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The War Of Independents

The IRS takes aim at independent contractors. Are you safe?

This story appears in the January 1998 issue of

Think you're an independent contractor because you're homebased? Think again. Telling an independent contractor from an employee is about as easy as keeping identical twins straight. And if you're wrong, you may have broken dozens of laws and be forced to pay large fines.

Many companies love independent contractors. By hiring freelancers, businesses avoid salaries, benefits, labor laws, workers' compensation premiums, payroll and unemployment taxes, having to supply office space and equipment, and responsibility for most worker negligence. On the flip side, the independent contractor is typically glad to trade job security for the freedom of being his or her own boss. Generally, independent contractors make 20 percent to 40 percent more than they would as employees. And because they're not subject to withholding, they keep more of their money longer. At tax time, they get to take business-related deductions.

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