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    1 Reply Latest reply on Aug 1, 2012 7:04 AM by ArcSine

    HELP - Questions about Self Employment Taxes

    livelaughlov333 Newbie

      I have a lot of questions, and any information would be EXTREMELY helpful. I really appreciate the help.



      If you can only answer one of the questions, please still answer. I'll take all of the advice I can get.


      1. If I consistently work and get paid weekly from a contractor, am I an independent contractor, sole proprietor, or both? I am not an employee. I am sub-contracted the work and I run the jobs, but I wasn't sure if I was a sole propietor also. I occasionally do work for other people as well.


      2. If I am (or want to be) a sole proprietor, do I have to register my business? (I live in PA)


      3. Should the contractor I work for give me a 1099? If so, how will that affect his taxes, will it make a difference for him at all? (negatively or positively)


      4. If I run my business a sole proprietor and I have a loss for the year, will I still owe income tax?



      Those are my main questions. I'll explain my situation a little more now. I recently started working as what I believe to be a sole proprietor in the construction business. I get consistent work and pay from one specific contractor, but I do have other small jobs as well. What do I need to do in order to be set up as a sole proprietor (as far as registration/taxes) I am basically just figuring out what would be the best way for me to be set up for taxes. I am definitely self-employed, but I do not have enough knowledge about the tax part of it.


      Please help and if you need clarification, please let me know.

      Thank you very much.

        • Re: HELP - Questions about Self Employment Taxes
          ArcSine Scout
          1. Both. Generally, "sole proprietor" is any self-employed individual who is not operating their business through an LLC, corporation or partnership. The question of "independent contractor" or "employee" is a separate matter, and is determined via a set of guidelines issued by IRS. Assuming that your working arrangement is that of an ind contractor, then you are an independent contractor operating as a sole proprietor.
          2. Someone familiar with PA biz-registration regulations will need to address this one.
          3. Yes, the contractor will issue a 1099 to you shortly after year's end. The act of issuing the 1099 has no effect on his tax situation, strictly speaking, in the sense that his payments to you are either a deductible expense on his return (almost surely the case, based on your description) or not, and issuing a 1099 doesn't change that fact. But there are potential penalties imposed on the contractor if he doesn't issue a 1099 in a situation where a 1099 was mandatory.
          4. Whether you owe tax for the year turns on the sum of all your income sources, and your various deductions, including personal itemized deductions. You could owe tax even if your sole prop business shows a loss if, e.g., you have significant amounts of income from other sources which more than offset your sole prop loss and any other personal deductions you might have. However, if your sole prop loss, along with your other deductions, exceeds the total of any other income you might have, then you won't have an income tax liability for that year.


          Best of luck with the new business!