It depends.... dependent children with earned income (W-2 or 1099) of less than $14,600 in 2024 would only file a return if they have federal or state withholding for the year. Consider having them change their W-4 at work to "exempt" to allow them to keep their money throughout the year and skip filing a tax return. Self-employment income or unearned (interest, dividends, etc) income could trigger a filing requirement for income as low as $1,250 for the year.
The decision of entity type is an important one. We can discuss information about potential tax consequences and important items like health insurance for owners and retirement plans to help you make the best decision for your new venture.
The IRS requires all businesses to issue 1099's if they pay an individual or a business for services that are deducted on the business tax return. This includes cleaning services, lawn care, legal and professional fees, advertising and more. Fines for failure to issue 1099's are steep so you want to be sure you are getting the information you need to file these forms. We can guide you through the process to make sure you are in compliance with IRS regulations.
Schedule C businesses (sole-proprietors) may want to consider making an election to have their business taxed as an S Corporation. S Corporation owners can save tax dollars when the company is making a profit above and beyond what you would take as a reasonable salary. We can help you determine if/when that might be a good choice for your business.
Assigning the correct status to your workers is very important. The IRS has strict guidelines about which workers can qualify to be paid as contractors. This is an area that causes issue for employers and can be avoided by educating yourself on the IRS regulations for work classification. We can assist in educating you about your requirements to avoid costly penalties in this area.
If you do use contractors, you must issue a 1099 to them in most instances in order to deduct the amounts you pay for services.
You are still required to file a 1099 NEC, but it will be paper filed and you (or your accountant) will write "refused" in the box labeled TIN or SSN.
The best way to guarantee you get a W9 is to require the completed form before you issue payment for services. If a contractor refuses to provide the required information, you will need to start backup withholding (24% tax be taken from any future payments to ensure the IRS receives all tax due on income they make)
Form 15227 IP PIN Application (pdf)
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