Lessons from the Tax Court: contractor or employee?

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in Small Business Tax,Small Business Tax Deduction Strategies

For an individual, it may be preferable to be treated as an independent contractor, rather than an employee. Main reason: You avoid income tax and employment tax withholding on payments and you can deduct related expenses on your Schedule C. But you have to be in business for yourself.

New case: A taxpayer was employed as a full-time professor at Rowan University where he taught criminal justice. But he earned other income from writing training curricula for police officers and other activities. Much of his outside work included teaching classes and preparing training curricula at Temple University.

Temple provided the taxpayer with classroom space, but his office was located in his home. His compensation was fixed regardless of enrollment. The topics he covered in his curricula were conveyed to him by Temple, but frequently they were mandated by state contracts. In some cases, he was responsible for only a portion of the curriculum, but he wrote or edited the entire curriculum in others. The completed work became the property of Temple.

Beginning in 1996, Temple began to treat the taxpayer as an employee and it continued this practice throughout their arrangement.

Upshot: After examining all the facts, the Tax Court determined that the taxpayer was an independent contractor. (Robinson, TC Memo 2011-99)

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