1099 Tax Question

[cfrphoto]

Hi,

I'm a sole-proprietor (I do photography work), and on a recent job I brought my 13 y.o. son along to assist me and told him I'd pay him 25% of the income from the job The job paid $4,000 flat, pre-tax, so I gave him $1,000. Now, I'm not going to bill him for the taxes on that, and he doesn't file his own at this point, but for my own records I'm wondering how I can calculate how much of a tax hit I'M going to be eating (because I'm obviously going to be taxed on that $4,000, so if I gave him 25% of the the POST-TAX income for that job, it would of course be less than $1,000. I'm trying to figure out how much less.

My thought would be to prepare my taxes as usual at the end of the year (I use TurboTax), and then write down the amounts of the Federal and State taxes I owe. THEN, to calculate the amount I'm being taxed on JUST that $4,000, go back and subtract $4K from my 1099 income reporting, which would generate a lower Federal and State tax bill. Finally, subtract the lower bill form the higher bill and the difference would be the amount of tax I'm paying on JUST that $4,000.

Does that make sense? Or is there another way to calculate how much I'll have to pay on that $4K job?

Thanks for any advice at all.

CI

[TAAccounting]

Photo,

I apologies nobody answered this question for you.

The calculation for self-employment tax is as followed:

Net Income x 92.3% = Taxable Income

Taxable Income x 15.3% = Self-Employment Taxes

Taxable Income x 6.0% = State Taxes (for Missouri).

-------------------------------------------------------------

So in your case...

$4,000 x 92.3% = $3,692.00

$3,692.00 x 15.3% = $568.88 tax liability


I hope this helps!

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[Business Attorney]

You may want to rethink your plan. As a sole proprietor, the amount you pay your 13 year old is not subject to social security, Medicare taxes or FUTA. The payment to your son is subject to income tax withholding, but if he owes any income taxes at all, he will certainly be in a much lower tax bracket than you. Depending on your taxable income, and considering possible state income taxes as well, you could be paying nearly $500 in taxes that would not be owed if you treated the payment to him correctly.

See Taxation of Family Help | Tax Help Advisor (http://www.taxhelpadvisor.com/payments/tax-withholding-rules-for-family-help/)

[liamdai]

not a cpa so you should confirm,

couldnt you have put your 13 yr old on payroll? under 18 you do not need worker compensation and do not have to withhold money.

and he's going to have a standard deduction at year end so he wouldnt be paying any taxes at all but in return helped you save taxes