Business & Financial Solutions
TAX HELP SERVICE AND PREPARATION
“Sometimes teens go out and work as technical employees, but are paid as contractors,” says Sharon Lechter. Sharon is a CPA in Paradise Valley, Arizona. And she is a former member of the inaugural President’s Advisory Council on Financial Literacy. “So make sure the employer classifies you correctly.” Hopefully, you will see how an incorrect classification could cause some contractor tax issues. And this is particularly true for young adults, just starting out in the work world. Sometimes it is necessary to seek the advice of a professional tax accounting firm.
Do not file the income for your child if he or she receives a 1099 MISC. Your child needs to file his or her own tax return. The young adult will report the income from the 1099 MISC on Schedule C Business Profit or Loss. Your young adult is an independent contractor, or subcontractor. And the IRS sees this young adult as a business owner. He or she may not owe federal income taxes. But the individual will owe self-employment tax at 13.3% of the net income, if the income is greater profit is greater than 400.00.
Often a company that does not want to involve themselves with payroll tax withholdings will mislabel workers. Or perhaps they want to avoid potential employee benefits. Therefore, they hire workers under an incorrect categorization. And this practice happens far-too-often.
Young adults look at this as a deal because they want the takeaway to be as much as they can get. Often they should be wage employees. However, they are categorized as subcontractors. This designation as a contractor or subcontractor means that even if the teen does not earn enough to owe federal income taxes, he or she could owe the IRS self-employment taxes. This 15.3 percent tax on earnings is the self-employed equivalent to Social Security and Medicare payroll taxes withheld from employees’ checks. And this is usually referred to as FICA on pay stubs. In fact that tax is required when any self-employed worker’s net earnings exceed $400.00. And if the child has a profit of $400.00 or more, he or she will have to pay that self-employment tax.
Business & Financial Solutions is a community oriented tax accounting firm. Education is as much important to us as the efficient preparation of your tax returns. Our advisors would rather that clients understand the tax ramification to their actions, prior to the actions becoming problems. Our services include tax planning and consultation, as well as preparation of returns.
Clients in Frederick and Rockville MD, and those in Washington DC and Northern Virginia have found our services to be useful and enlightening. BFS operates nationally. We have clients throughout the Washington DC Metro area as well as surrounding territories, including Germantown MD, Baltimore, Bethesda, Potomac, Montgomery Village, Chevy Chase, Silver Spring. Out client base, encompass 28 states. If you feel that we can be useful in meeting your tax accounting needs, please contact us at 240.297.1055, or email info@bfswebsite.com. Use the SEARCH function of our website to find out more about Business & Financial Solutions. We can help with a variety of tax issues.
Office locations in Rockville, Frederick and Vienna.
