Wealth distribution and taxes BLAHHH

A

artyswiss

Active member
I assume others have run into this same issue here. But here is the scenario. I am producing a animation for a company and am both self employed as well as pick up freelance work like this on the weekends and evening. I want to pay taxes on only my own portion of the earnings and have the others I am paying be responsible for the taxes on their payment. Is there any simple way of doing this? It's enough of a payment to put me in a new tax bracket if I take it all on myself and then pay everyone cash post taxes.
 
All this sounds a little shakey, but if you have any sort of business structure at all, and your subs do too, then you can pay them, and then issue a 1099 at the end of the year. If your subs do not have any business structure, you may required to withhold income tax for them if the payment exceeds a threshold amount, which I believe is $500 (check that amount). You will need a federal EIN (employer identification number) to do this, but this is no big deal. There are other criteria that may make these people your employees instead of sub-contractors or contract workers, so get some help on this. If they are unsupervised, this is their profession, they work for other people (or companies), and keep their own books, you should be ok.

As Matt suggested, a LLC or S-corp would make your situation more legit, but you can do this as a sole proprietor also.

Grant
 
Regardless of whether you are 1099 or W2 your crew, you will likely need to carry a worker's comp policy to cover those employees. Seek the (usually free) advice of an accountant, who will consult you on how to handle your particular situation. We pay our accountant less than $1k per year and they handle our 26-pay payroll, quarterly tax filing, workers comp filings and more. It is the best money we spend.
 
Depends on lots of things. If your subs are really subs then 1099s should be fine. No need to form an LLC or S-Corp, although doing so would give your personal assets some protection from liability (except against actions by you that would allow piercing of the corporate veil). No tax benefits to forming either entity type however.

Erik offers the best advices, although I don't necessarily agree with workers comp. If your subs are really employees who get W-2s then yeah, workers comp is probably mandatory (depends on your state though). If they are really sub-contractors, then you probably don't need to carry workers comp.

So a lot will depend on how you (or rather, the IRS) will classify your subs. There's a lot of info out there that can help you figure that out. Probably the best place to start is here: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

If your subs are actually employees and you end up having to pay the employer portion of payroll taxes, those taxes are tax deductible to you as a business expense and will reduce the income that you will end up paying tax on. All of the overhead costs related to being an employer should be factored in to what you charge and what you pay.
 
You really need to speak to an accountant and/or a tax attorney. They will be able to tell you exactly how you need to structure your business & bookkeeping to do this, and what type of paper work you'll need for the people who work with you, and whether those people should be employees or vendors.

BTW, it's possible to pay freelancers through a payroll service that will deduct taxes for them (and you!).
 
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