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I was wondering if somebody could answer a question regarding the law
on taxes, in the state
of Florida:
I am thinking of providing a service for a company, not as an
employee. If I am paid checks by the owner of the company, am I
automatically considered to be an independent contractor by the
IRS...meaning I would have to pay both parts of federal and state
taxes on my wages?
(Does it make a difference if I am a consultant working for the
company as regards to having to pay taxes? If it does are there forms
necessary to be exempt from being double taxed?)
Could I get an EIN number for myself, become incorporated and get a
break in taxes?
If so, what is involved and how much does it cost?
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In article <sjb0h0hcc2u8rh1g1ravam8gb0m3r3g1so@4ax.com>,
<netsurfer802@yahoo.com> wrote:
I am thinking of providing a service for a company, not as an
employee. If I am paid checks by the owner of the company, am I
automatically considered to be an independent contractor by the
IRS...
No; there are a number of tests to determine whether someone is a
contractor or an employee, and being paid by check isn't one of them.
meaning I would have to pay both parts of federal and state
taxes on my wages?
What is "both parts"? (Social Security has an employer's share;
self-employed people have to pay roughly double. Income tax doesn't.)
(Does it make a difference if I am a consultant working for the
company as regards to having to pay taxes?
Rather than a contractor? They're the same thing.
If it does are there forms
necessary to be exempt from being double taxed?)
What are the double taxes you're thinking of?
Could I get an EIN number for myself, become incorporated and get a
break in taxes?
You could set up a corporation and have your corporation provide
your services to the other one, but you're still have to pay taxes on
the money you got from your corporation.
You might be better off asking in misc.taxes.moderated.
Seth
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I was wondering if somebody could answer a question regarding the law
on taxes, in the state
of Florida:
I am thinking of providing a service for a company, not as an
employee. If I am paid checks by the owner of the company, am I
automatically considered to be an independent contractor by the
IRS...meaning I would have to pay both parts of federal and state
taxes on my wages?
(Does it make a difference if I am a consultant working for the
company as regards to having to pay taxes? If it does are there forms
necessary to be exempt from being double taxed?)
Could I get an EIN number for myself, become incorporated and get a
break in taxes?
If so, what is involved and how much does it cost?
Whether you have an EIN number is irrelevant. The type of corporation you
have could be relevant in some circumstances, but it is probably not
relevant if you are a sole proprietor. Your income will be reported as 1099
income by your client and they should send you a 1099 statement at year end
(but you owe taxes even if they don't send you one).
You will not be double taxed. As a sole proprietor, you will have to pay
self-employment tax, in addition to income tax. You do not have to pay "the
other half" of the Social Security/Medicare tax that other corporations with
employees pay. The self-employment tax is tax deductible (not deductible
from taxes, but deductible from income), so the net effect is about the same
as would be the case if you had to pay Social Security and Medicare tax as
an employee of a corporation.
You can probably use schedule C (1040) to compute your 1099 business income.
Most tax software (Turbo Tax, etc) will do a fine job with this. You will
need to make quarterly payments to the IRS for your estimated tax liability.
Consult the IRS website for details on self-employment tax and quarterly
filling.
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netsurfer802@yahoo.com wrote:
I was wondering if somebody could answer a question regarding the law
on taxes, in the state
of Florida:
This is more a tax question than a legal question....
I am thinking of providing a service for a company, not as an
employee. If I am paid checks by the owner of the company, am I
automatically considered to be an independent contractor by the
IRS...meaning I would have to pay both parts of federal and state
taxes on my wages?
Being an "employee" is a matter of Federal law as modified
by state law. The general (Federal) rule is that if the
company has the authority to determine HOW you do you work,
not just the result, then you are an employee, regardless of
any agreement to the contrary, and regardless of whether
they DO so demand.
State law may have different requirements.
To answer your question as written, though, if you
are an independant contractor, you pay both parts
of the FICA taxes (social security and Medicare).
There are no state income taxes in Florida, and
you would not pay state employment taxes if you
are an independant contractor (under state law).
(Does it make a difference if I am a consultant working for the
company as regards to having to pay taxes? If it does are there forms
necessary to be exempt from being double taxed?)
No.
Could I get an EIN number for myself, become incorporated and get a
break in taxes?
If you were to form a corporation, and have the company
contract with the corporation for the work done, then
the results would be different:
Your corporation would pay half, and you'd pay the
other half of Social Security and Medicare taxes.
Your corporation would pay state employment taxes.
I don't see the benefit to you, except that you might
be covered by unemployment if your corporation were
to fire you when the contract terminated. I'm not
a lawyer, and I'm not sure that would work, but that's
the way it would work in California, from the material
I've received as an employer and and employee.
--
This account is subject to a persistent MS Blaster and SWEN attack.
I think I've got the problem resolved, but, if you E-mail me
and it bounces, a second try might work.
However, please reply in newsgroup.
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I was wondering if somebody could answer a question regarding the law
on taxes, in the state
of Florida:
I am thinking of providing a service for a company, not as an
employee. If I am paid checks by the owner of the company, am I
automatically considered to be an independent contractor by the
IRS...meaning I would have to pay both parts of federal and state
taxes on my wages?
If your relationship isn't one of employer and employee (and just
saying you aren't an employee isn't good enough: the facts have to
show that your relationship is not like that of employer and
employee), then your employer pays no payroll taxes on your behalf,
and you pay self-employment tax in lieu of Social Security.
Self-employment tax is set up in the complicated way it is to equalize
the tax burden in the employer-employee and client-contractor
relationships. As an employee, you pay one-half, and your employer
pays one-half. As an independent, you pay the whole thing.
Because your client wouldn't pay employer's share, unemployment
insurance, worker's compensation, or fringe benefits, you are
justified in asking for and getting a somewhat greater rate as an
independent contractor than as an employee.
(Does it make a difference if I am a consultant working for the
company as regards to having to pay taxes? If it does are there forms
necessary to be exempt from being double taxed?)
There's no double taxation involved. As an employee, you and your
employer split a tax bill; as a contractor, you pay the whole thing.
Could I get an EIN number for myself, become incorporated and get a
break in taxes?
Two out of three. You won't get a break in taxes, unless you can
arrange for tax-favored benefits. In some states, you'll pay more in
taxes or fees for the privilege of having the corporation.
If so, what is involved and how much does it cost?
A few hundred dollars if you're good at paperwork and aren't
attempting to set up some complicated ownership. A few hundred more if
you get a lawyer to help you, with the advantage that you'll get it
right the first time.
--
Not a lawyer,
Chris Green
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netsurfer802@yahoo.com wrote:
I was wondering if somebody could answer a question regarding the law
on taxes, in the state
of Florida:
I am thinking of providing a service for a company, not as an
employee. If I am paid checks by the owner of the company, am I
automatically considered to be an independent contractor by the
IRS...meaning I would have to pay both parts of federal and state
taxes on my wages?
Your true status as an independent contractor depends on an IRS test
where there are many criteria and you must possess the characteristics
of the majority of them. For example, do you provide this service for
more than one company? Do you maintain an independent place of business?
Do you make your own hours?
If audited (you or the company) and don't pass this test, you may be
re-classified as an employee and the necessary taxes / forms must will
be required retroactively.
There is no state income tax in FL, but there could be 'sales' or
compensating taxes due your service/goods. You may need to get a 'sales
tax number' and a business license depending upon what you are doing.
Whether you're paid in checks, money orders, cash or bananas is irrelevent.
(Does it make a difference if I am a consultant working for the
company as regards to having to pay taxes? If it does are there forms
necessary to be exempt from being double taxed?)
If you mean FICA contribution for both sides, you are stuck if you are a
Schedule C filer.
Could I get an EIN number for myself, become incorporated and get a
break in taxes?
Yeah, you can become a C corp, get an EIN for the corp, and then the
company will hire the C corp which will hire you. The C corp will pay
the employer's part of FICA instead of you directly. Then you need to
pay the C corps taxes as well and in the end not be a Schedule C filer
and make even less than you do now plus file the 1120 which is a PITA.
Look, you will either have to pay the entire FICA or just do a tax
evasion. Since the company hiring you will surely file a 1099 MISC
unless it's populated by lunatics, you will get caught if you fail to
file or lie about the amount paid. It's a cost of doing business.
If so, what is involved and how much does it cost?
Last I looked you can get an EIN for nothing. A lawyer will charge you
anywhere from $250 (el cheapo) to about triple that for a simple C corp.
There are some other forms you can use for your business, but in the
end, you will end up paying the employee and employer FICA share one way
or another.
Look at the bright side. If you retire at 70 and live to 145, you'll get
it all back.
-paul
ianal
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I am thinking of providing a service for a company, not as an
employee. If I am paid checks by the owner of the company, am I
automatically considered to be an independent contractor by the
IRS...meaning I would have to pay both parts of federal and state
taxes on my wages?
Correct. You would be responsible for your social security taxes as
well. However, this is usually rolled into something called the "self
employment tax" which you calculate by filling out the special
1040-SE. Look on the IRS website for this form. Additionally,
provided your income falls within the appropriate level, 1/2 of the
self-employment tax will be an "above the line deduction" FOR adjusted
gross income. This means that 1/2 of this 1/2 tax can be deducted
from your income along with IRA contributions, student loan interest,
moving expenses and a few other things, and will be deductible whether
you itemize your deduction or not (because it is a deduction FOR
adjusted gross income, as opposed to deductions FROM adjusted gross
income, which would include things like mortgage interest, property
taxes, and charitable contributions OR your standard deduction if
itemized deductions are too small).
(Does it make a difference if I am a consultant working for the
company as regards to having to pay taxes? If it does are there forms
necessary to be exempt from being double taxed?)
You won't be double taxed unless the company witholds anything from
your checks, which it sounds like they won't.
Could I get an EIN number for myself, become incorporated and get a
break in taxes?
That's probably not necessary. You can make certain deductions
associated with your self-employment income for most unreimbursed
expenses (i.e., travel, local or long-distance, office materials,
etc.) whether you have an EIN or not. Since you are just a one-person
operation and this sounds like a relatively small venture, treating it
like self-employment income should be all you need to do. Unless
you're worried about getting sued by the company for something in the
future, there's probably no need to incorporate and create a separate
entity for this service you are providing.
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