 Income tax 2022-2023. Schedule C identification numbers. Let's do some wealth preservation with some tax preparation. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need then can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Most of this information comes from the tax guide for small business for individuals who use Schedule C publication 334 tax year 2022. You can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're focused online, one that being income. Remembering that the first half of the income tax formula is in essence an income statement, although it's just an outline, a scaffolding, many other forms and schedules flowing into these line items. For example, with the income line we're focused on now, we're thinking about the Schedule C, another schedule, which is in essence an income statement in and of itself having income minus expenses or business deductions, the net income, what flows through here to the income line item in our income tax formula. This formula representing the form 1040. This is the first page of the form 1040 where we would be focusing in online eight other income from Schedule 1. The income would flow through the Schedule C to Schedule 1 to here to line eight on page one of the 1040. Here is a Schedule C profit or loss from business where we would have income minus expenses, the net income flowing to Schedule 1, flowing the page one of the 1040. Identification numbers. As we know, the IRS knows us not by name but by number, so we need to have one of those things. This section explains three types of taxpayer identification numbers. We've got the TINs, who needs them, when to use them and how to get them. Social security numbers, the SSN, this is the major obviously number for individuals. The individual social security number if you have one could be used for filing obviously the form 1040 and possibly for your business as well. But even if you don't have any employees, you may still want to get another number, which might be an EIN number. One reason you might want to do that is because if you work for other businesses, then you might have to provide those other businesses with your identification information so they can issue you not a W2, but a 1099 and you don't want to have to issue or give them your social security number. So you might then want to set up an EIN number in that instance, which is fairly easy to do and we might touch on in a second here in a bit more. So generally you use an SSN social security number or TIN. You must put this number on each of your individual income tax forms such as the form 1040 and its schedules to apply for an SSN social security number. Use form SS-5 application for a social security card. This form is available at Social Security Administration, the SSA offices or by calling 800-772-1213. So that is a separate institution. Of course, it's a federally federal government institution, but sometimes people think that all federal government institutions are like the same or that all governments are the same like the federal government versus the state and local government. And although they could exchange information, you have to part of the art of dealing with the government is go into the right place to do the right thing. So if we want to get the social security number, which we will need to tell the IRS who we are, we've got to go to the Social Security Administration and deal with them at the SSA. So it is also available from the from the SSA website, which you can go to ssa.gov forward slash forms forward slash SS-5 individual taxpayer identification number, otherwise known as an ITIN, ITIN. The IRS will issue an ITIN. If you are a non resident or resident alien and you do not have and are not eligible to get an SSN, a social security number. So the social security number for individual reporting is basically the default number that you would put on the 1040. But if you don't have the social security number of social security numbers, the IRS still wants to know who you are and they still want to get a piece of your income. If you're if it's subject to income. So then you've got the fallback number for individual taxpayers being the ITIN. So the ITIN will expire for any taxpayer who does not file a federal income tax return or who is not included as a dependent on the return of another taxpayer for three consecutive years. It's a temporary thing. You got to keep it in constant update. So in general, if you need to obtain an ITIN, you must attach form W7 application for IRS individual taxpayer identification number with your signature original completed tax return and any other required documentation and mail them to the address in the instructions for form W7. So you can take a look at the IRS website, get the instructions for the W7. If you need more information on that, exceptions are covered in the instructions. So if you must include another person's SSN, social security number on your return and that person does not have and cannot get an SSN, enter that person's ITIN, another person on your 1040, for example, could be a spouse, could be a dependent. So the application is also available in Spanish, Espanol. The form is available at irs.gov forward slash form W7 caution and ITIN is for tax use only. It does not entitle the holder to social security benefits or change the holder's employment or immigration status. So the IRS needs that number to process the income tax return. One of the problems if you're working in a situation where you don't have a social security number or access to social security benefits is one of the issues. Are you going to be subject to paying social security taxes in a situation where you're not going to get the benefits of the social security benefits after the age of retirement? But we won't dive into that now. Employer identification number EIN. So now you have your individual identification number that you need to file in order to file as an individual or married or whatever your status is for the form 1040. You may be able to use that same number to also process your schedule C because it's a sole proprietor schedule C, but you might want to also have an EIN number, which is an employer identification number. You must have an EIN number if you have employees. If you have employees, you're going to have to deal with payroll tax returns and to file the payroll tax returns. You need an EIN number. However, even if you don't have employees, you still might want an EIN number, which seems kind of unusual since it's an employer identification number. Why would I need it if I don't have any employers? In other words, because you might need to provide your number to someone else that needs to do tax reporting on you, even though you're not an employee because they might need to issue you a 1099 and therefore to do business with them, you don't want to have to give them your Social Security number generally, but rather an EIN number. Now, it's usually fairly easy to get an EIN number. It's not a difficult process. Oftentimes with businesses, for example, it's fairly easy to set them up. It's more difficult actually to close them. So just be aware of that. So you must also have an EIN to use as a TIN if you do either of the following. Pay wages to one or more employees. You have to have an employee identification number to do that to process the payroll returns, which is a whole thing in and of itself. And so then we have the file pension or excise tax returns. So if you must have an EIN include it along with your SSN Social Security number on your schedule, see as instructed, you can apply for an EIN online by clicking on the employer ID numbers, the EINs link at irs.gov forward slash EIN as long as the principal business location is in the United States or US territories. The EIN is issued immediately once the application information is validated. So you can do it pretty easily online. If everything is in order, you can also do it by telephone at 267-941-1099 not a toll free number only if the principal business is located outside the United States or US territories or by mailing or faxing form SS4. So you can print it out. You can fax it if you want the old style way old school if you want but application for employer identification number. So new EIN you may need to get a new EIN if either the form or the ownership of your business changes. So if you have a change, you might you're kind of a different business entity at that point you might have to get another EIN. So for more information, you can see publication 1635 regarding that understanding your EIN. When you need identification numbers for other persons. So in operating your business, you will probably make certain payments. You must report on information returns. These payments are discussed under information returns later in this chapter. So we'll dive into them later. But remember, if you have employees, then you'll have to report them on the payroll forms, which is a whole different thing for payroll. The payrolls basically similar, basically the same in essence for a sole proprietor versus other types of entities, partnership, corporation S corporation, you've got to, you know, do the withholdings and that whole thing. And you need an EIN number for that. And you might need it for someone else or to give to someone else that needs to give you a 1099 form because they're paying you not as an employee, but in the course of business, but the IRS is still forcing them to tell the IRS and you in the form of a 1099 that you basically have income from a transaction that took place possibly. So you must give the recipient of these payments the payee a statement showing the total amount paid during the year. You must also include the payee's identification number and your identification number on the returns and statements. So we might dive into some more areas where that might be necessary in future presentations. Employee, if you have employees, you must get an SSN social security number from each of them. I'll record the name and social security number of each employee exactly as they are shown on the employee's social security card. If the employee's name is not correct as shown on the card, the employee will should request a new card from the SSA social security administration. This may occur if the employee's name was changed due to marriage or divorce. So clearly if you get married, if you change your name at that point in time, then you've got to get a new social security card so that the number matches the new name form W for employee with holding allowance certificate is completed by each employee. So the correct federal identification tax can be withheld from their pay. So if your employee does not have an SSN, they should file form SS5 with the SSA social security administration. Other payee, if you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. In other words, if you hire someone as an employee, then the IRS wants to force you to be not only reporting their income, but also withholding that information. So reporting with a form W2 and withholding the information or the taxes and then giving that to the government. But if they're a contractor, then if they're not a business, but a contractor meaning they're not incorporated, you still might have to or the IRS wants you to then give the IRS information about what you pay to them. Remember the general concept here is that the IRS has the leverage over the payer in a business transaction. If we're the payer as a C corporation or as a Schedule C sole proprietorship business, we want to take the deduction of the contractors we're paying. And so the IRS might say, Well, we want you then if you want that deduction, we want you to tell us who you paid so that we can then tax them or make sure that they reported their income on their side of the transactions. And to do that, we need not only their name, but their Social Security number and possibly their address. The IRS wants to know who they are, what their number is where they live and what not so they can go after them for their income, right? So if you must report payments to an organization such as a corporation or partnership, you must get its EIN. So to get that payee Social Security number or EIN. So that means and we'll talk more about this later. But if you're doing business with a contractor, then and you're required to give them a 1099, you want to make sure that you can get their information. Some contractors are reluctant to do that. They might not have an EIN, which is going to make it difficult on us because we need to report to them a 1099 form. And if they don't have an EIN number, we're going to have to get their Social Security number or we're not going to be in compliance with what the IRS wants us to do to tell to kind of rat out these contractors that we paid them so the IRS can look over their shoulder to make sure that they are reporting income. So you might want to think about the contractors you're dealing with and see whether or not they have an EIN number to basically deal with and whether or not you can get their information when doing business with them so you can be in compliance with your reporting requirements and so on. So you can you can use form W9 request for taxpayer identification number and certification. You could find the W9 on the IRS website. A payee who does not provide you with an identification number may be subject to backup withholdings. In other words, if someone is an employee, then the IRS wants you to take their money before you give it to them in the form of withholdings and pay it to the IRS on their behalf. If you're paying a contractor, then the IRS might be content with just simply you telling them who that contractor is, giving them the name, social security number, address and so on. So the IRS can can go after the money themselves or make sure that that contractor is reporting it. But if that contractor doesn't give you their information like their social security number and whatnot, then the IRS is going to want want to hold you responsible. That's where they have the leverage on you the payer of the one that wants the deduction. And they might try to say at that point, then you need to withheld, you need to withhold kind of like they were an employee, because we can't go after them the way we want to because we don't know who they are because you didn't get their social security number and their address and everything like we want you to do. So we're going to make you collect our money for us. That's how it kind of works. So for information on back withholding, see the instructions for the request for the requester of form W nine and the general instructions for certain information returns. So we'll dive into some more of those topics in future presentations.