Found an interesting article on independent contractors and tax
law. If you have your bench jewelers operating as independent
contractor in a retail store and they use your equipment on a
schedule of your making you're probably not in compliance with IRS
law. Evidently a crackdown is on at the IRS. A jeweler in my town
was hit with a big fine a couple of years ago for this very reason.
Food for thought.
This is nothing new. The IRS has always focused on the
employee/independent contractor issue. And if you think about it,
it’s only logical.
The distinction between an employee and a contractor is
If a worker is independent enough to provide his own tools and
accomplish the job on his own schedule, then he is also independent
enough to pay his own taxes.
If a worker depends on his employer because he uses his employer’s
tools and is given a working schedule, then the employer should also
be expected to withhold taxes from his employee’s compensation.
In the big picture, this issue regarding independent contractors is
similar to the issue discussed in the “Gold coin sellers angered by
new tax law” thread. Both of these expenditures require the business
owner to generate a 1099 when more than 600 dollars is paid (unless
it’s paid to an employee who receives a W-2 instead of a 1099).
In this thread, the 1099 is for labor, in the “Gold coin sellers
angered by new tax law” thread, the 1099 is for material.
If you think about it in this way, you would always be prepared for
If you add up the 1099s you generate for materials, you should come
close to the material cost you report on your income tax. Likewise,
if you add up the W-2s and the 1099s you generate for labor, it will
come close to the labor cost you report on your income tax.
When comparing the amounts from the forms you generate and your
income tax, the dollar difference for labor is only going to be the
amounts paid that were less than 600 dollars. In the case of
materials, the difference is the amounts paid that were less than 600
dollars and the value of unused materials at year’s end.