I saw these questions on an old blog entry in Google Groups, and
despite the fact that the entry expired (Google has the posting date of
June 1995), I have some relevant information to answer the questions
and I hope it may be useful to someone.
"I am an independent consultant who does proposal writing. I am not
incor****ated. I have an assignment for which I could use some
assistance
from another independent consultant . My client agrees to this
arrangement
and will pay the fee for the other consultant. My questions are:
1. If I "hire" this consultant to work for me on this assignment and
pay
him out of the money I receive from my client for both of our services,
how
do I show this on my tax return?"
Answer - You would show a deduction on your Schedule C for the
payments to the "hired" other consultant.
" Will this sort of arragement make me
liable for paying taxes on the total amount shown on the 1099 (both for
myself and the other consultant) that I receive from my client?"
Answer - This should not make you liable for Income Taxes but you
may be liable for payroll taxes. The IRS and States are very vigilant
about reclassifying 1099 consultants as employees. It is very complex
and it is a risk. If the consultant is considered your employee rather
than an Independent Contractor than it would be you responsibility to
withhold federal social security, Medicare, FUTA and SUTA and maybe
workers compensation. To learn more about the difference between
employee versus contractor you can visit the IRS site
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
or
wikipedia http://en.wikipedia.org/wiki/IRS_Reclassification
"2. Is it to my advantage to enter into such an arrangement or
would it be
best if the other consultant signed his own contract with this client?"
Answer - You can also look into a employer of record service for you,
your consultant and your client. Check out www.mybizoffice.com . I also
know that they have the ability to handle this exact issues for teams
of consultants as well as remove the risk of reclassification risk for
clients as well as consultants.
Hope this helps, and best of luck!
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