My husband is a "technical sales representative" for a company. He has a contract with his company that includes a "no-compete" clause if he should quit, he will be paid commission with a monthly draw and he is charged for all expenses, and if he would quit he must pay back any amount he is in the "hole". He and the other saleman have to split all of the branch office expenses. His employer pays up-front but then charges them back for branch office staff salaries, benefits, rent, mileage, office equipment, depreciation, utilities, everything. My husband is going to receive a W-2 as an employee for his draws and then only get to deduct 2% of his expenses. It appears his employer is taking the deductions for the expenses, even though the salespersons are being charged for them. My husband is in the "hole" $67K (commissions-draw/expenses) but we will be paying taxes on income of $48K even though his expenses outweight his income. Could someone explain if his employer is right?
2007-11-20 15:51:51 · 5 answers · asked by Tammy O 1 in Business & Finance ➔ Taxes ➔ United States
GET A TAX ACCOUNTANT AND SEE WHAT HE CAN WRITE OFF .
2007-11-20 16:10:32 · answer #1 · answered by D.C. 6 · 0⤊ 0⤋
I don't think you have a problem there. Bear in mind that, due to receiving a W-2 for compensation, your husband is limited to deducting expenses (not 2% as you indicate) which EXCEED 2% of his AGI. Hence, the first 2% is not deductible, but amounts OVER that are deductible.
The offset to that is that, in receiving a W-2, the employer is paying half of his SS contribution. If you want your husband to be an independent contractor, expect to pay the full roughly 15% of SS and Medicare which the self-employed are required to pay.
Do the math.
2007-11-20 22:59:57 · answer #2 · answered by acermill 7 · 0⤊ 0⤋
If you think he is an independent contractor then fill out form SS8 and let the IRS decide. Usually it works the other way where someone is an indepent contractor and wants to be an employee.
By the way unless you husband is a accrual basis taxpayer his being 67k in the hole won't help you, because he must claim his income when he receives it and his expenses when he pays them.
You could always claim the business expenses on form 2106 which would be subject to a 2% floor, but if you can itemize it will help you.
2007-11-20 16:20:26 · answer #3 · answered by Charlie & Angie G 4 · 1⤊ 0⤋
1. If your husband will receive W2, that means that the employer is withholding social security and medicare taxes at 6.2% and 1.45%. And the employer is paying an equivalent amount from his pocket.
2. An independent contractor pays employment taxes at 2 times of (6.2% plus 1.45%), which is at 15.3%. So in this respect W2 is better than 1099 because employer is paying 7.65% more.
3. A W2 employee can deduct job related expenses if he/she itemize the deductions. All the deductions over his/her 2% of AGI are allowed. That is the allowed deductions = your claimed deductions minus 2% of your AGI.
So it is not that you get to deduct only 2% of the expenses.
2007-11-20 17:37:00 · answer #4 · answered by MukatA 6 · 0⤊ 0⤋
It sounds like he got involved in a shady business. Is this a good reputable company, (well known)
He might be a contractor and they let him use the space for a fee. That is what it sounds like. Either way. Looks like the employer is making all the money here for his work
2007-11-20 16:01:32 · answer #5 · answered by macuser137 2 · 0⤊ 0⤋