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FAQ

Am I eligible for the Make Work Pay $400 tax credit if all of my income came from 1099-Misc as an independent contractor and not W-2?
Net income from self-employment, reported on Line 31 of Schedule C or Line 3 of Schedule C-EZ, can be used for the Making Work Pay credit (it goes on line 2b of the worksheet in the instructions). If your 1099-MISC is required to be reported on Schedule C or Schedule C-EZ, then that income, less any deductions that you take related to the generation of that income, would be used.You must take all appropriate deductions against that income, however. Schedule C returns with no deductions taken against income are audit candidates.
If I hire an independent contractor, can I deduct the taxes from the payment?
Yes the $3,000 is deductible business expense. If you are a Sole Proprietorship, as you meet the $400 net income filing threshold, you will need to file a separate Schedule C (or Schedule C-EZ) for the business and claim the income and expense on that. See Income Taxation of Sole ProprietorshipIf you have a LLC, S Corporation, or C Corp, claim the business expense and income accordingly.And yeah you need to issue Form 1099-MISC to the independent contractor you hired. Regarding what 1099-MISC is, how and when to file it, IRS instructions, etc., check here: Form 1099 MISC Rules & Regulations
When filing a 1040 Schedule C-EZ form does it matter what my job description is (Part 1, Line A)? How accurate or descriptive should it be?
The job description on the tax return is apparently not very important. A word or two is sufficient - like manager, physician, route sales, clerical services or whatever is appropriate is all that is needed on that form. Include enough that the IRS can see the relationship to any significant expenses you have, like a lot of mileage. But if you have such significant expenses you would be filing Schedule C. We do not always include the business code and have had no issues with that from the IRS.If you have an EIN for your business you should include that so the IRS knows the business return has been filed.
Am I at risk for tax evasion for paying our full time nanny under the table? Or is she at risk? What are the chances we’ll get audited since I’m wiring money to her every week?
Yes, you are at risk.Yes, she is at risk.The chances of getting audited are much better, now that you’ve posted this question to a public forum.The cost of full legal compliance in California for home care workers for the elderly, when they are paid from certain accounted funds, requires that you pay them as employees, rather than as contractors.For most people, this means outsourcing the compliance to a third party, with a monthly bill for their services.I have a friend who is struggling with this, since compliance approximately triples the costs of employing one person for this purpose, compared to a contractor (a family dispute requires her to document full compliance).Most people not dealing with certain accounted funds treat the relationship as a contractor relationship.As long as you issue a 1099-Misc, and file the correct paperwork with the IRS, rather than paying completely under the table, this should be sufficient.She will then be on the hook for paying the taxes, on an estimated quarterly basis, which is what independent contractors have to do.This cost-shifts the burden onto her, so it would be unfair if she did not also get a raise to cover her taxes, and the accounting.Again, in California, you would likely have to nearly double what you pay her. So, for example, if you were paying her $20/hour under the table, you would need to bump it up to about $30.80/hour so that when she pays ~35% state and federal taxes, she still makes that $20/hour after taxes. Call it $33/hour so she can hire an accountant for the taxes.If you go through a service and make her an employee, expect it to be closer to $60 (management fees, workman’s comp insurance, legal insurance, employer contribution to taxes, etc.).Either way… adding 65% for a contractor or 200% for an externally managed employee, is better than federal prison or a huge fine which would wipe out everything you’ve saved by paying her under the table, and then a lot more.
How do I pay into Social Security if I'm self-employed?
You are to be congratulated for even thinking about or asking this question.BE SURE TO FOLLOW THRU!I just turned eligible for SS at retirement. When I was younger, my jobs were always FICA applicable, so the amount was taken out by my employer, and MATCHED by the employer.Many of my friends and acquaintances were either self-employed or had creative jobs and swore up and down they were paying into SSA.Now that retirement is upon us, turns out their intentions weren’t carried thru. They’re in their 60’s and they spent the money that should have gone to SSA on all kinds of things (ranging from horses for their children to trips to France for a wine tour, an airplane, an “investment” house to flip in Seattle, expensive restaurants, or just adding the 7.5% to their every day living funds.There is nothing like the terror of turning 63 and realizing that you will have absolutely NO INCOME WHEN YOU TURN 66 unless you continue in or find a job. You will not even have Medicare.The creative are no longer as creative. They can’t pick up per diem jobs as easily as they once could. The self-employed (one brother owned a profitable garage) no longer feel like running a garage with all its headaches and no longer has the energy to stand or lie on a concrete floor all day at 66.Most of these people blame SSA for their problems.What, they knew about SSA when they were 30 and completely forgot about it for 33 years?Make this your first priority.Dealing with SSA is difficult, because it’s vastly understaffed, and huge number of people are applying for benefits. It’s not one of Trump’s favorite departments.Currently, my 20-something daughter is continuing to work at SSA but until he relinquishes his moronic idea of being this wall, she’s not getting paid. It’s been at least a month now. She’s self-supporting, lives in NYC, and pays for part of her law school tuition (part is scholarship).Other people have given you better advice than I could have on the specifics. I wrote to praise you for your insight and tell you what happens to people who don’t make their FICA payments.The horse is dead, the wine’s been drunk, the airplane’s gone to the junkyard, the expensive food’s digested, the house flip got to be too much work, and now they’re all cursing SSA up and down.
I did a short term project for my employer before I was hired in January of 2015, got a 1099 on that income. Is it subject to the self employment tax?
Yes, 1099-misc income that's in box 7 is self-employment income and is subject to self-employment tax of 15.3% (7.65% employer and 7.65% employee portion). To be more precise, you're allowed an above-the-line AGI deduction for ½ your self-employment tax so the effective rate works out to be more like 14.9%. Typical government attempt to "even out" the double tax for self employment.  You report this income on Schedule C and you then have an opportunity to deduct expenses such as business use of vehicle on form 2106, office-in-home deduction on Form 8829 and miscellaneous deductions on Sch. C itself. If you have no such expenses, you can do sch. C-EZ. If you believe your employer handled this in error and you were actually an employee but were treated as an independent contractor, you then have uncollected Social Security and Medicare Tax on wages and would file Form 8919. This is uncommon, but could apply if you received a Form 1099-MISC in addition to a W-2 from a company for the same job.  This would be something you would probably want to discuss with your employer beforehand as it could subject them to penalty. Wages from Form 8919 line 6 will go directly to line 7 on Form 1040. See IRS Form 8919 instructions for more information if your wages were reported by your employer on a 1099-MISC with Uncollected Social Security and Medicare tax instead of on a W-2.
When I do my taxes in 2020 for the 2019 year, will I still be able to deduct miles driven as an Uber driver? Or has the tax law changed?
When I do my taxes in 2020 for the 2019 year, will I still be able to deduct miles driven as an Uber driver? Or has the tax law changed?Uber should issuing 1099’s and treating the drivers as “sub contractors”. There is no way they want the liability of having employee’s running over little kids and baby carriages. This would depend on how the “contractor” sets up his business as a Sole Proprietor, LLC or full blown Corporation. Sole Proprietors are reporting on a Schedule C, LLC are taxed as a Partnership with a flow through to your 1040 using a K-1 and of course, a Corporation files a 1120. On a corporation, you would receive your compensation by W-2 with the corporation matching your FICA and Medicare which is deductible to the Corp.  Also, the Corp could declare dividends (taxed at a lower rate depending on your bracket) but it is not deductible to the Corp and profits of the corporation pay its own taxes as well as you pay a second time when you receive the dividends (constructive receipt).  It can get complicated so be sure to see your tax advisor for at least direction in making the right decisions.The easiest but not always the best way is a simple sole proprietorship and using a Schedule C where you can take mileage or list out actual expenses such as gas, oil, Tires, maintenance, car washes, Insurance, depreciation (there are limits as to amount and time) parking, tolls, Interest on car loan, license plates (personal property taxes) or if you lease the car Vs. buying it, you can deduct the lease payment.  This of course is all based on the percentage you use it for business Vs. Personal and what is called “mileage log”.  The smart guys have two cars, one for 100% business and the other for personal, go to the store and commuting.  Now if you are full time UBER or LIFT, and ride a bicycle when not working, you might get away with it. Both companies have computer generated reports that pretty much meet the IRS requirements for record keeping.  Stuff like date, time of pick up (obvious a pick up is for business purposes only) beginning mileage, ending mileage but cruzing around waiting for a ride to develop is of course deductible also. In anticipation of income is a deductible expense even if it is a bust on a raining night.  If the IRS is going to share in your profits, they will have to share in your losses also.I would pick up a copy of the IRS instructions for Schedule C. You might find Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) ... This publication contains general information about the federal tax laws that apply to small business owners who are sole proprietors and to statutory employees.  you can find a free copy at An official website of the United States government simply type in Pub 334 under the IRS search engine and up it will come.  I would not even attempt to be an UBER driver unless I read this book.  Again, it is free.