Tips on how to protect your status as an Independent Contractor

Working as an independent contractor has several advantages: It gives you maximum control over the affairs of your own business, flexibility on time, and huge profits. Add to this is the fact that you do not have to pay monthly taxes and are allowed to declare deductions.

However, the Internal Revenue Service (IRS) sets standards for classifying independent contractors. Failure to meet these criteria can lead to reclassification as employee.

Reclassification as an employee may cause you to lose your chance to declare deductions on your office equipment purchases or facility investments. Also, you might lose a current client because it doesn’t want to cover for the additional expense of hiring you as an employee.

If you are determined to preserve your status as an independent contractor you may follow these tips:

1. Maintain full control over the affairs of your business. This helps you show the IRS that you are in full command on the day-to-day activities in your work. Set your own procedures and process for completing projects. You may accept expectations from the client, but make sure you set the course for fulfilling such demands.
2. Do not accept training from client.
3. Set your own working hours. Make sure that you gain control over your time and how you meet the client's deadline.
4. Have your own office and limit doing the tasks within the client's premises.
5. Hire your own assistants to help complete the project.
6. Show that you can earn or suffer loss from a business transaction. Show that you have regular business expenses such as office rent, payment of salaries, and investment on facilities.
7. Charge your clients per project rather than per hour. Show that the price for such project can determine your profit or loss.
8. Obtain license permit for your business or profession
9. Have your business maintain its own bank account
10. Purchase insurance policy for your business
11. Advertise your business services to public
12. Maintain several clients throughout the year
13. Use written agreements. Specify that you are an independent contractor and indicate the terms and conditions of such business relationship. Include details on how much you will be paid for the project or services. This serves as a proof when the IRS verifies your independent contractor status.

Consult with a Los Angeles Business Attorney to learn more on how you can protect your independent contractor status.


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