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I own and operate a business. Last year I grossed about $20,000. I have people who assist me with my business that I pay out of my own pocket. As long as I do not claim these payments as "expenses" and pay taxes on the gross amount, does the IRS care? Obviously, all they care about is getting their money, so, if I pay what I owe in taxes, on the money I receive, do they care what I do with the rest of it? i.e. pay someone to help me.
I'm sure the IRS doesn't care if you don't take all the deductions you are entitled to. The problem you might get into is you are supposed to notify the IRS whenever you pay another individual over a certain dollar limit and it's possible that you might owe social security taxes on the money that you paid to your employees.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Yes, the IRS wants their income tax. If you are paying people to do work for you then you should be withholding income tax, SS and medicare tax, and state unemployment and disability. If these people helping you are self employed contractors the IRS requires 1099 forms if you pay them more than $600 in the year to report their income. Whether you claim their pay as business expense or not, the IRS will cause you grief if they find out. That doesn't seem likely, but if audited, they might want to know where that additional revenue went that you have not reported as income and no offsetting expense in your records.
I would be more worried about the state, than the IRS. The IRS simply doesn't have the resources to audit small businesses. So unless you are claiming tons of expenses that you normally don't claim, you won't be bothered. The state is completely different. They will aggressively pursue you, no matte what you owe. If someone reports you for avoiding the workers comp, unemployment insurance requirements, the state will shut you down.
There are specific regulations that define employees vs. independent contractors. You appear to be treating them as independent contractors, which they may well be, so you should be reporting their income to the IRS and to them on a 1099 so they can be taxed and pay their own social security tax (above a certain threshold, used to be $600). You could then deduct what you paid them. If they are employees, then you are likely violating the law by not reporting their wages, not withholding income and social security taxes and not paying the employer portion of social security.
What you are doing may never come to light, except when you get reported to the IRS and/or the state by someone you make unhappy or one of your helpers decides that they are an employee and files a complaint against you.
People who work expect to draw social security and Medicare when they retire. If you've never reported their work or paid their taxes (employer pays half, employee pays half) they might not have enough quarters to qualify for social security. That's one way that you can be reported and caught.
I own and operate a business. Last year I grossed about $20,000. I have people who assist me with my business that I pay out of my own pocket. As long as I do not claim these payments as "expenses" and pay taxes on the gross amount, does the IRS care? Obviously, all they care about is getting their money, so, if I pay what I owe in taxes, on the money I receive, do they care what I do with the rest of it? i.e. pay someone to help me.
How illegal are your employees that you think this makes better sense?
They aren't illegal, they just don't want to be bothered with it.
Quote:
Originally Posted by MrRational
Turn off FoxNews.
Never watch it
Quote:
Originally Posted by MrRational
Yes they do. And so will your state authorities. Not just the tax dept.
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