LLC must use W-2s?

[pasdetrois]

What is the name of your state?What is the name of your state? VA

I am sole owner and employee of an LLC. A potential new client has demanded that I begin using W-2s for myself, which I have never done.

My questions are:

Do solo-member LLCs ever use W-2s, and if so, what are the benefits or disadvantages (financial and administrative)?

Or, does the IRS not want W-2s in this situation? In other words, is this new client asking me to do something the IRS does not provide for or allow?

Aren't all of my clients supposed to issue 1099s, and are those 1099s for my LLC or for me as an individual?

Thanks!

 

[Rhubarb297]

What is the name of your state?What is the name of your state? VA

I am sole owner and employee of an LLC. A potential new client has demanded that I begin using W-2s for myself, which I have never done.

My questions are:

Do solo-member LLCs ever use W-2s, and if so, what are the benefits or disadvantages (financial and administrative)?

Or, does the IRS not want W-2s in this situation? In other words, is this new client asking me to do something the IRS does not provide for or allow?

Aren't all of my clients supposed to issue 1099s, and are those 1099s for my LLC or for me as an individual?

Thanks!

If you're an employee of the LLC I would think you should be using a W-2. It sounds a bit like you have formed an LLC but want to treat it as a sole proprietorship. You can't have your cake and eat it too.

 

[anteater]

What is the name of your state?What is the name of your state? VA

I am sole owner and employee of an LLC. A potential new client has demanded that I begin using W-2s for myself, which I have never done.

My questions are:

Do solo-member LLCs ever use W-2s, and if so, what are the benefits or disadvantages (financial and administrative)?

Or, does the IRS not want W-2s in this situation? In other words, is this new client asking me to do something the IRS does not provide for or allow?

Aren't all of my clients supposed to issue 1099s, and are those 1099s for my LLC or for me as an individual?

Thanks!

This is rather confusing. Are you saying that the client wants to treat you as an employee of the client and issue you a W-2? As opposed to treating you as an independent contractor and issuing you a 1099?

 

[pasdetrois]

If you're an employee of the LLC I would think you should be using a W-2. It sounds a bit like you have formed an LLC but want to treat it as a sole proprietorship. You can't have your cake and eat it too.

Please see my response to the other message below.

 

[pasdetrois]

This is rather confusing. Are you saying that the client wants to treat you as an employee of the client and issue you a W-2? As opposed to treating you as an independent contractor and issuing you a 1099?

Sorry for the confusion. I elected to treat my LLC as a sole proprietor for tax purposes -- not a corporation or partnership (the IRS requires sole LLCs to make a distinction via an election form), which means for tax purposes all my clients issue me a 1099, which I in turn file with my tax return.

My potential client is very confused, I think. It may be a case of not fully understanding all the varieties of LLCs.

What I should have asked is whether this client can ask me to use W-2s, when I have elected instead to work as a sole proprietor LLC that uses 1099s. In other words, isn't this non-sensical? When I called IRS yesterday the guy told me no one had ever asked him this question before, and he had to think for a minute. Finally he said that since the law requires that my clients issue 1099s, there is no justification for anyone asking me to use W-2s. Why would I do both, if the law requires a 1099?

BTW, the client said that they make this request to protect themselves against a consultant failing to pay its taxes. But the IRS guy told me that the only one liable for my tax behavior is me.

 

[anteater]

My potential client is very confused, I think. It may be a case of not fully understanding all the varieties of LLCs.

BTW, the client said that they make this request to protect themselves against a consultant failing to pay its taxes. But the IRS guy told me that the only one liable for my tax behavior is me.

That is an understatement.

About the only thing the potential client should be worried about is that you meet the test of being an independent contractor so that the IRS can't come back to them and argue that you were actually an employee and the potential client should have been paying their share of the FICA taxes.

As long as you are an independent contractor, the only concern of the potential client should be whether they are required to send you a 1099-MISC (as they should in your case) or not (in the case that you had formed a corporation.)

The IRS is sure right -- you are responsible, and that goes for whether you get a W-2 or a 1099.

 

[pasdetrois]

Thanks so much for this input. I have been 100% self-employed for 20 years, so these issues are not new to me. It's the LLC arena that many of my clients do not understand.

I will ask an additional question: can a client demand that I work fulltime on their site for a designated period of time, say four months? I continually battle with clients trying to demand that I work onsite fulltime, when the work can be done in my home office (I'm a writer). I'm confused as to when and if it's OK. For example, if my client has a federal contract that requires onsite support (onsite at the federal agency), it would seem that the client's employees could be told to work onsite fulltime, but not an independent contractor like myself.

Is there any time or situation when my clients can demand I work outside of my home office fulltime?

Thanks again.

 

[anteater]

Somebody more knowledgeable on how the IRS actually puts into practice its "Independent Contractor 20 Points of Light" might be better to answer this, but.......

I would say that the demand to work fulltime onsite would not necessarily invalidate the client-independent contractor relationship. If other elements of the relationship -- a contract for a particular project for a specific period of time, no employee benefits, the contractor having other clients, etc -- indicate that it is a client-independent contractor relationship, it seems to me that it would be OK.

After all, it is the totality of the evidence that is important. Not that just one or two points favor an employer-employee relationship.