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Get your taxes done using TurboTax
@krishnadasika wrote:
Thank you so much for your reply. I have been working on W2 all these years and Contributing to Social security. I would like to continue to contribute (I am under the impression if I don't continue to contribute, my Social security benefit will be effected - please correct me if my assumption is wrong). Additionally, I would like to know if there are any taxes I need to pay?
My situation is like this (Numbers may vary in reality)
1099 Misc income - 100k
I want to pay my son who is helping me - 40k
I have office and other expenses - 10k
What is the best way to file the above?
If you are an unincorporated business or single member LLC, there is no difference between "you" and "the business". While it is often useful to keep separate bank accounts to help track income and expenses, all the money is yours. You pay income tax at the end of the year on your net profit after expenses, and it doesn't matter how much of that profit you transfer from the "business" bank account to a personal account, assuming you even have separate accounts.
Your tax return will have a schedule C. This reports all your business income and expenses and calculates the taxable profit. You are expected to keep accurate records of your income and expenses even if you don't get tax paperwork from your customers or clients. The net profit from schedule C flows to the main form 1040 where it is combined with your other income, deductions and credits, to determine your total income tax.
Your net profit also goes to schedule SE to calculate self-employment tax. This is the same as social security and medicare tax as an employee, except that you pay both the employee share and the employer share, and it's about 15% of your net profit. The SE tax is also transferred to form 1040 and added to your income tax, to arrive at the total amount you owe for the year. SE tax gives you the same retirement credits in the social security system as paying social security tax as an employee.
Because you don't have withholding from an employer, but the tax system is still pay-as-you-go, you are required to make estimated tax payments 4 times per year; April, June, September and January 15, to cover the taxes for the previous quarter. If you don't make estimated payments, you will be assessed a penalty for late payment even if you pay in full when you file your return on April 15. (If this is the first time you owe a penalty, you can ask for a waiver.). You can make the payments electronically at www.irs.gov/payments, and there will be similar payment site for your state income tax.
Now, your expenses can include office supplies and equipment, possibly rent on an office, or the home office deduction if you meet all the qualification, and any other expense that is "ordinary and necessary" for the work you do. An employee can certainly be an ordinary and necessary expense.
A person working for you can be a subcontractor or an employee. If a subcontractor, you pay them a gross salary and issue a 1099-NEC, and they are responsible for their own taxes including a schedule C and self-employment tax. If an employee, you issue a paycheck, and you must withhold social security and medicare tax, state and federal income tax, and you may be required to pay unemployment insurance premiums, worker's comp premiums, or follow other laws of your state for hiring employees.
If you pay an employee you must have a federal EIN -- employer ID number. Even if you don't pay employees, you might want to get an EIN to use for your business so you aren't using your personal social security number. You can get an EIN online.
Whether your son is a subcontractor or employee depends on the working relationship and is far too complicated for this discussion. However, there are significant penalties if you classify someone as a contractor who should be an employee, since you have more responsibilities toward employees and misclassifying employees as subcontractors is a way that unscrupulous businesses take advantage of their workers.
https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation
Turbotax is only designed for year end taxes. If you need to run a weekly or monthly payroll for an employee, you will need to do it manually or use something like Quickbooks Self-Employed version or Quickbooks Small Business version. Quickbooks can also calculate the amount of quarterly estimated tax payments you need to make.
https://quickbooks.intuit.com/
When you have an employee you also must issue a W-2 and W-3 at the end of the year and file state and federal quarterly reports and remit the state and federal withholding at least quarterly.
There is no "best way" to file, there is the only way, as far as the IRS is concerned.
If you want to use Turbotax, you have three options.
- Turbotax Home & Business installed on your own computer.
- Turbotax Online Self-Employed.
- Turbotax LIVE Self-Employed.
The Live online version includes video chat with a CPA or enrolled agent. Although it is the most expensive version, I strongly suggest you use the Live CPA version this year since you have so many basic questions. Or, see an accountant this year to teach you more of what you need to know and maybe you can use Turbotax on your own next year.
