1. Home
  2. Taxes General Forum
  3. So whats my classification?

So whats my classification?

Hello all,

A little background:

I work from home and I am a futures trader. I trade for a group in chicago, and my salary is a percentage of the profits I produce. When I first started in 2005 I recieved my "paychecks" for lack of a better terms via direct deposit with taxes already taken out. At the end of the year (i.e. for april 2006 (taxes payable for 2005)) I recieved a W2 with the amount shown being the amount of money I recieved and the amount of taxes I paid. Sounds simple enough right?...well this year (2006) started out the same way. I recieve my pay direct deposit with taxes taken out. Then october rolls around and all of a sudden our "boss" informs us we are no longer W2'd employees. Since my checks have come via snail mail. and no taxes have been taken out. (I immediately take out the same percentage of my check for tax purposes as was taken out before and save it in a separtate money market accout.) My boss said he will send us W2s and 1099s this year. but next year we will be on 1099s for good. So my question is am I considered self-employed or an independent contractor? With either of these designations, are there any land mines I should look out for? Will I be responsible fo self-employment tax from here on out? Our boss says this will work out better for all of us. Is that true? What does this mean for me? Please offer all help and insight... Thank you for your time, Shhhh

Moderator: Welcome to the land of 1099 and 179 items. It seems like a good time to negotiate a raise to cover their share of employment taxes!

> > > > > > > > >
Reply to
Shhhh
Loading thread data ...
Reply to
Stuart A. Bronstein

One land mine is that you will be responsible for paying the

7.5% employer's share of social security tax. Formerly you paid 7.5% and the employer paid 7.5%. Now you will have to pay the entire 15%. This definitely works out better for you former employer.

Some advantages to you are that you will more easily be able to deduct business expenses, but you will have to keep meticulous records of those expenses. As a Schedule-C (sole proprietor) you will probably have higher bookkeeping and tax preparation fees.

-- To email me directly, remove CLUTTER.

Reply to
Vic Dura

Self-employed and independent contractor are essentially the same thing. You are both. For a detailed discussion of this, see the recent thread in this newsgroup titled "IRS document on Self-Employed vs. Independent Contractor."

You should be making quarterly estimated tax payments, not just holding the money for taxes in your own account. And you should be paying more than what used to be taken out, because you have to cover the self-employment tax.

Yes.

It will work out better for him, because he no longer has to pay the employer's share of social security and Medicare taxes, and probably avoids other employment taxes as well. But you now have to pay the employer's share. Self-employment tax is a combination of the employee's and employer's shares. Apparently your boss did not increase your percentage to compensate for the additional tax you have to pay, so he has shifted part of the tax burden from himself to you. On the other hand, since you are now in business for yourself, you may have expenses that you could not deduct as an employee but can now deduct as business expenses. Bob Sandler

Reply to
Bob Sandler

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.