How to Qualify as an Independent Contractor for Taxes

Independent contractors have the tax advantage of deducting unreimbursed business-related expenses in full on Schedule C of the Form 1040 tax return. Alternatively, employees can deduct employee business expenses on Schedule A of the return, but these expenses are subject to a deduction limitation and you must itemize deductions. First determine if it would be financially advantageous to be classified as an independent contractor, then confirm you qualify.

Difficulty: Moderate

Instructions

1. Estimate the total unreimbursed business expenses that you will be responsible for in completing the job assignments. If it's a large amount, it may have a significant tax affect deducting them in full on Schedule C rather than as a reduced itemized deduction.

2. Negotiate the pay rates as an independent contractor so that it's enough to offset your increased employment taxes and loss of other employee benefits. By classifying you as an independent contractor, the company will be saving employment taxes and other employee costs so there should be a willingness to increase payments to you for job assignments.

3. Clarify the control you'll have in the completion of the job assignments. Demonstrate independent contractor status by setting your own time schedule, working from your own home or shop, providing needed equipment and supplies, or hiring and paying additional workers with no direct supervision by the firm.

4. Put the details of the job assignments into a written agreement which elaborates on the independent status of the work and how it is accomplished. Use IRS Form SS-8 from the Internal Revenue Service website as a guide for covering pertinent aspects of worker status (see Resources below).

Resources

• Access Form SS-8 from the IRS website.