Q. When would a form1099 be issued instead of form W2?
A. The primary inquiries fall into three categories. Who has financial control of the job? Who can exercise control over how the worker performs the specific task? And how do the parties themselves view the relationship? When reviewing the checklist, keep in mind that the IRS will make its decision based on the whole picture, not just a single factor.

Workers are more likely to be classified as independent contractors if they:
Make a significant investment in business property (a home computer is not significant);
Pay their own business expenses;
Receive a flat fee that is not based on an hourly or similar rate;
Are not prohibited from doing work for other companies;
Can pay subcontractors to get the job done;
Are not performing services as an integral part of your regular business;
Have a contract with an enforceable liquidated damages provision;
Can make a profit;
Can suffer a loss.

Workers are more likely to be classified as employees if they:
Are given specific instructions and on-going training in how to get the work done;
Cannot work for others;
Have expenses paid by your company;
Are paid with a salary or hourly wage;
Do not have a significant investment in their trade or business;
Are an integral part of your regular business;
Receive direct reimbursement for all, or almost all, expenses;

Less important is:
Whether or not the work is performed on the business's premises;
Whether the worker has flexibility in setting hours;
Whether the relationship is temporary or short-term;
Whether the work is full- or part-time;
Whether the worker performs services for one or more businesses.


Q. What advantages and disadvantages are there for electing for S corporation status?
A. Some of the advantages are:
Your personal assets will not be at risk because of the activities or liabilities of the S corporation (unless, of course, you pledge assets or personally guarantee the corporation's debt).
Your S corporation generally will not have to pay corporate level income tax. Instead, the corporation's gains, losses, deductions, and credits are passed through to you and any other shareholders, and are claimed on your individual returns. The fact that losses can be claimed on the shareholders' individual returns (subject to what are known as the passive loss limits) can be a big advantage over regular corporations. Liquidating distributions generally also are subject to only one level of tax.
The S corporation also has no corporate alternative minimum tax (AMT) liability (however, corporate items passed through to you may affect your individual AMT liability).
FICA tax is not owed on the regular business earnings of the corporation, only on salaries paid to employees. This is a potential advantage over sole proprietorships, partnerships, and limited liability companies.
The S corporation is not subject to the so-called accumulated earnings tax that applies to regular corporations that do not distribute their earnings and have no plan for their use by the corporation.

Some of the disadvantages are:
S corporations cannot have more than 100 shareholders (but with husband and wife being considered as only one shareholder). Further, no shareholder may be a nonresident alien.
Corporations, nonresident aliens, and most estates and trusts cannot be S corporation shareholders. Electing small business trusts, however, can be shareholders, a distinct estate planning advantage.
S corporations may not own subsidiaries, which can make expansion difficult, unless the subsidiary is a Qualified Subchapter S Subsidiary (a 100% owned S corporation).
S corporations can have only one class of stock (although differences in voting rights are permitted). This severely limits how income and losses of the corporation can be allocated to shareholders.
A shareholder's basis in the corporation does not include any of the corporation's debt, even if the shareholder has personally guaranteed it. This has the effect of limiting the amount of losses that can be passed through. It is a disadvantage compared to partnerships and limited liability companies, and is one of the main reasons that those forms are usually used for real estate ventures and other highly-leveraged enterprises.
S corporation shareholder-employees with more than a 2-percent ownership interest are not entitled to most tax-favored fringe benefits that are available to employees or regular corporations.
S corporations generally must operate on a calendar year.

Some of these factors will be more important than others, depending upon the particular circumstances.