Sec. 1706 of the Tax Code

[Steve Litt]

On Thu, 08 Dec 2016 08:01:27 -0700
Keith Smith <techlists at phpcoderusa.com> wrote:

> David, you have brought up Sec. 1706 of the Tax Code several times
> over the years.  I am not familiar, however from what you describe it
> sounds like it prohibits a programmer from becoming a sole
> proprietor, however it sounds like it does not stop agencies from
> doing contract work.

I was a contract programmer 1984-1998, and by far, BY FAR my toughest
problem was 1706. Most companies wouldn't do business with me unless I
became their employee, which was the worst of all worlds: No expense
writeoffs, no control over my hours, no hourly pay, but no insurance
like a real employee would get.

Some companies did business with me, and I was forever worried that
the government would retroactively reclassify me as an employee and
I'd need to pay back all my deducted expenses (software, printers,
computers, travel) with penalties and interest. I was careful not to
reveal too much of my business relationships in business networking
situations: Never know when you're talking to an IRS agent or just
some jealous person who might decide to turn you in.

Nominally, 1706 didn't apply to me because I worked directly with my
customer: Not through a rent-a-pencil company. But everyone was so
scared they wouldn't even do business with me. I was contacted about
reclassification twice: Once from the state of California, and if I
remember correctly, once by the feds. This was the same fear level as
losing your health insurance or a major IRS audit: It was hell. Both
times I was declared a contractor, thank goodness.

Without 1706 I would have gotten a lot more business and that would
have enabled me to bid up my rates. It cost me dearly, and is one of
the reasons I left software development. Nowadays, when a company hires
me to come out and train their technologists in the process and mindset
of troubleshooting, I don't need to worry about the IRS saying I'm their
employee.

1706 is an abomination.

SteveT

Steve Litt 
November 2016 featured book: Quit Joblessness: Start Your Own Business
http://www.troubleshooters.com/startbiz