How can contractors recoup taxation-related expenses?
They are already indirectly paying these expenses.  They should be built into your rates. The amount per job or per hour needs to cover what would have been your salary, plus the what would have been sick, vacation, holidays, health insurance, life insurance, disability, education, overhead for office expenses, cost of accountants...and all taxes. In many companies the general rule of thumb is that they need to charge a customer 2x the employees salary to cover all this plus make a profit. If this is a side job some of these benefits will come from your main job. Some self employed get some of these benefits from their spouse.  The company has said we give you money for the work you perform, but you need to cover everything else including paying all taxes. Depending on where you live you might have to send money in more often then once a year. They are also telling you that they will be reporting the money they give you to the government so they can claim it as a business expense. So you better make sure you report it as income. "Anything is negotiable.  Clearly in the current draft of the contract the company isn't going to calculate or withhold taxes on your behalf - that is your responsibility. But if you want to calculate taxes yourself, and break out the fees you are receiving into several ""buckets"" on the invoice, the company might agree (they might have to run it past their legal department first). I don't see how that helps anything - it just divides the single fee into two pieces with the same overall total. As @mhoran_psprep points out, it appears that the company expects you to cover your expenses from within your charges. Thus, it's up to you to decide the appropriate fees to charge, and you are assuming the risk that you have estimated your expenses incorrectly. If you want the company to pay you a fee, plus reimburse your expenses, you will need to craft that into the contract. It's not clear what kind of expenses you need to be covered, and sometimes companies will not agree to them. For specific tax rule questions applicable to your locale, you should consult your tax adviser."
"There are a few sites out there that can give you some reasoning behind the request. LegalZoom, for instance.  To quote the LZ doc in case the link dies: Employee vs. Independent Contractor If a worker is an employee, the employer is responsible for paying   Social Security, unemployment insurance, Medicare, and possibly other   costs like workers' compensation insurance for the employee; at the   end of the tax year, the employer is responsible for compiling all   necessary payroll reports, including W-2 forms. If a worker is an independent contractor, the employer is not   responsible for any of the above taxes or payments, and the only added   paperwork is the issuing of a 1099 to the independent contractor at   the end of the tax year, if he or she has made more than $600 with the   employer. As Kent suggested, you should speak with an attorney (really you need one if setting up an LLC). There are a lot of companies out there these days that try to classify people as contractors rather than full-time employees as it gets them out of paying benefits and dealing with taxes. This is being heavily cracked down on, and several ""contractor"" employees are winning lawsuits to get full-time status.  If you are truly acting as a contractor, then setting up an LLC can help with a few items such as taxes and protection on certain business aspects (see comments below regarding this). It's easy and relatively cheap (cost me about $250 with extra legal advice tacked on). If you are reporting directly to a manager with the company, or really working in any way that isn't consistent with the definition of a contractor, then I'd turn down the offer and ask to be made a FT employee.  Additional information: https://www.sba.gov/content/hire-contractor-or-employee" I'm not sure 1099-MISC is what you should expect. Equity means ownership, and in LLC context it means membership. As an LLC member, you'll get distributions and should receive a K-1 form for tax treatment, not 1099 or W2. If the CEO is talking about 1099 it means he's going to hire you as a contractor which contradicts the statement about equity allocation. That's an entirely different situation. 1) Specifically, would the 1099-MISC form be used in this case? 1099-MISC is used to describe various payments. Depending on which box is filled, the tax treatment may be as of employment income (subject to SE taxes) or passive income (royalties, rents, etc - subject to various limitations in the tax code). 3) If this is the only logical method of compensation (receiving a % of real estate sales), how would it be taxed? That would probably be a commission and taxed as employment income. I suggest to get a professional tax adviser consultation on this issue, with specific details, numbers, and kinds of deals involved. You can get gain or lose a lot of money just because you're characterized as a contractor and not LLC member or employee (each has its own benefits and disadvantages, and you have to consider them all). 4) Are there any advantages/disadvantages to acquiring and selling   properties through the company as opposed to receiving a % of sales? Yes. There are advantages and there are disadvantages. For example, if you're using a corporation, you can get salary, if you're a contractor you cannot. There are a lot of issues hidden in this distinction (which I've just discussed with KeithS in this argument). You can deduct this if the main purpose of the trip is to attend the seminar.  Travel expenses relating to the attendance at conferences, seminars and other work-related events are deductible to the extent that they relate to your income-producing activities. You will need to apportion your travel expenses where you undertake both work-related and private activities. Travel costs to and from the location of the work-related event will only be deductible where the primary purpose of the travel was to attend the event. Accommodation, food and other incidental costs must be apportioned between work-related and private activities taking into account the types of activities that you did on the day you incurred the cost. You might like to consider in advance what you would tell them if they questioned this - for instance you might say (if they are true): I strongly recommend that you talk to an accountant right away because you could save some money by making a tax payment by January 15, 2014. You will receive Forms 1099-MISC from the various entities with whom you are doing business as a contractor detailing how much money they paid you. A copy will go to the IRS also. You file a Schedule C with your Form 1040 in which you detail how much you received on the 1099-MISC forms as well as any other income that your contracting business received (e.g. amounts less than $600 for which a 1099-MISc does not need to be issued, or tips, say, if you are a taxi-driver running your own cab), and you can deduct various expenses that you incurred in generating this income, including tools, books, (or gasoline!) etc that you bought for doing the job. You will need to file a Schedule SE that will compute how much you owe in Social Security and Medicare taxes on the net income on Schedule C. You will pay at twice the rate that employees pay because you get to pay not only the employee's share but also the employer's share. At least, you will not have to pay income tax on the employer's share. Your net income on Schedule C will transfer onto Form 1040 where you will compute how much income tax you owe, and then add on the Social Security tax etc to compute a final amount of tax to be paid. You will have to pay a penalty for not making tax payments every quarter during 2013, plus  interest on the tax paid late.  Send the IRS a check for the total. If you talk to an accountant right away, he/she will likely be able to come up with a rough estimate of what you might owe, and sending in that amount by January 15 will save some money. The accountant can also help you set up for the 2014 tax year during which you could make quarterly payments of estimated tax for 2014 and avoid the penalties and interest referred to above. If the employer provides housing to the employee, the employer has to identify whether it is taxable or not. If it is - the amounts would be added to the taxable income on your W2. All the withholding and FICA tax calculations will be performed based on that taxable income. If the employer fails to do that, and you get audited, you can be left on the hook for the unpaid taxes on the unreported income. In some cases, employee housing is a non-taxable fringe benefit, in others it is taxable. Your tax adviser will help identify which case applies to you. After you added in a comment that you're trying to see if you should be asking your boss to pay your personal expenses vs. giving you a raise - as I said in the comments, your personal expenses are not deductible neither for you nor for anyone else. If your boss pays your rent instead of a raise - its taxable income for you. "I heard it was illegal to begin a new business while still owing the   IRS. No such thing. ""Renovating business"" may require certain State licenses that may in turn require you to show that you've not violated any laws (including tax laws), so you may want to check that. But as a general rule - you can ""start"" a business any time you want." Another thing to consider, however, is the deductibility of business expenses.  Let's assume that the employer can legitimately hire you as a 1099 contractor.  (Would you be able to telecommute? Would you have a high degree of control over when you worked and when you didn't?  These factors also affect whether you're a true independent 1099 contractor or not.)  As a legit 1099 contractor, you're able to deduct certain business expenses directly from your income. (You can find a list of the rules at irs.gov.)  As a W2 employee, by contrast, can deduct only business expenses that exceed 2% of the your AGI (adjusted gross income).  So, you also have to consider your personal circumstances in making the calculus and comparing whether a legitimate 1099 contractor job is or is not good for you.  It's not just a comparison of what they'd pay W2 employees versus what they'd pay 1099 contractors. You have two different operations going on: They each have of a set of rules regarding amounts, timelines, taxes, and penalties. The excess money can't be recharacterized except during a specific window of time.  I would see a tax professional to work through all the details.