The Small Business Tax Help Blog

Posts Tagged ‘freelance’

Question: Independent Contractor And Taxes?

I Know being an independent contractor that I do need to file taxes, question is, how do I go about doing this correctly?. If someone can give me a step by step process and a list of the forms I will need..it will be appreciated. I have used search engines to help answer some of my questions but their written very confusing.

TIA

Answer: 1040 and your 1099 form showing your income.

Listing of any tax payments you made.

www.irs.gov

Determining the Legal Status of Your Workers: Independent Contractor vs. Employee

Question: Small Business Tax Audit?

My business that was closed in 2009 is currently under audit. My partner is non-collectible I am considered collectible. We owe 25,000, will the IRS just come after me? I currently own no property besides a old car, my partner owns a house and newer car. Any advice or tips on how I should handle this would help?
We were an L.L.P. and it is payroll tax….
He was determined non-collectible due to his amount of income. His parents are helping him out with money and that’s why he is able to survive

Answer: Mr Reliable claimed that IRS audits cannot be handled on your own and require professional representation. Not completely true. I’ve met with a number of people who successfully defended themselves against an IRS audit. This is certainly possible, however I have to agree that more often than not self-representation backfires, and these people come to hire me after they already messed up. And I have to undo the damage.

That said, what you’re dealing with is a special case, and this type of cases is NOT a do-it-yourself project. I’m not talking about your audit – the audit you may or may not be able to handle yourself. I’m talking specifically about owing payroll tax. This is where the IRS is the most aggressive, and you really do need professional help, in my opinion. I will mention just couple points, but please do yourself a favor and hire a pro.

The issue at stake is called Trust Fund Penalty – see my link below. It is when you were supposed to take out payroll taxes from your employees’ paychecks and turn these taxes over to the IRS. When it’s not done, the IRS gets real mad, because this is not even your taxes, but your employees’ taxes. As punishment, the IRS automatically adds 100% penalty which instantly doubles what you owe, before you add interest which makes it even worse.

And while the tax itself is assessed against the company, the penalty is assessed against so-called responsible persons, and this is personally you and your partner. Unfortunately, no matter what your partner’s situation is, you’re responsible for 100% of the Trust Fund penalty. This is why you really are in a tough spot, and the IRS is very serious when dealing with this type of debt. It is possible to settle these cases, but I would not attempt it on your own.

Now, you mentioned audit, and I assume you’re talking about a standard audit where you’re asked to prove your business expenses. This is a very different game and normally is not related to payroll tax problem. Payroll tax and trust fund penalty is not an audit issue, it is collection issue.

Michael Plaks, EA, Houston TX
www.MichaelPlaks.com

Penalty for Late Filing

Question: If I make roughly 11,000 in self employment income how much federal income tax do I owe?

This is my first year in business for myself and I know about self employment 15.3% tax but the federal income tax confuses me. I don’t really have any expenses to write off for my business and I’m single and 24 years old. I’m obviously going to be talking to a professional come tax time… But I want an estimate to alleviate stress. Any help is appreciated!
Aren’t I a likely audit target for having that much deduction on a schedule c? I’m not hiding anything but I don’t want to deal with an audit at all because they don’t sound fun. And I thought you couldn’t take a standard deduction if you were self emloyed…

Answer: 11,000 less 1/2 of SE tax, less $5700 standard deduction, $3650 personal exemption leaves you $872 of taxable income or about $87 in income tax.

Add that to the $1554 SE tax and you’ll owe $1641.

The forms aren’t that difficult if you have nothing to deduct–so do them yourself and save $300.

Self Employed

Question: Am I responsible for tax witholding for a hired independent contractor in new jersey?

I have a new business and will be hiring an independant contractor. I have a agreement ready and he is infact an independant contractor, not a W2 employee. Normally you don’t withold taxes for independant contractors, but someone said that for new jersey you have to? Does anyone know what the new jersey specific rule is or where I can find it?
For all of you worried about misclassifying, I have looked into it, he works his own hours at his own location, gets paid on a per job basis, and offers the same service to the public.

Answer: Get a W-9 from him with his social security number otherwise you have to make backup withholding on what is paid.

The fact that you have an ‘agreement ready’ doesn’t make the worker an independent contractor. If you have the right to control how the job is done the worker may be an employee. If you misclassify a worker, you can be held liable for taxes you should have withheld and you would also be responsible for medical bills if he gets hurt on the job. Review IRS Form SS-8 http://www.irs.gov/pub/irs-pdf/fss8.pdf for guidance.

Mercury Computer Systems Selected To Deliver Hyperspectral Imaging System For Multi-INT Wide Area Surveillance Equipment

Mercury Computer Systems Inc., a trusted ISR subsystems provider, announced that it has been selected to provide a SWaP-optimized hyperspectral image processing and storage subsystem for multi-INT wide area surveillance equipment used on unmanned aerial vehicles

self employment tax advice for IT Contractors in London E14

Question: What’s the easiest way to reduce self employment tax?

Can I still put money in an IRA for my 2007 taxes?

And if so, can I get the savers credit with another credit to reduce my taxes even further?

I am under the income limit to qualify for the savers credit.

Any tips appreciated!

Answer: SE tax is calculated on net business profit period. Nothing changes that. IRA can potentially lower your income tax. SE tax is 15.3% and is social security and medicare payments not income tax. When you work for someone you get 7.65% taken out of your check and your employer matches that 7.65%. When you work for yourself you have to pay the whole 15.3%. The savers credit will only lower income tax, not SE tax. There are only 3 things to offset SE tax and they are called “refundable credits”. The Earned Income Credit, The Additional Child Tax Credit, and Excess Social Security Taxes paid on having 2 or more jobs and exceeding the annual maximum contribution. Sorry. And yes, you can still put money in an IRA before you file your taxes, it will lower your adjusted gross income and possibly your income tax – not your SE tax.

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Tax Tips for the Self-Employed – TurboTax Video 2010