Many people are finding themselves in a quandary between being a W-2 employee of a company or working for that same company in a contractor relationship. As a quick aside, the IRS and more importantly local state governments are going after companies who employ people as contractors. In Colorado, an independent contractor must hold himself or herself out to the public as a trade or profession before he or she can be deemed a contractor and NOT an employee.
Most contractor relationships would blow up if scrutinized. But the penalties and interest and fines and mess usually fall on the company and not the contractor / employee.
Check with your local jurisdiction to see how this is defined. You can also do a quick search for contractor versus employee and get hundreds of hits. Our KnowledgeBase Articles will also help at-
Back to your quandary. Typically it is better to be a contractor than an employee. Your taxes are lower, you have more tax wiggle room so-to-speak, and you usually make more money. Why? When a company employs a person the company has all kinds of extra costs such as benefits, unemployment, workers’ compensation, disability, health care potentially, etc. To give you a $1, some companies have to spend $1.40.
To give you this same $1 as a contractor costs them just that, $1.
If you are considering two offers, one as an employee and another as a contractor, contact the Watson CPA Group. We can model these scenarios for you and determine that the best choice is, and help you in the negotiation process.
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