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> Someone had asked if
> independent contractors usually buy all their own software.
> A couple of you
> replied and said that sometimes a client might provide the
> software to the
> IC if it is a short term project and the IC probably won't
> use the software
> again in the future.
This can be a tricky issue with certain clients. The State of California
requires that their equipment be used for technology projects because they
want to control whether licensed software is used. There are stipulations
in state contracts that if the contractor's software is used, then it will
have the proper license but that the state should get an opportunity to
procure and provide the proper software. The state also also requires that
state-owned equipment be used for security and virus reasons. It will not
change an IC's status that the tools rules are set by the client because the
contractor is still in control of the work.
Whether client-provided software is used after the contract has ended is
irrelevant to the IC's status. The IC will not be able to keep the software
license because it was not purchased for the IC, but for the client.
Other clients may have different rules about software and equipment, but
licensing and security are generally the determining factors for whether an
IC uses client tools or personally-owned tools.
> My question is, doesn't it count against your standing as an
> independent
> contractor with the IRS if your clients provide some or all
> of your tools
> for you? Or does this pertain only to physical equipment?
The IRS looks more to where you perform the work and the level of
supervision that is required for the work, rather than who owns the tools
that are used on the job.
> I am taking on my first project as an independent contractor,
> and am trying
> to be as careful as possible about establishing my status as
> an IC with the
> IRS - especially because I won't be renting an office or
> serving multiple
> clients yet.
>
> Any insights?
Ask the client if they require you to use their tools or if you can bring
your own. These things are negotiated in the contract. If you are amiable
to using their tools, then they might oblige and provide you with what you
need to do your job.
For your IC status, you need to be aware of the level of control that the
client has over your work. Are they telling you how to do your job? Do
they set your work hours? Must *all* of your work be performed on site?
According to the IRS in response to a FAQ from employers, "Who is an
Independent Contractor? A general rule is that you, the payer, have the
right to control or direct only the result of the work done by an
independent contractor, and not the means and methods of accomplishing the
result."
This does not mean that the IC cannot use the employers tools, only that the
employer cannot control how the job gets done.
The IRS with the SSA also developed the 20 factor test to determine IC
status and said this about it in 1996, "Over the years, the IRS and Social
Security Administration compiled a list of 20 factors used in court
decisions to determine worker status. These 20 factors were eventually
published in Rev. Rul. 87-41 and are sometimes called the Twenty Factor
Test. Remember, however, that this Twenty Factor Test is an analytical tool
and not the legal test used for determining worker status. The legal test is
whether there is a right to direct and control the means and details of the
work."
Talking to an accountant is a good idea if you need more concrete
information about your IC status. Employers that mis-classify employees as
ICs will suffer penalties if they get caught. ICs don't seem to suffer
risks from mis-classification, but do suffer risks from not paying all
appropriate taxes.
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