Taxpayer asks:
Hello,
I am an independent contractor and work with teachers. If I purchase gift cards to award those that completed required assessments by the deadline given. Can I deduct the cost of these gift cards?
I would appreciate any information you can provide.
Many thanks,
Taxgirl says:
I love this question because it’s an example of how the specific facts really shape the answer!
In your case, I say yes. And I also believe that it’s not taxable to the teachers. Here’s why:
If an employer gives a gift or award to an employee, the IRS generally considers it compensation and not a gift. There’s an exception for de minimis gifts – you know, gift baskets, boxes of chocolate, those inexplicable little inspirational crystal trophies… Those are considered to have such little value that they are not taxable to the recipient as compensation and the value of the items is generally deductible to the employer as part of the cost of doing business.
There is a specific exception to the exception (don’t you just love tax law!) for gift cards. Gift cards are easy to value and are treated just like cash for tax purposes. They are never considered de minimis which means they are taxable to the employee.
Head spinning yet?
But wait. You’re not the employer here. And they’re not your employees. You have an independent contractor relationship, right? This means that the cards should not be taxable to the recipients as income and they are deductible to you as part of the cost of doing business. Unless, of course, you’re giving the gift cards with the expectation of future services – but that doesn’t sound like the case here.
Whew. Got that?
For specific information on holiday gifts and bonuses, see my prior post on the subject.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Taxpayer asks:
I own a S-Corporation. If I receive a project from my client and want to subcontract a part of it to another company, where do I show that expense on my business tax return? In deductions, there is a place to show 1099 subcontractor expense. However, this is not really a 1099 sub. It is a corp to corp. So, how do I handle that?
Taxgirl says:
If I understand what you’re doing correctly, you’re taking a job for X dollars and farming part or all of it out to another party to do the job for Y dollars. That party is another company (or individual) and not your employee. Is that right?
If so, then you would either report the payments as nonemployee compensation on a form 1099-MISC (depending on the nature of the compensation and the type of entity) or simply record it as a business expense. Either way, it’s not salary, so I’d put it on line 19 of the 1120-S as “other deduction.” You’ll need to attach a statement with the amounts broken out separately.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Taxpayer asks:
Hello Taxgirl,
I have a simple, yet complicated tax question. I worked for a company last year for the first 5 months, then for the last 7 months I was self- employed. Do I file two separate forms? Anything you can tell me I will greatly appreciate.
Thank you,
Taxgirl says:
Here’s a lawyerly answer for you: yes and no.
You’ll only need to file one tax return. In your case, you’ll likely need the long form, a plain vanilla 1040.
Report your wages paid by the employer just like normal, using your form W-2, on line 7 of your 1040.
When it comes to your self-employment wages, you’re likely going to want to file a Schedule C so that you can include your self-employment income and deduct the expenses associated with running your business. The Schedule C is basically just an addendum to your 1040 – not really a separate form in the pure sense, but an additional page (check it out here as a pdf).
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Taxpayer asks:
Hi Kelly,
Here is the situation i worked for a doctor’s office for two months and she informed me that I did not need to pay taxes because I was a temp. Ten months after I left the job she started asking me for my information because she said the tax laws have changed and she has to with hold taxes from me. Not knowing what to do I ignored her, and later on that month she sent me a 1040. I took this to the accountant and I paid the taxes that was needed to the IRS and the State of California. My questions is are there going to be any repercussions on my part since I’m technically not a independent contractor? And Is what she did legal?
Thanks,
Taxgirl says:
I’m not exactly sure what happened in your situation – withholding is something that happens for employees, generally, but not independent contractors. And the rules didn’t change with respect to how those are governed – perhaps your employer’s understanding of the rules changed?
The bottom line is that your employer should have treated you as an employee if you were an employee, even if you were only there for a brief period of time. You can be an employee even if you only work one day – generally speaking, whether or not you are an employee or independent contractor is not governed by the amount of time that you work, but by a combination of factors.
Factors to be considered can be found both in common law and in Revenue Ruling 87-41. They include:
- Are you subject to the employer’s instructions?
- Does the employer provide training?
- Do you personally perform the services?
- Is the employer responsible for hiring, supervising and paying assistants?
- Is there an ongoing relationship?
- Does the employer determine when you work?
- Is full-time work required?
- Do you work on the employer’s premises?
- Are oral or written reports required?
- Does the employer pay the majority of business and/or traveling expenses?
- Is the employer responsible for the furnishing of tools and materials?
- Are you free from risk or significant investment with respect to the work being performed?
- Are you working solely for the employer?
- Have you stopped offering your services to the general public?
- Can you be fired for any reason (as opposed to contractually bound to perform services)?
While each of these factors really depends on your personal facts and circumstances, the more times that you can say “yes” to the those questions, the more likely it is that you’re an employee.
Don’t assume that you’re an independent contractor because the employer says so – or because you’re merely part time or temporary. Remember, it’s a set of circumstances, not a magic question. There is no such rule that says that only full time, long term workers can be classified as employees. If you have any questions about your status, ask. And if you don’t agree with the answer, talk to a tax professional.
In your particular case, so long as you’re square now, I wouldn’t waste anymore energy on what happened. It sounds as if your employer was confused and fixed it halfway through the term of your employment. So long as your accountant felt like it was resolved appropriately, I would simply move on and not spend another minute worrying about it.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
