Are business owners liable for independent consultants taxes?

Question

I'm own my own business and would like to have independent sales rep / consultants to help promote my business. They would get anywhere between 25% - 30% commission and personal discounts. And allowed to sell anywhere they wish - online, ebay, in person, home parties, etc.. As a business owner, what do I do about taxes? Do I file it for them? Or do they file it themselves? Where do I find the forms?

Answer 1

Independent contractors are responsible for their own taxes and filing. You are required to issue a 1099 for them at the end of the year, by 1/31. You also need to file that information with the IRS.

Answer 2

Go read IRS form ss-8 with a fine-toothed comb. This is the information the IRS uses if a contractor comes back and says, oh, no, I was an employee.

If you are comfortable that these are contractors, you give them a W-9 to fill out (get the SSN up front!), have them sign a contract and pay them the full amount you agreed to. They are responsible for their own taxes. At the end of the year you give them 1099-Misc forms.

Answer 3

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 4

Although contract workers are liable for their own taxes, if a contract worker refuses to give you their SSN you are required to withhold tax at a flat 28% from the monies that you pay them. Most businesses simply refuse to pay for contract work until the contractor supplies their SSN.

However there is a strong possibility that these folks will be your employees, not contract workers. You should file Form SS-8 with the IRS to get a determination before you even start business. Skip that step at your peril -- or fill it out incorrectly at your peril. If one of your workers files one and gets a ruling that they are an employee, YOU will be hit with back employment taxes as well as substantial penalties for failing to file payroll tax returns and penalties and interest for late payment of same. You'll also face additional penalties for failing to withhold taxes from your employees and pay those to the IRS. Don't risk it!

Answer 5

If they are your employees, then you have to withhold taxes, pay into the unemployment compensation and social security systems, issue W-2's, etc.

If they are independent contractors, then you do not do any of these things, but you do give them 1099-MISC forms.