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03 - Accounting & Taxes Accounting Help & Tax Strategies

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Old 03-14-2007, 01:31 PM
bbusick bbusick is offline
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Default Sole Proprietor: How to pay sub contractor

I have been a sole proprietor for 6 years, typically doing websites for small organizations, non profits, etc. I recently was selected for a large project exceeding 25K and I partnered with an established S. corp to complete the project.

Since I was the point of contact, this S corp will be working under the umbrella of my company for the duration of this project. My questions are as follows:

-How do I legally ‘treat’ my partner on this project? Do I have to submit a W2 to them at the end of the year?

-What are the tax implications for company being the firm that the client writes the final payment too?

-Should I change my business from a sole proprietor to an LLC or S to ease some of the tax implications? I am planning on dealing with larger projects such as the one described moving forward.

Any help you could provide would be appreciated.
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Old 03-14-2007, 03:45 PM
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OldJack OldJack is offline
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Quote:
Originally Posted by bbusick
Since I was the point of contact, this S corp will be working under the umbrella of my company for the duration of this project. My questions are as follows:

-How do I legally ‘treat’ my partner on this project? Do I have to submit a W2 to them at the end of the year?
Your "partnership" is probably not a partnership in terms of a legal entity or tax purposes. I expect you have what would be considered a joint venture or more likely a contractor-subcontractor relationship.

If you open a joint checking account in a partnership name you would be partners doing bookkeeping and file a partnership tax return passing profit to partners.

If you each pay your own share of expenses and receive your own billing income you would have a joint venture and each would report their own income and pay there own taxes. There would be no legal entity to file anything.

If you have the contract and receive all the income with paying a portion to the other person (S-corp) then you have a contractor-subcontractor relationship.



Quote:
Originally Posted by bbusick
-What are the tax implications for company being the firm that the client writes the final payment too?
If you are a contractor-subcontractor relationship, you as the contractor simply pay the S-corp subcontractor whatever the subcontractor invoices you for his work/share. You would receive income and deduct payments to the subcontractor as business expenses. Since the sub is a corporation you do not have to give any 1099 for the payments.


Quote:
Originally Posted by bbusick
-Should I change my business from a sole proprietor to an LLC or S to ease some of the tax implications? I am planning on dealing with larger projects such as the one described moving forward.
Your business entity should be decided after discussing your overall business and personal information with a good CPA that can tell you how much you might save with each type entity and if it is worth the cost and trouble.

25k may not be enough to make it worth changing your business entity.
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