Donna Blackwell from Personalized Bookkeeping and Tax Services Inc. explains in this podcast. Donna is an Enrolled Agent and a Certified Acceptance Agent who has been doing personalized tax service for over 30 years. Her business does bookkeeping, payroll, IRS representation, issue 1099, and more. Donna herself has employees and subcontractors who work for her.
What is the difference between a subcontractor and an employee?
An employee is told what time to come to work and they use the business’s equipment. Even if working virtually, the business still tells them what time to be working.
A subcontractor does not work in the businesses office and they may work for various businesses. The business does not tell them when to work. They use their own equipment, paper, pens, ect. A subcontractor may or may not have contact with a businesses customers
If a person is paid by the hour, are they a subcontractor or employee?
Being paid by the hour is a gray area. If the business tells you when you must start working, what hours to work, and when you can be done working, you are an employee. If you clock in when you would like to work, you can be considered a subcontractor, even if you are tracking your time and being paid by the hour.
As a subcontractor, what forms need to be filled out for a business?
According to Donna, a business should ask you from the start for a W9. You can find a W9 on the IRS website https://www.irs.gov/pub/irs-pdf/fw9.pdf
W9 do not need to be kept by the business for a certain amount of time. Donna puts them into her system and then files it away in the subcontractors file.
What about a 1099?
A business should send you a 1099 at the end of the year if they have paid you $600 or more. 1099 are due to subcontractors by January 31st, or the Monday after if the 31st falls on a holiday.
You can not get a blank 1099 online. They are special red copies that need to be purchased from the IRS or an office supply store. They can be hard to get in January, so Donna suggests purchasing them early if you are a business who will need to send them to subcontractors.
Should I use my Social Security number on the W9?
Do not use your ss# on W9, get a Federal ID Number from the IRS website using your name or a business name. Giving out all of your personal information and ss# to people is a security risk. Also, from a business standpoint, If the Dept of Labor audits a business who has written a 1099 with a personal SS# they question it, while one written to a company with a federal ID number is not.
How do I get a Federal ID Number?
Donna says that it only takes 5 or 10 minutes to fill out the SS4 on the IRS.gov website to get a Federal ID number. It can be filled out as Sole Proprietor, LLC, or other type of corporation.
Even though the year has just ended, there is still time to fill out the form to get yourself a Federal ID number. You can ask any business you have worked for who owe you a 1099 to use your new Federal ID number instead of your Social Security Number.
What if I want to change my business from a Sole Proprietor to a different type of corporation?
You will need to get a new Federal ID number if you change your type of business.
As a subcontractor, do I only need to claim anything over $600?
As a subcontractor, you need to claim any amount of money you make. You must claim money under $600 per year and over $600 whether the business you worked for sent you a 1099 or not.
Do I need to charge or pay sales tax?
Typically, you do not need to charge sales tax on labor, but do need to charge it on products. You can check with your Department of Labor in your State to verify. Donna notes that some Programmers are required to charge tax on their labor depending on the platform they are using. Always ask your Department of Labor if you have any questions.
Bank account tip from Donna:
Anyone operating a business should have a separate bank account for it. Keep your revenue and expenses separate.
What do you do for Tax Debt Relief?
Donna says she deals with people who have not filed taxes in a few years, or are dealing with an audit.
Find Donna at https://www.mountjuliettaxes.com/, email her business at mountjuliettaxes.com 615-773-2736