Scenario 1: Walter Does It His Way
Jonathan operated a landscaping business as a sole proprietor. Jonathan's business picked up in the spring and summer, so he asked his friend Walter to help him. After doing some research, Walter determined that he could become an employee or act as an independent contractor. Walter was excited about the opportunity; however, he wanted to reach an agreement that would provide him the best tax benefits. How does an employee differ from an independent contractor? What status should Walter choose? Explain your reasoning.
Scenario 2: Cleveland's Conflict
Cleveland really admired Babe Reilly, the new pitcher for the city's professional baseball team. Reilly was just 19 years old, yet he was the team's number-one pick. Cleveland knew that Reilly needed an agent; therefore, Cleveland devised a scheme so that he could be Reilly's agent. Cleveland would just present himself as Reilly's agent to a company that wanted Reilly to advertise its sporting gloves. Cleveland had a friend that worked for the board of that company. Cleveland reasoned that once Reilly became aware of the lucrative deal that Cleveland secured on his behalf, Reilly would officially appoint Cleveland as his agent. Is this proper behavior to establish an agency relationship? Compare authorization of an agent by appointment and by ratification.
1. An employee is on payroll and pays taxes through his/her paycheck. The appropriate federal taxes, social security taxes, medicare taxes, and state and local taxes are withheld directly by the employer. The main advantage is that as the worker works, the taxes are automatically withheld at the proper rate based on the taxpayer's status (single or married), and based on the number of exemptions claimed. At the end of the year during tax time, the employee will file his/her W-2 with his/her income taxes and will either receive a refund, owe additional money, or have zero tax liability based on the amount of withholding and the total amount of earned income.
As a sole proprietor (SP), Walter would keep track of all of the money he receives as pay from Jonathan. At the end of the year, he'd have to file a Schedule C with his 1040 and claim all income received along with all ...
This solution provides detailed answers for two business law scenarios: (1) Walter Does it His Way, and (2) Cleveland's Conflict.