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Question: I just started working for a construction contractor, helping him find leads for future customers. He says he wants to “minimize risk” while paying me commissions on any jobs I give him leads on. That means I have to choose between:
1. letting him take withholding taxes from my commissions, or
2. filing for an LLC or a corporation.
I am a sole proprietorship. People are supposed to send me 1099s, but he’s not going to do that unless I have a corporation or an LLC. Is he really minimizing his risk? Or is this B.S. or what?
— Pete in California
Is it B.S.? Yes and no. I would call it an “imperfect application of common tax principal.” Let me explain.
In the small business world, there are few words more dangerous than “employee.” It’s a dangerous word because businesses with employees have many additional requirements — and pay extra taxes — than businesses with independent contractors alone.
For example, businesses with employees are required to…
- withhold income and FICA tax from employee paychecks
