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03 - Accounting & Taxes Accounting Help & Tax Strategies

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  #1  
Old 12-16-2006, 12:52 PM
shadow shadow is offline
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Default how to tax for employee under $600

this is still my first year in business as a sole prop. i did a job which needed help from an employee. i had a my cousin give me a hand and we decided we would split $1000 for the job. its been awhile since i had to deal with employees and remember there is something concerning taxes and paying out less than $600 for the year. also how does it work with me having to pay taxes for the $1000, do i pay on the entire $1000 or would i only pay on my $500 because of paying an employee. also i dont have a clue about how to do this in quickbooks.
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  #2  
Old 12-16-2006, 06:09 PM
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Quote:
Originally Posted by shadow
i did a job which needed help from an employee. i had a my cousin give me a hand and we decided we would split $1000 for the job. its been awhile since i had to deal with employees and remember there is something concerning taxes and paying out less than $600 for the year.
The $600 or more reporting requirement is for a 1099Misc to an "Independent Contractor" (self-employed person) and not for an "employee". If you pay $1 to an "employee" they get a W2 reported to the IRS with you paying payroll taxes.


Quote:
Originally Posted by shadow
also how does it work with me having to pay taxes for the $1000, do i pay on the entire $1000 or would i only pay on my $500 because of paying an employee. also i dont have a clue about how to do this in quickbooks.
As a sole proprietor you report your $1,000 on form 1040 Sch-C and subtract/deduct any expenses you have in doing the work. Expenses would include any payment to an employee (W2 gross) or independent contractor (1099 if $600+) so you would have a deduction on 1040 Sch-C for $500 plus any other expenses. It would be desirable if you have at least another $101 in other expenses (auto expense, supplies, telephone, travel, etc.) as if your profit is less than $400 you do not have to pay the 15.3% self-employment tax (form 1040 SE).
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Old 12-16-2006, 07:59 PM
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well actually this is not an employee, we just did the job together for his dads company and we were paid from him through my company so we business owners could pay the proper taxes and have the proper deductions. so i could have him do a 1099misc and consider him an independent contractor, nothing has been paid to him yet.

so the $500 paid to him would be considered non-taxable and i would have to pay anything on it?
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Old 12-16-2006, 08:01 PM
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i forgot to say thank you for the help oldjack. youve answered alot of my questions ive had so far.
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Old 12-16-2006, 11:34 PM
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I thought you might call him self-employed "independent contractor" rather than an employee. You should never use the term employee unless you are doing payroll with payroll taxes.

I did not say the $500 you pay him is non-taxable... I said it was a tax deduction from the $1,000 on your 1040 Sch-C. And it is your company that issues the 1099Misc to him so that the IRS knows he has to pick it up as income. Of course, since it is for less then $600 you don't have to issue the 1099 but it is still taxable income to him that he should report on his 1040 Sch-C tax return.

You are welcome shadow.
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Old 12-17-2006, 08:24 AM
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so there is no way around me paying taxes on his half of the $1000. so how much do you think i will end up paying on his $500? im a sole prop so roughly 35% of $1000=$350-deductions=?
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Old 12-17-2006, 01:01 PM
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no, no, shadow, you are not understanding. Look at form 1040 Sch-C (sole-prop business form) that will be attached to your 1040 tax return. You will report $1,000 in revenue (Part 1, line 1) and take a deduction for all expenses (Part II) including $500 paid to a contractor leaving a "net profit" of $500 or less. You will pay income tax on the line 31 "net profit" ($500 or less) plus self-employment tax on form 1040SE since your "net Profit" is more than $400. Please look at the form. http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
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  #8  
Old 12-17-2006, 05:19 PM
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got it! thanks oldjack. i actually kinda knew that, i must have had a brain fart this morning. this was not my only income through my business this year so the under $400 profit will not apply, ive made well over $5000 through this business in the last couple months. what would be considered profit i have no clue but im assuming it is no where near the $400 mark.
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  #9  
Old 12-17-2006, 11:51 PM
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You are welcome shadow and good luck with the taxes.
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