53

While a traditional checking account with the contractor's name on it sounds a bit off, it's not uncommon for private contractors to leverage a construction escrow account for larger projects like building a house. This enables a situation where the contractor can get paid for their time as work progresses and doesn't have to pay for materials out of pocket ...


27

Scam. The contractor is trying to transfer liability onto you. What makes a contractor accountable for getting the job done is the financial peril he faces if he does not. There's the hypothetical distant risk of being sued, but what really keeps him honest is the immediate risk of not being paid. That is the entire business model of contracting; it's ...


21

Yes. I have personally signed such contracts (fixed budget software development) and lost money every single time. And yes, it is quite possible for you to get paid under minimum wage if you take too long. Scope creep is the primary culprit for these kinds of contracts, so make sure you put together iron-clad explanations of what is and is not covered by ...


17

Here are a few points to consider: Taxes: As a consultant, you will be responsible for the employer portion of the Social Security and Medicare taxes, and you might have to pay for state unemployment insurance and state disability insurance, as well. Office expenses: As a consultant, you may be required to buy your own laptop, pay for your own software ...


16

1: no. You are among the rabble. Because you are a contractor, i.e. another business. This is part of the deal of being a contractor - you control your busienss and are responsible for your risk. And yes, your risk includes your counterparty risk. Everything not in protected groups gets pooled and gets paid pro rata from the money left over after all people ...


11

Your premise is incorrect: I believe if they were US based contractors I would need to send them a form to do my own deduction. If it is a legitimate business expense, you can deduct it regardless of whether or not they are US or foreign workers. You only need to send the 1099 form to the IRS and US workers (or foreigners performing work in the US) that ...


11

TL;DR: No. There is no legitimate reason for doing this. It's trying to replicate the invisibility of a cash job with the convenience of not having to lug around briefcases full of cash, with the bonus that the person who opened the account has all the criminal liability.


9

You should include the checks you received from the company, invoices you sent, bank statements showing the deposits, and your receipts, if any, you issued to the company. You'd be surprised to know that this is a fairly common tax fraud. You can also try and sue the company or its successor for the missing amounts, but if it has been dissolved it may be ...


9

In general the other party will expect you to keep your promises. If you promise to do something for a fixed amount of money, you take on a risk and it is no longer their problem if you work slower than you planned. In principle it could even be the case that you take on a project and fail, after which the company may not have to pay at all. So regardless ...


8

There's a regulation for that, however I suggest consulting with an experienced EA/CPA licensed in your State as to how to proceed. There is no federal law which prevents a withholding agent from legally making a payment to a payee for the sole reason that the payee does not have a TIN. However, sections 6721, 6722, and 6723 of the Internal ...


7

If you are paid by foreigners then it is quite possible they don't file anything with the IRS. All of this income you are required to report as business income on schedule C. There are opportunities on schedule C to deduct expenses like your health insurance, travel, telephone calls, capital expenses like a new computer, etc... You will be charged both the ...


7

To be clear, if you are receiving a W-2, you are an employee, not a self-employed contractor. Before the new tax reform law, it was possible to deduct unreimbursed employee expenses. These were expenses that you incurred as part of your job that your employer did not reimburse you for. Expenses eligible for deduction included tools and supplies, mileage (...


7

Exactly the same thing happened to me. Short answer: Don't hold your breath waiting for the money. Under US bankruptcy law, there is a long list of priorities for who gets paid first. Yes, "secured creditors" are at the top. That means somebody who has a lien. A mortgage usually includes a lien on the house and a car loan includes a lien on the car, etc. ...


7

While I wouldn't do it it might not be a scam. Rather, it could be the contractor is attempting to hide money and doesn't want accounts in their name. Maybe the IRS is after them, maybe they have a judgment against them, maybe they owe child support etc.


7

In reality, I do help her every now and then with various bits (specific to her work, e.g.: translation, graphic design, software tutorials) but I would not think of it as consulting... But you are consulting for her, and you should be paid for your work. EDIT: you can either bill her for hours worked, or she can put you on retainer, where she pays you ...


6

Hourly rate is not the determinant. You could be selling widgets, not hours. Rather, there's a $30,000 annual revenue threshold for GST/HST. If your business's annual revenues fall below that amount, you don't need to register for GST/HST and in such case you don't charge your clients the tax. You could still choose to register for GST/HST if your ...


6

You are right that even if you do not receive a 1099-MISC, you still need to report all income to the IRS. Report the $40 on Schedule C or Schedule C-EZ. Since your net profit was less than $400, you do not need to file Schedule SE. From the IRS web site: Self-Employment Income It is a common misconception that if a taxpayer does not receive a ...


6

I wrote about the Social Security overlap when switching job a long time ago. Your situation is essentially the same. Each employer is required to withhold FICA taxes to the full extent, and it doesn't matter for them if you're exceeding the cap with the other employer. The reason, in addition to the FICA wording, is that the employers match your portion ...


6

I've been in a similar situation before. While contracting, sometimes the recruiting agency would allow me to choose between being a W2 employee or invoicing them via Corp-2-Corp. I already had a company set up (S-Corp) but the considerations are similar. Typically the C2C rate was higher than the W2 rate, to account for the extra 7.65% FICA taxes and ...


5

Turns out I had misunderstood what those dates really were. They were estimated payments for next year's taxes, not this year's. IRS will take the full amount due for 2012 taxes on April 15 when it is due. For 2013's taxes I have the option of paying in advance on a quarterly basis, or incurring a small penalty/fee and paying the full sum on April 15th next ...


5

Your question is meaningless as it is, because you don't tell us if you're likely to be in a higher bracket when you retire, or lower. However, I would argue that neither would be as beneficial for you as a Solo 401K account, as the limits for 401K contributions are much higher than IRA (Roth or not Roth). There are plenty of questions on the topic on the ...


5

I took littleadv's advice and talked to an accountant today. Regardless of method of payment, my US LLC does not have to withhold taxes or report the payment as payments to contractors (1099/1042(S)) to the IRS; it is simply a business expense. He said this gets more complicated if the recipient is working in the US (regardless of nationality), but that is ...


5

Software Contractors are not employees of the company that is procuring the software. Software Contractors necessarily work for another legal business entity. There is a business to business relationship between the procurer of the software and the entity producing the software. Therefore, the company procuring the software is not required to pay a minimum ...


5

Generally, with a paper route, you are considered self-employed. The newspaper gives you checks with no taxes withheld, and at tax time you are given a 1099-MISC form. On your tax return, you deduct all of your expenses (vehicle expenses, supplies, etc.) on a Schedule C, and you have to pay self-employment tax on a Schedule SE. You are a contractor of the ...


5

You're a partnership. You should ask the money to be paid to the partnership. You'll have to fill partnership income tax return (form 1065) and each of you will get a K-1 schedule with your own personal portion of the income. For example, you're Adam, Ben and Clara. You work together on a project and are being paid. You get a check for $300 issued to "Adam, ...


5

They have to withhold. When you file your taxes there is a line item to refund overpayment. Fairly trivial.


4

If you want to subcontract some of your excess work to somebody else, you better be in business!  While some kinds of employees (e.g. commissioned salespeople) are permitted to deduct some expenses on their income tax, generally only a real business can deduct wages for additional employees, or the cost of services provided by subcontractors. Do you ...


4

No, your business cannot deduct your non-business expenses. You can only deduct from your business income those reasonable expenses you paid in order to earn income for the business. Moreover, for there to be a tax benefit, your business generally has to have income (but I expect there are exceptions; HST input tax credits come to mind.) The employment ...


4

I doubt that it would withstand examination. I would also mention that if the nature of your work does not change after a month, the fact that you're paid as contractor doesn't make you any less employee during that period. What you can do is report (some of) these expenses as unreimbursed employee expenses, and they will be deductible based on the AGI ...


4

I agree with your strategy of using a conservative estimate to overpay taxes and get a refund next year. As a self-employed individual you are responsible for paying self-employment tax (which means paying Social Security and Medicare tax for yourself as both: employee and an employer.) Current Social Security Rate is 6.2% and Medicare is 1.45%, so your ...


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