Question by Shay nay nay: How do I file taxes for a small business I started this year?
I have a small business set up as a general partnership and we have 2 employees. We are not using any kind of 3rd party administrator for payroll or tax reporting services. We are just keeping tight records of our income, business expenses and payroll. Can we file taxes for this busines at the end of the year along with our personal filings or should we be doing something different? Also, we have not been withholding any taxes from our employees payroll as we plan to issue them a 1099 at year end. Does this sound ok?
Answer by wartz
It sounds not OK.
My canned explanation to clueless independent contractors seems to get posted every day: You sound like a clueless employer who will be at the wrong end of a payroll tax audit the first time one of you “employees” files an unemployment insurance claim. The IRS 20 factors test determine if the person is an employee or not, The fact they agreed to be treated as independent contractors is irrelevant.
Some employers try to get around paying employment taxes (social security and unemployment) and other employee benefits like workers compensation insurance by improperly classifying employees as independent contractors. If the employee is required to show up for work–personally–at a particular time, punch the clock, use the employers equipment and are paid an hourly rate, hes are an employee. If you didn’t understand the difference when you posed your question, I would be even more convinced that they are employees. What is your preference, Slotted or Phillips?
Complete an IRS Form SS-8 to get an official ruling on your status. This will help determine their status before it gets out of hand and you have to pay both sides of their withholding and an allowance for withheld income tax.
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