A relative of ours is pressing us to buy payroll... My husband owns a small business and is the sole proprieto

Question

with no employees. Our accountant tells us that as a sole proprietor with no employees, we cannot do payroll. Our relative tells us otherwise. Also our relative told us that we shouldn't be filing a schedule "c" on our tax return. I thought that all small business owners file schedule "C". Does anyone know about payroll or schedule "C"? I am very confused. Our relative is trying to lead us to believe our accountant is inefficeint. Please help!

My relative "sells payroll" for a living. Perhaps he's just trying to make money off of us?

this is a segment of the email i received from uncle joe.
You guys run & maintain a reputable known business. Schedule C (well, you know what it is) - I fill one out - but for itemized deductions. This cis what may very well have triggered the red flag with the IRS. And to answer your question, no. I have 2 hair salons that are sole proprietors (sole ownerships), not LP, LLC or Inc's. But you can still be a LLC or Inc as a sole owner. The other problem is that the accountant (and those before), have you guys filing your business under his social. Most people do not do this any longer - mostly doctors if any. Most businesses go online to NJ.org and get a FEIN and State EIN (same number in NJ with '/000' on the end.



Either way, there are many benefits to doing it in a traditional business format. There are even tax credits of up to $3500 for having payroll. If you guys put yourselves on payroll, and say claimed around $10K a year in earning (to start), the business

Answer 1

Short answer: No employees = no payroll. Even if you form a 'S-corp' you would still claim business income on schedule C. The only way you would not use a schedule C is if the business was a 'C-corp'. This is never worth to effort for a business small enough to have no employees. Your relative is behaving as a high pressure salesman, not as a friend.

Answer 2

It is difficult to determine what your relative is talking about from your statement. However it is true that most small businesses operate as a sole proprietorship and file their income tax returns using a Schedule C. It is possible that your relative is attempting to have you form a LLC which is a Limited Liability Corporation which are very popular but have questionable tax advantages for a small operation such as yours. In your case a LLC may still use the Schedule C anyway. The LLC will cost you several thousand dollars to set up. I would listen to your accountant.

Answer 3

If he is a sole proprietor with no employees, then there is no payroll to do! Instead of a normal paycheck, any money withdrawn from the business is considered a "draw" and not a paycheck, per se. Schedule C is the correct way to do things. There is a point where it would be beneficial to form a corporation, depending on the current profit level of the business and the tax laws in your state. Check with your accountant on that.

Answer 4

Your relative has no idea what they are talking about- you have no need for payroll, you have no employees!

Schedule C is the ONLY way to do it from a tax perspective as a Sole Prop- You really should consider incorporatiing as a sub-s corp anyway!! Right now you have very little protection personally, plus as a sub-s corp, you will gain the benefit of a lot of deductions and benefits for health care and otherwise that you will never gain as a SP.

Talk to your advisor about the benefits of incorporating, and ignore "Uncle Joe" or whoever ;-)

Answer 5

Honestly, I believe it depends on how your business is filed with the state.
Are you a...
corporation?
Limited-Liability Company?
Sole Proprietorship?
General Partnership? etc.

If you did not have to file a form with the state announcing your business (ie. sole propr) then you only have to claim income from the business on your PERSONAL income taxes. (no schedule c)

And, unless your accountant bought his degree at the local Sears, I would believe what he says. Sounds like your inlaws are trying to butt in where they shouldn't be.

Answer 6

your relative is trying to sell you a bill of goods, check with your attorney, your accountant is right, his neck is on the line every time he gives advice so it has to be right.
SHAME ON THAT RELATIVE.