Thanks for your input. Just a question, did you discuss the switch with an accountant before doing it?
I would appreciate if any accountants can answer this too.
My assistant started off working for me on a 1099, and then I hired him full time and put him on a W-2. My CPA also said it was a red flag (especially if both were issued in the same year), but I wasn't concerned one bit, as I could back it up with facts.
I am not an accountant, and mean no offense to those that are, but I find that most accountants stick to their way of doing things, and are apprehensive about doing things differently. Avoiding an audit is a high priority with CPAs IME.
Also remember that the IRS is just like bank robbers, they go where the money is. How much resources do you think they will allocate to audit a return, if their best outcome won't end up gaining them much?
IINM the 1099 vs W2 is more of a DOL issue than it is an IRS issue.
Full disclosure: I have never been audited, and might change my tune if I ever am.