employer provides computer for IC

A person works as an employee for a software company. He eventually takes a different job closer to his home. Upon leaving the first job, the employer 'gifts' him a laptop computer plus the software necessary to access that company's network and do further programming, and asks him if he will occasionally do some programming for them. The company does not want the computer back. He is under no obligation to do further programming for them.

The person now works for the former employer as an Independent Contractor, doing occasional work for them in the evening and/or weekends when he is not at his new full time job. He never goes to the old employers workplace, attends meetings, etc. He is occasionally given small programming jobs to do and he charges a fixed hourly rate. The employer does not dictate times, hours, etc. He only uses the laptop computer for his Independent Contractor job.

How is the 'gifted' computer treated for tax purposes?

Will/should the old company include the value of the computer on a 1099?

Does the Independent Contractor have to pay SS and Medicare taxes on the value of the computer?

Reply to
ybotka
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My opinion: It would have to be wages (severance agreement?). There seems inadequate evidence of it being payment for future independent contractor services, which is the other option. There should be a case for using actual value (to the IC), rather than the company's cost, which might very well be higher.

In any case, it's earned income to the IC.

-- Arthur L. Rubin AFSP, CRTP in Brea, CA

Reply to
Arthur Rubin

Although the company probably would have depreciated it. Depending on how old the computer is, its FMV could be pretty low.

Reply to
Barry Margolin

It's certainly earned income, but it could be consideration for his holding himself out to be available rather than wages. It depends on just how the deal is structured, but the default would be wages.

In any case, if it is used exclusively for business purposes, it can be written off on OP's Schedule C.

Reply to
Stuart Bronstein

Depreciation for tax purposes is unrelated to fair market value. And OP's taxable gain would be based on FMV, not on depreciated value.

Reply to
Stuart Bronstein

The OP said he's under no obligation, so he's not holding himself out to be available. It seems like they're just making things more convenient IF he becomes available for future work -- it was easier for them to give him his old computer rather than configure a new one every time a contract comes up.

Reply to
Barry Margolin

Although the company probably would have depreciated it. Depending on how old the computer is, its FMV could be pretty low.

============= Although I concur that the value of the computer would be included in severance (i.e. wages), I point out that such should be reported on a W-2, and thus it makes no difference whether the recipient becomes an IC later in the year or not. The IC will NOT be paying SELF-EMPLOYED FICA on the computer -- it should already be paid via the W-2 reported amounts.

What is of greater concern here is whether there is a bona-fide IC relationship here. The lack of [former] employer control may imply such, but the former employment relationship won't be disregarded either, especially as the computer was given with the implication of future work product being generated.

Reply to
D. Stussy

I remember once working for a company that laid off just about everyone in a department, then immediately hired most of them as contractors. I'm under the impression that this isn't uncommon. Are you suggesting that the IRS would consider this a sham?

Reply to
Barry Margolin

While that may be considered evidence of an employment relationship, it is not part of the legal test to determine whether someone is a contractor or employee.

The actual test revolves around the amount of control the worker has over his own work product, schedule etc. That is determinative, and implications won't change that if the evidence on control is clear.

Reply to
Stuart Bronstein

The fact alone that they laid people off and then contracted with them immediately after might indicate that the transaction is a sham. But it is not evidence of, and is not part of the test to determine whether someone is an employee or a contractor.

Reply to
Stuart Bronstein

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