She Thought They Were Contractors—The IRS Disagreed – It started with good intentions.
She Thought They Were Contractors
A growing business owner—let’s call her Sarah—was scaling fast. She needed help but wasn’t ready to hire full-time employees. So, she brought on a few “1099 contractors” to help manage client work, operations, and marketing.
No contracts. No benefits. Just a handshake agreement and a few emailed invoices.
For a while, everything ran smoothly… until it didn’t.
Months later, Sarah received a notice from the IRS. An audit had been triggered, and her classification of workers was under review. Turns out, the individuals she considered “contractors” were performing work under her direction, on her schedule, with no real independence—classic red flags for employee status.
The result? Over $20,000 in back taxes, penalties, and interest—plus a severed relationship with her accountant, who hadn’t caught the risk early enough.
The Real Cost of Misclassification
Sarah’s mistake is more common than you think. In the rush to grow, many small business owners assume that classifying someone as a contractor is a safer, cheaper, or more flexible solution.
But the IRS doesn’t look at labels—they look at facts. And the consequences of misclassification can be significant:
- Back payroll taxes (Social Security, Medicare, Unemployment)
- Interest and penalties for late payments
- Legal exposure for unpaid benefits or wrongful classification
- A massive headache during an audit
How MSM Advisors Helps You Get It Right
At MSM Advisors, we work closely with small business owners to get ahead of issues like these before they snowball. Our proactive accounting and advisory services go beyond basic bookkeeping to ensure every decision—especially around your workforce—is compliant, strategic, and safe.
- We review your worker relationships to determine if you’re at risk of misclassification.
- We help you establish proper onboarding processes and documentation.
- We collaborate with trusted HR and legal partners when deeper guidance is needed.
- And we keep you aligned with ever-changing IRS guidelines so you can focus on running your business.
It’s Not Just About Avoiding Mistakes—It’s About Building Smarter
As your company grows, so do your responsibilities. MSM Advisors is here to step up your level of service—helping you plan for the future, reduce risk, and make confident decisions with clear financial insights.
Whether you’re in Lawrenceville or the greater Georgia region, we specialize in helping businesses in the $10–15 million range with higher-end services that support both corporate needs and the financial health of the owners.
Don’t wait for the IRS to flag your business. Let’s make sure your structure supports your success.
Ready to protect what you’re building?
Contact MSM Advisors today.
https://msmadvisors.net
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