Does a small company need a tax ID number?
A sole proprietor who does not have any employees and who does not file any excise or pension plan tax returns is the only business person who does not need an employer identification number. In this instance, the sole proprietor uses his or her social security number as the taxpayer identification number.
How do you determine if a person is an employee or an independent contractor?
The determination is complex, but is based on who has the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, or whether the person works part-time or full-time.
There are three basic areas which determine employment status:
For more information on employer-employee relationships, refer to Publication 15, Circular E, Employer's Tax Guide and Publication 15-A (PDF), Employer's Supplemental Tax Guide.
If you would like the IRS to determine whether services are performed as an employee or independent contractor, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
What is the difference between a Form W-2 and a Form 1099-MISC?
Both of these forms are called information returns.
The Form W-2 is used by employers to:
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Report wages, tips and other compensation paid to an employee.
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To report the employee's income tax and Social Security taxes withheld and any advanced earned income credit payments.
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To report wage information to the employee, the Internal Revenue Service and the Social Security Administration.
A Form 1099-MISC is:
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Used to report payments made in the course of a trade or business to another person or business who is not an employee.
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Required among other things, when payments of $10 or more in gross royalties or $600 or more in rents or compensation are paid.
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Provided by the payer to the IRS and the person or business that received the payment.
For business travel, are there limits on the amounts deductible for meals?
- Meal expenses are deductible only if your trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties.
- The amount of the meal expenses must be substantiated.
- However, instead of keeping records of the actual cost of your meal expenses you can generally use a standard meal allowance. The amount allowed varies, depending on where and when you travel.
- The deduction for unreimbursed business meals is limited to 50% of the cost that would otherwise be deductible.
I use my home for business. Can I deduct the expenses?
To deduct expenses related to the business use of part of your home, you must meet specific requirements. Even then, your deduction may be limited.
Your use of the business part of your home must be:
The business part of your home must be one of the following:
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Your principal place of business.
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A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business.
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A separate structure (not attached to your home) you use in connection with your trade or business.
NOTE: You do not have to meet the exclusive use test if you satisfy the rules that apply in either of the following circumstances:
How do you distinguish between a business and a hobby?
Hobby expenses:
In making this distinction, all facts and circumstances with respect to the activity are taken into account and no one factor alone is decisive. Among the factors which should normally be taken into account are the following:
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Whether you carry on the activity in a businesslike manner.
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Whether the time and effort you put into the activity indicate you intend to make it profitable.
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Whether you depend on income from the activity for your livelihood.
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Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
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Whether you change your methods of operation in an attempt to improve profitability.
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Whether you, or your advisors, have the knowledge needed to carry on the activity as a successful business.
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Whether you were successful in making a profit in similar activities in the past.
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Whether the activity makes a profit in some years, and how much profit it makes.
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Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
Are business gifts deductible?
If you give business gifts in the course of your trade or business:
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You can deduct the cost subject to special limits and rules.
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You can deduct no more than $25 for business gifts you give directly or indirectly to any one person during your tax year.
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You need to have records that prove the business purpose of the gift as well as the details of the amount spent.
NOTE: There are certain items whose cost does not have to be included in the $25 limit.
Under what circumstances am I required to change my employer identification number (EIN)?
If you already have an EIN, and the organization or ownership of your business changes, you may need to apply for a new number.
Some of the circumstances under which a new number is required are as follows:
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An existing business is purchased or inherited by an individual who will operate it as a sole proprietorship.
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A sole proprietorship changes to a corporation or a partnership.
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A partnership changes to a corporation or a sole proprietorship.
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A corporation changes to a partnership or a sole proprietorship.
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An individual owner dies, and the estate takes over the business.
This list is not all inclusive. Please refer to the website under Business, then Employer ID Numbers.
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