How to Satisfy Uncle Sam

Twenty-five years ago, the Nashua Corporation, in New England, made an announcement that completely changed the world of work. Here's what they said: "We can no longer guarantee you a job for life." That's it! Shortly thereafter, Xerox said more or less the same thing, and then proceeded to lay of 20,000 people globally. This mantra rang true with a myriad of companies, who all eventually adopted the same opinion.

One of the most surprising facts about this is that even though "employees" and "employers" readily accept that there's no job for life, neither group has since changed their expectations of the other. In other words, Those who hire others refer to them as employees, and expect them to work as many hours as they did when before Nashua knocked over the first domino; and those who are hired expect almost as much job security as they had before the chain reaction began.


Why do you suppose this is the case? The reason is that most people don't like the idea of having to find paying customers. They're scared of the prospect of being self-employed.

In this article, I want to discuss what you must be able to do in order to satisfy the tax office in the US if you declare yourself as self-employed. It shouldn't send shivers up your spine or give you nightmares.

Employees or Independent Contractors

Remember, it's your responsibility to obtain clarification on this information from a reputable accountant. Do not base your decision on your tax status from this article

There three categories that have to be considered under US tax law: 1) Behavior control; 2) Financial control;, and 3) the type of relationship between the contractor/employer and subcontractor/employee. Like anything else in the US tax code, it's not that simple, but it does giving you a good starting point.

Behavior

Ask yourself this: To what extent do you have the authority to determine when, where, and how to do your work?

Financial

Ask yourself this: To what extent do you have the authority to control the business aspects of your work? e.g. Do you absorb your business expenses, invest heavily in the business itself, or are free to look for your own clients?

Relationship to contractor/employer

Ask yourself this: Does your contract describe your relationship to the person who pays you? Do you receive benefits from the company for which you do the work? Do you expect to work there indefinitely?

Only a qualified accountant can help you to determine your tax status.