OT - Tax Question

[Roy_Faulker]

Quick question - my wife's new job issues a 1099 and doesn't withhold taxes. Anyone have experience with a payroll company that manages payroll? I would like to have her pay go to them and have them manage withholding etc.

Any recommendations?

 

[RU4Real]

Quick question - my wife's new job issues a 1099 and doesn't withhold taxes. Anyone have experience with a payroll company that manages payroll? I would like to have her pay go to them and have them manage withholding etc.

Any recommendations?

That's not how it works. If she's on a 1099 then she's on a 1099. She's responsible for self employment tax, etc.

 

[redlinehw]

Check with an accountant but just pay quarterly taxes based on estimated income and you can have an accountant reconcile next year.

Remember that she can now open a SEP IRA and contribute up to $53,000 or 25% of her income. It's a great retirement investment vehicle. She can also itemize business expenses to offset against income.

 

[RU4Real]

Check with an accountant but just pay quarterly taxes based on estimated income and you can have an accountant reconcile next year.

Remember that she can now open a SEP IRA and contribute up to $53,000 or 25% of her income. It's a great retirement investment vehicle. She can also itemize business expenses to offset against income.

And remember, when itemizing those business expenses, that "commuting" isn't one of the expenses that is allowable.

 

[RAA-1]

She is not an employee so the company will not withhold taxes. She is an independent contractor. Thus, they will also not contribute to her Social Security account or offer her any benefits available to employees.

 

[RUDutch]

By putting her wages on a 1099 instead of a W-2 her company will avoid their share of FICA and Medicare tax (at 7.65%) while you wife will now be responsible for self-employment tax on your 1040 (at approximately the same rate). If she works in NJ she should probably be getting a W-2 but it depends on the facts and circumstances of the job.

Good luck to her if she tries to collect unemployment in the future.

 

[PhDKnight]

I have years of experience with this. You want to separate your personal and business income/taxes for a hundred different reasons.

Set up an S-Corp. Get a corporate bank account that the monthly 1099 earnings are deposited into. Have the S Corp pay her a small "reasonable" salary via a once a month payroll through a company like paychex or paypros. Get a corporate credit card and put all acceptable business expenses on that card and pay for it via the corporate account. Take any money left over and have her pay it to herself via a partners draw. Hand over yoir 1099, bank and cc statements to an accountant. File separate corporate and personal returns.

As stated before, you can set up a SEP or make a number of other tax efficient choices via this process and come out ahead vs. not incorporating. Your accountant will fill you in on why the above process is worth it.

 

[RU4Real]

I have years of experience with this. You want to separate your personal and business income/taxes for a hundred different reasons.

Set up an S-Corp. Get a corporate bank account that the monthly 1099 earnings are deposited into. Have the S Corp pay her a small "reasonable" salary via a once a month payroll through a company like paychex or paypros. Get a corporate credit card and put all acceptable business expenses on that card and pay for it via the corporate account. Take any money left over and have her pay it to herself via a partners draw. Hand over yoir 1099, bank and cc statements to an accountant. File separate corporate and personal returns.

As stated before, you can set up a SEP or make a number of other tax efficient choices via this process and come out ahead vs. not incorporating. Your accountant will fill you in on why the above process is worth it.

I'm guessing if he had an accountant he wouldn't have asked the question.

 

[PhDKnight]

I'm guessing if he had an accountant he wouldn't have asked the question.

Ha! Very true. Well i amend my advice to - Get an accountant, they pay for themselves.

 

[RUDutch]

If you take the advice of PhDKnight, don't forget to file the 1120-S (federal and state) tax returns and if in NJ pay the $500 minimum corporate tax and $50 annual report.

 

[redlinehw]

Ha! Very true. Well i amend my advice to - Get an accountant, they pay for themselves.

Remember - the accountant is a business expense!

 

[BigLou]

Report her earnings on a Schedule C and see if there are any expenses she can deduct. There is no reason to run her income through a payroll service which will cost money and probably risk having the income double reported. If you use an accountant have him/her prepare a projection for 2016 to determine how much estimated taxes to pay in. If you don't use an accountant, use the following to estimate how much you should put quarter (assuming she ,makes less than the social security limit of $118,500 and assumes you are in the 25% Federal tax bracket): project her 1099 earnings for the year and multiply that by 12.4% for the social security/medicare tax (this is net of the savings on the deduction you get for half) plus 25% for income tax for a total of 37.4% for Federal tax, then ,multiply the projected earnings by 5.5 % for NJ tax. Divide by 4 and that's what you pay each quarter to the IRS and NJ.
You should question why the company is paying her on a 1099. Most cases of this the employer is wrong for doing so and should be treating her as an employee. This shifts half the social security/Medicare tax to them instead of you. At the very least they should be paying her a higher rate to make up for the taxes. There could also be a problem if she gets let go and tries to collect unemployment taxes.

 

[Roy_Faulker]

S-Corp??? Haha this conversation makes me feel like John Candy in this clip...

 

[RUckusbuck]

I have years of experience with this. You want to separate your personal and business income/taxes for a hundred different reasons.

Set up an S-Corp. Get a corporate bank account that the monthly 1099 earnings are deposited into. Have the S Corp pay her a small "reasonable" salary via a once a month payroll through a company like paychex or paypros. Get a corporate credit card and put all acceptable business expenses on that card and pay for it via the corporate account. Take any money left over and have her pay it to herself via a partners draw. Hand over yoir 1099, bank and cc statements to an accountant. File separate corporate and personal returns.

As stated before, you can set up a SEP or make a number of other tax efficient choices via this process and come out ahead vs. not incorporating. Your accountant will fill you in on why the above process is worth it.

Probably easier to set up a single member LLC instead of the S-Corp. Paying that $500 annually to the state sucks.

 

[RU'70]

First of all, if she is getting a 1099, she is an independent contractor, i.e. she works for herself, she is NOT an employee. As such, IMHO she can deduct ANY expenses incurred in pursuing the income she earns, such as auto expenses (as such, she is not 'commuting'), meals, office supplies, etc. For tax reporting, file 1040 Sch C and Sch SE for Self employment taxes
If her income and expenses are easy enough to estimate during the year, as mentioned above, pay quarterly estimates

 

[PhDKnight]

Pay the money to incorporate and separate your business and personal tax returns unless you like being audited.

http://www.marketwatch.com/story/what-are-your-chances-of-getting-audited-2015-12-15

 

[dollarbill]

No worries. Cruz is going to eliminate the IRS and make all this unnecessary. $$$$

 

[Roy_Faulker]

Surprised that she can't reassign her "pay to" to a payroll processing company to manage estimated payments as well as local taxes etc. I guess that's what I was asking at the top...

 

[RUfinal4]

agree on setting up an llc, s corp, or other business entity with your home as your office location. This way when she commutes to work it will be as a contractor where commuting expenses / mileage will be expansible. I know a lot of 1099 IT workers that write off breakfast and lunch everyday plus snacks.

 

[Upstream]

Surprised that she can't reassign her "pay to" to a payroll processing company to manage estimated payments as well as local taxes etc. I guess that's what I was asking at the top...

As was mentioned earlier in this thread, she cannot reassign her pay to a payroll company because she is not on anyone's payroll. She is self-employed. e.g., she is running her own business, selling her consulting services to other companies who pay a purchase price to her for the services. This is very different than a salary. She is getting business revenue, from which there are all sorts of business deductions that are not applicable to W-2 salary employees.

As others have mentioned, she may want to set up a corporate shell for her business. The fees paid by her client companies would go to her corporation. And then her corporation can pay her a salary. Alternatively, you might find it easier to hire an accountant to handle all the self-employment taxes she needs to pay.



HOWEVER, I sense from your comments that neither you nor your wife consider her to be an independent contractor, running her own business, selling consulting services to client companies. I sense that you view her role as an employee of the company, who should be paid as a W-2 employee of the company (or W-2 employee of a temporary staffing firm).

If her job is a routine office job, where she is taking day-to-day direction from a supervisor, she may very well be improperly classified. However, if she is a professional (such as a doctor, engineer, or writer) brought in to provide specialized services mostly under her own direction, she may be classified properly.

If she is classified improperly, you may want to talk to an employment attorney to find out your options. But be aware that the company she is working for may be intentionally misclassifying her. If she pushes too hard, she may find her job eliminated, restructured (possibly with a reduction of hours/compensation), or they may move her from 1099 status to a W-2 temporary staffing firm (who will take a significant portion of her compensation, but possibly also offer benefit like health insurance, sick pay, and vacation time).

This is probably way too complicated to address on an internet message board. Your best bet is to talk to an accountant or employment attorney.

 

[Ole Cabbagehead]

Based on your questions, the comment about "assign to a payroll company" seems to indicate you just want someone else to manage her taxes, so that there are no surprises in April, where not enough money was paid or saved to cover the tax bill.

There are no services I am aware of that will take that off your hands. You should consult with an accountant, to see mechanisms that will work for you to organize her taxes. One option is for her to set up a company, and run everything through the company. This will also allow her to claim more deductions, which is why a lot of people are suggesting it.

If it is not much money, and you just want the simplest thing possible., estimate next years tax liability based on this years tax bill. Then set up a separate "tax savings" account with an auto transfer that comes out the day after every pay day. That way when you need to make an estimated tax payment, the money will be set aside. Estimated taxes wreak havoc on people who are not good at tracking income and expenses, because they inevitably do not have enough money in savings to make the payment when due. That starts a cycle of being behind, which results in interest and penalties. Stay away from that. With 1099 pay comes a lot of extra responsibility.

 

[RUMBA-JK]

Working with an accountant should provide a range of options for managing the financial side of this.

On a higher level - be aware that, if this is her only "consulting engagement" and it is a long term - open ended arrangement that she intends to have for many years - there will come a point in time where the company will be forced to conclude the arrangement. It will all get tangled up in the rules about the definition of "employee" vs "consultant" - and if you have only one client - and you work hours & on work as designated by the client, and you work at a workspace designated & provided by the client .. and your length of the arrangement is prolonged and essentially with no planed conclusion ... and a few other details - well, you are really supposed to be an "employee" & getting a W-2 ... and the company may decide that they will have to end things or be at risk of being found to be in violation of employment regs.