homeschool group file as an LLC?

Hello, Carol.

I have learned so much from your website. Thank you for your expertise. I am part of a co-op and we need to open a bank account. I am in Texas.

My bank told me that we need the “assumed name certificate” as well as the EIN. We do not have an “owner.” Do I file as a Limited Liability Company?

Jennifer L
Texas

 

Jennifer,
I’m glad my website was helpful.

Becoming a Limited Liability Company (LLC) is a complicated issue for nonprofits.  Most small nonprofits such as your homeschool co-op do not become LLC’s because the IRS has 12 conditions that must be met for the LLC to be tax exempt. It may be more than you cared to learn, but it is important to understand the complexity of nonprofit LLC status.

Here’s a helpful article discussing LLC status and IRS tax exempt 501(c)(3) status.

http://www.insightcced.org/uploads/publications/legal/LLCs-as-exempt-orgs.pdf

The reason that most for-profit businesses obtain the LLC status is for limited liability. I organized my own sole proprietorship accounting practice as an LLC  because I wanted limited liability and protection of my personal assets.

For a nonprofit organization such as your homeschool co-op, nonprofit corporation status in your state brings similar protections of limited liability.

So if your main reason for seeking LLC structure is for limited liability, nonprofit incorporation in your state is the simpler option.

Read more about nonprofit incorporation here: http://homeschoolcpa.com/leader-tools/articles/ or in my latest book, The IRS and Your Homeschool Organization.

 

 

 

Now my “lawyer” words:

The information contained on this site is designed to provide accurate information in regard to the subject matter covered. However, this site is  not a substitute for legal guidance. This information is provided with the understanding that the author is not engaged in rendering legal advice. If such advice is required, the services of a competent legal professional should be secured.

Carol Topp, CPA

Next Page »