Well, the smartass answer is that it depends. I know, I know, that is a cop out answer, but did you think there was a silver bullet, single easy solution for all people and all cases? There never is is there…

For the full answer, please read on.

Did you just get laid off and haven’t yet found the next full-time position that is a fit for you and so you are now looking for a short-term contract to help with a gap in employment until you can land another full-time position?

If that is you, then you are probably not interested in the effort, even though it is quite small, of setting up your own business.

In that case you are probably better off looking for a W-2 contract and becoming an employee of the recruiting or head hunting company. The good news for you is that those are quite readily available and almost all contracts can be done on a W-2 basis.

If, on the other hand, you are like me and plan on making Independent Contracting your permanent, or at least semi-permanent decision, then you are going to want to form your own business so you can participate in what are know as 1099 corp-to-corp contracting relationships.

I discussed in a previous post the various types of business structures and their followed that up with their tax implications in another earlier post, so check those out for more details on the structures and their tax implications respectively.

As I stated there, the best status for you, the Independent Contractor, is to have your own business. The type will depend on the factors I outlined in that previous post.

Once you have your own business, then you will have the ability to take advantage of all the benefits and tax breaks of being a business owner. Clients are also much more likely to be interested in working with you and hiring your company for a contract than they would be in directly signing a contract with you as an individual, because by signing with a company significantly reduces their liability and exposure to potential legal and payroll tax implications.

There have been a number of cases, Microsoft is the big one that seems to be quoted frequently, where some contractors weren’t paying their own payroll taxes and then the IRS reclassified them as employees and Microsoft was forced to pay a bunch of back taxes for those “new” employees.

That case (and other similar ones) has scared off many companies, especially the larger ones, from working with directly Independent Contractors.

Once again, business is a Team sport and I am not an attorney or CPA, so you should check with your Team of Advisers before taking action.

Author's Bio: 

Paul Monax
Independent Contracting Resources


I am a Mentor for Independent Contractors to help them with the Business Side of their Business.
I have been a small business owner of a number of businesses over the past 11 years.
For the past 6+ years have been as the owner of a small Independent Contracting business specializing in custom software development for large enterprise systems.

Because Being Independent Doesn't Mean You Have To Do It All Alone!