<prompt> Human: During the recession, times were tough. I went from a relatively high paying career to an ultimately money-losing entrepreneurial endeavor to pretty much unemployed and unable to find work for months on end with mounting debts.A good friend owned a small business and he offered me the opportunity to work full-time on a project for a new product the business wanted to launch. We agreed to a small salary and wed renegotiate a profit equity share once the project launched if successful.I know that prior to learning about my situation, he was only lukewarm about pursuing said project. He saw it as much as an opportunity to help me out as anything. He also offered me a nice low interest loan to help take care of some of my mounting debts. Very generous. Despite, I ultimately had to file for personal bankruptcy. My friend gave me no troubles about the time I spent away to deal with those issues.I was not back on my feet by any means and the pay was low so I was hardly scraping by, but definitely in a much better situation, so all was great.Then, tragedy struck. My friend had a major life-changing emergency that forced him to be away from the business and out of town for a long and unknown period of time. It derailed the project, but he asked me to stick around and help to co-manage the daily operations of the business while he was away. He gave me a token boost in pay - though it was still relatively low and tough to live on given the high cost area where the business operated, but I was grateful.I also thought at that point the situation would last maybe be 2-3 months so I was not concerned about continuing to be on a 1099. Unfortunately, this situation took nearly a year and a half to play out. Meanwhile, the new role I had to take on required me to be in the office every single day. I went from using my laptop and software I owned to their systems. I was required to arrive by 9am every morning.After the first month or so I began to receive reprimanding phone calls if I was as few as 10 minutes late. Also, because I was on a 1099, I was not allocated sick days paid time off or any other benefits. If I called out of work for any reason which was not often it was tracked and questioned.I discussed that I was not OK with these requirements given I was on a 1099 and that if I was to be subject to them, Id have to be classified appropriately. I was told OK - Itll be dealt with it the next time Im back in town or a bevy of other excuses. Given how much he helped me out in ways he really did not need to, I gave him the benefit of the doubt and did not press as much as I should have.Things came to a head many many months later when I wanted to take a week worth of vacation and received a lot of resistance. I pressed the issue of the 1099 classification never being addressed and was finally told that the company would reclassify me but if they did, I would receive a substantial pay cut to make up for the taxes and benefits theyd have to pay.It became obvious there there was no intention of reclassifying as the wage I was proposed would not have been livable for the area nor anything close to a fair wage for the role.So, I did the only other thing I could do and began seeking other employment which took me many months to find.So here I am, a few years later almost back on my feet. However, I have still not filed my 2013 or 2014 tax return. I do not know how to proceed.The portion of the time I was legitimately a 1099 employee was 2012 and I filed that tax return accordingly with itemized business expenses. The W2 responsibilities began in January of 2013 and the discussion about reclassifying began end of March April. I was not able to leave the job until mid 2014. I know for a fact the 1099 was filed with the IRS so they are aware of the income and the time is running out to pro-actively confront the issue.Do I just go ahead and file, take the standard deduction and take it on the chin? I do not have much in the way of savings so Id have to work out a payment plan and would be paying this off over a very long period of time.Or do I liberally calculate my business expenses to match the 1099 expenses with the 1099 income ? How much trouble would I run into down the road for that? In my 2012 return - I had a fair amount of mileage related to the 1099 income. Obviously Id be stretching to have anything close in 2013 given the requirement I have face time in the office 8 hours a day.I considered filing an SS8 but I know itll spell the end to more than a few friendships. Its also sure to draw the ire of many of the long-term employees at the company who are paid appropriately and would have hard time finding other work if the business were to go under its a very small company and I know theres at least 1 other special arrangement with a highly paid employee that the IRS would not approve.Any advice is greatly appreciated. I dont really have the funds to speak with a tax accountant.  <response>: You raise a number of issues. Lets go through them one at a time: Do I just go ahead and fileYes, always file on time. The longer you wait, the worse its going to be. Or do I liberally calculate my business expenses to match the 1099 expenses with the 1099 income ? How much trouble would I run into down the road for that?You should accurately claim your expenses, and not a dollar more. Anything else is tax fraud. If you claim it, you better have proof to justify it in case you get audited. Be very, very, very careful claiming mileage deductions in particular, as the rules around those are very specific. I considered filing an SS8From a tax standpoint, the only thing this would save you is the 7.5 part of FICA that is the employers responsibility.The bigger issue here is whether your employer withheld any income tax at all from any of your paychecks. If they didnt withhold any income tax, youd still be responsible for paying all of that plus your 7.5 share of FICA, even if you did convince the IRS that you should have been paid W-2. Your first step right now is to go and figure out what your actual tax liability for 2013 and 2014 is. I expect it will be thousands of dollars. Even if you cant afford to pay the tax bill, you need to file the actual taxes ASAP. After thats done, you can try to work out a payment plan with the IRS. But again, step 1 is filing your taxes! 