"Consulting in the practical sense can be anything," it says on theIRS website . "It is a common buzzword in the business world. Many people call themselves a consultant, when in reality they may be a broker, a salesperson, a retailer or engaged in a business which is a hybrid. One of the issues facing the industry is an influx of new entrants, many of them managers and executives who have been downsized. They open up shop independently or in collaboration with others. For many displaced workers, consulting is something that they say they are doing in the interim while searching for a job."
But if this describes you, or if you use independent consultants in your business, you need to be aware of some pitfalls and make sure what you're doing meets IRS guidelines. The IRS uses three characteristics in evaluating the relationship between businesses and workers. These are:
- Behavioral Control--does the business have a right to direct or control how the work is done through instructions, training or other means?
- Financial Control--does the business have a right to direct or control the financial and business aspects of the worker's job?
- Type of Relationship--how do the workers and the business owner perceive their relationship?