 Income tax 2023 2024 employment taxes Get ready and some coffee because we're gonna stop the tax man in his tracks with income tax preparation Okay, maybe we won't be able to stop them But we're gonna we're gonna slow them down a bit most of this information can be found first a word from our sponsor Yeah, actually we're sponsoring ourselves on this one Because apparently the merchandisers they Don't want to be seen with us, but but that's okay Whatever because our merchandise is is better than their stupid stuff anyways like our trust me I'm an accountant product line. 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Otherwise known as business deductions resulting in in essence net business income Which then rolls in to line one income of the income tax formula Here's the first page of the form 1040 where the schedule C net income ultimately rolls into line number 8 Additional income from schedule one and this is the schedule one additional income and adjustments to income We're in part one the schedule C net income rolls into line three business income or loss from the schedule C and this is the schedule C the profit or loss from business profit loss Another term for an income statement, which has an income statement format income minus expenses. Okay, let's look at the employment Taxes now when we think about the taxes for the form 1040 and the schedule C attached to the form 1040 We are typically first primarily thinking about Federal income taxes and then of course we saw in prior presentations We have to deal with self employment taxes, which is basically social security and Medicare similar to payroll taxes But payroll taxes paid by us in essence on the net income bottom line of the income statement Us having to pay employee and employer portion. However, we also might have a situation Where we have employees so now we are a schedule C type of business. We're a sole proprietorship We're gonna deal with our own Social security and Medicare in the form of self-employment on the bottom line of the income statement But we also have to pay employees in which case we're gonna deal with payroll taxes to them So this is going to be similar to payroll taxes that we would have no matter what kind of entity We were in it's going to be similar in nature to a C corporation for example Accept that in a C corporation even the executives even the highest up the CEO is Also an employee because this the C corporation is a separate legal entity Whereas for us on a schedule C situation We are not going to pay ourselves But only pay the employees and then we have the same kind of rules to be paying the employees in which case we have to Withhold federal income tax social security Medicare pay both their half Taking it out of their wages for social security Medicare and our employer portion. Okay So if you have employees, you will need to file forms to report employment taxes employment taxes are Include the following items social security and Medicare taxes federal income tax withholding Federal unemployment tax or FUTA tax So one of the things that we need to be considering if we do tax preparation most of the time People that do federal income taxes even CPA firms often don't also do the payroll taxes and possibly also Do not do the bookkeeping at one time. It used to be that the CPA firms kind of took all of those things In house However, as things became more complex some of these things became more specialized items So for example bookkeeping when you have software There's even specializations in terms of software like a quick books versus a zero or something like that specializations within industries for help with the bookkeeping So that's one thing that as a CPA or I'm sorry as a tax professional You might want to consider. Do you want to be picking up bookkeeping or not? Do you want to be networking with people that do the bookkeeping? How is that relationship? Going to look how can you steer clients in? properly to navigate those relationships as cleanly as Possible payroll is another area in a similar process. Do you want to be taking on? business clients of any nature whether they'd be Schedule C businesses or Or at C corporations as corporations partnerships On what not no matter what type of business entity you have if they're a certain size or if they get above a certain size They are going to have employees Some sole proprietors will not because they might just have gig work You might just say hey like I just do simple sole proprietor businesses But if they get to a certain size, of course, they will then have employees Then the question is how we do you want to basically deal with the payroll taxes? It's kind of a bookkeeping question or part of a bookkeeping question in essence many Softwares have applications that help with the payroll, but Sometimes you you also might hire an external payroll Provider as well like an ADP or a paychecks So if you have a tax preparation firm you might partner up with like bookkeepers that help with the bookkeeping and you might also Partner up with people or have connections with people that have payroll or do payroll like an ADP Or a paycheck or something like that so that when we get the information From the tax preparation standpoint, we get the bookkeeping from whoever does the bookkeeping who also might be doing payroll But we also might have the payroll done externally by a payroll provider and then we might have to do what we need to do to make adjustments to the books to make sure that the payroll Properly lines up to the payroll reporting forms 941 940 and the bookkeeping is situated properly. Okay, so for more information You can see publication 15 circular E employees Employee errors tax guide the publication explains your tax responsibilities as an employee or caution Do not reduce your your deduction for social security and Medicare taxes by the non refundable and refundable portions of the FF CRA and ARP of 2021 credits for qualified sick and family leave wages claimed on employment tax returns Instead reports the credits as income. So this is another kind of Legacy or fall out of some of the changes that had and took place during the whole Coronavirus situation where there were changes to the laws much of which are aimed at employment because they were trying to Argue that they're going to try to keep everybody at full employment Even though they say that no one could work which seems kind of contradictory But anyways to help you determine whether the people working for you are employees You can see publication 15 a so we have a similar situation here as we talked about when we thought about whether or not we Were self-employed or not in other words when we saw when we said hey, are we a separate business? Or are we an employee of our employer? The questionnaires that would come up are Are we do we do our work that are basically separate? Meaning are we under direct control on a day-to-day and tasks to task activity by the in by the other person by the Employer if we are in that case you would think we would be more likely to be categorized as an employee If on the other hand we are given a task and we have the ability to have our own tools and Do it our own way so that we just complete the task on our own timetables Then it's more likely that we could be categorized as a So proprietor or a separate type of business entity same situation here for hiring somebody else Then again remember from the IRS's perspective They like the setup of having an employee employer situation because most large employers The IRS already already has their hooks in right so they they're less likely the larger a corporation is That they're going to basically completely lie about their taxes right and they're going to and they're going to want to be able to pressure the employee Or to be the one responsible for enforcing the smaller people to comply right by Issuing the W2's not only that but also having a withholdings So the IRS is going to try to say I want an employee employee or relationship you would think would be the general Idea so if we're a sole proprietor then to us we need we need help We need someone to work for us if we take on employees one of the problems with that is of course That we have to deal with payroll and payroll is a pain It's a whole it's a whole another cost that's going to happen no matter how we do it if we do it ourselves Likely we're going to make mistakes if we use software We're going to have to pay more if we hire someone else to process the payroll even with a couple employees It's going to cost more and we're going to have to pay our portion Of the social security and medicare over and above What we pay the employees if we were to hire them as a contractor Then maybe we have to issue them a 1099 and we can simply just pay them similar to us paying any other expense like a utility bill Which is obviously a lot easier to do typically So so you have to make sure that if you're hiring someone That that if you hire them as a contractor that they qualify as a contractor Remembering that the irs is going to be coming after you to be responsible for their income You have to rat them out if you want the deduction in terms of income either they're an employee Where you rat them out to the irs by by actually taking their money and paying it to the government on their behalf As well as giving them and the government the w2 form reporting that information So they must report it on the 1040 or else obviously the iris has that or You might have to give them at least a 1099 even if they're a contractor Because again if you don't the iris will say do you want that deduction if you want the deduction You have to do that or we come after you with the with the sticks the penalties and interest And we hit you with them right metaphorically All right, so that publication has information to help you determine whether an individual is an independent contractor or an employee An independent contractor is someone who is self-employed You generally do not have to withhold or pay any tax on payments made to an independent contractor