tax question for a new business owner?

Question

I am a new small business owner and has a few workers. We all work from home. I have a EIN #, but I am wondering. If I want to make them a 1099, as independant contractor, what forms will I need to fill out, and what forms do I need to send to my workers to fill out? Also, If I want to change all this up and make everyone a W2 employee, What would I need to do. Please Help Me, this is driving me nuts

Answer 1

I would really recommend discussing this with a CPA. Unfortunately, as small business owners, we don't get to decide if workers in our business are independent contractors (IC) or W2 employees (Emp.). Despite what a previous answer said, all of these issues are federal issues. There are state ramifications and if you have employees you need to check with your state employment agency. As far as IC vs. Emp., if you have IC's then you need to get W4's from them to collect their SS number or Tax ID. Then each year, if they are paid above the federal minimum, then you need to send them 1099's. If they are W2 employees, then you need to determine how often you must deposit taxes. You will be responsible for withholding and paying federal income tax according to their W2, social security (their portion as well as the company's), medicare (their portion as well as the company's), Federal unemployment tax and any applicable state employment taxes. Now you're talking about huge bookkeeping requirements, quarterly 941 filings, annual 940 filings, daily, weekly, monthly or annual tax deposits and costs out of your company's pocket ( you have to pay social security, medicare, FUTA and other taxes). That's not to mention needing worker's compensation insurance which you might be required to carry.

All in all, if your workers meet the requirement for independent contractors, keep them that way. Otherwise you will have a lot of regulations to deal with. Again, you should consult with a CPA. I'm only a small business owner who has employees and is in charge of all of the state and federal filings.

Answer 2

They have an accountant (like myself) that will keep track of their income and expenses. Deducting the expenses from the income will give you a bottom line (Profit or Loss). Small businesses that have a bottom line of less than $250,000 will not see a tax increase under Obama's tax plan. Also, please remember that most small businesses are S-Corps, partnerships or sole proprietorships. This means that any loss or profit will go on their personal tax returns through a K-1 or Schedule "C". There, the profit or loss will be blended in with other income or losses, such as W-2's and capital gains/losses. Then, any Schedule "A" deductions, such as house interest and property taxes, will then be deducted along with other deductions and credits allowed by the IRS for individuals. Finally, the tax rate for individuals, whether single or married, is much less than big business tax rates. Please note than many large businesses are S-Corps, which allow the profits or losses to be split among the shareholders. Only C-Corps are taxed at the higher corporate rate. These corporations are usually publicly traded on Wall Street or have foreign shareholders which make them ineligible to be S-Corps under IRS rules. Sorry for the long answer, but I just wanted to explain that Obama's plan is a good one. One that will not hurt the middle class self-employed.

Answer 3

Ask your accountant. The majority of what you need to do is state-specific...