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FAQ

Would you rather be a permanent employee with benefits, 401k match, making $100k a year with a $10k+ bonus, or a contractor making $85 an hour?
Read Sean Masters wonderful, detailed answer, then consider the following.Employee vs Contractor - At Will Employment vs Contractual EmploymentDoes this employer keep contractors on for a long time or are they really just well paid temps? Does this employer keep employees on for a long time or are they really just lower paid temps with benefits?I know you used the word “permanent” to distinguish it from “contractor” but do permanent jobs still exist in today’s economy? I know there are some union jobs that having bumping rights. If your current position is ever terminated, then you get to “bump” the person out of your old position (and they do the same on down the line.)But if it’s not a union shop then you are likely an at will employee. That means you can be fired at any time with no reason necessary. With contracting you can sometimes negotiate a better exit plan. If the company terminates your contract before some agreed upon date, then you receive a lump sum close out payment.Resume Value - Employee vs ContractorIn the past it was possible to get a nice letter of recommendation from your former boss. But in today’s litigious environment, many companies have a policy that forbids such letters. And they often direct all questions related to a former employee to HR. Your boss can’t even put in a good word for you. And HR is only allowed to answer questions like “What dates did the employee work?” or “What was their starting and ending job titles.”But with contracting, you have a little more control over how your future employers see you. If you were hired on a two year contract and you completed that two year period then most all future employers will assume you did good work. If you contract with the same employer more than once (or your contract is extended), then most future employers will assume you did exemplary work.But this is really an industry and/or expertise kind of thing. In my situation, my having contracted with dozens of companies, is valuable to my future employers. But in other situations, that might be considered a liability.Personality MatchThe question asks “Would you rather” and so I’m going to answer it from that perspective. Money is very important, but so is being able to get up everyday and do something you don’t hate. Something that you find satisfying and that doesn’t put you in a position where you have to compromise your integrity.My preferences are business owner, contractor, employee. And that order would stay the same even if I made somewhat less in the first two position. I have been all three and for me being an employee is the most stressful and the least satisfying. I’m a good employee, have always made my bonuses, but still find it stressful to let others lead. That’s just how I’m wired.With the particulars you provided, it’s a no brainier for me. Contractor.So think about how you are wired and put that into the mix as well. If you don’t have enough business experience to answer that today, then don’t worry about it and consider everything else.A Legal Note - California Hates Contract Labor OR California Protects Contract Labor From ThemselvesWhen I work as a consultant with any company outside of California, I work though my LLC. But in California, I have to work through a Temp Agency in the middle. And I have to change Temp Agencies every 11 months. That’s because in California, Contract Laborers must be hired as employees after one year.I don’t know what the fines are, but this has become a thing in California, at least among larger businesses with more exposure to fines. I know the intention of the law was to protect workers who where were “Contractors” in name only. But disreputable companies will always find a way to screw the folks who work their, contractor or employee.One Financial ConsiderationYou should consider yourself lucky to be offered such a choice.I have always found the following adage to be true. “The harder I work and the better I prepare, the luckier I get.”
How would you declare Amazon FBA revenue? Whom do you declare it to, and what taxes do you pay on your income?
Great question.Tax law is complex, and constantly changing. Each country and State has different laws when it comes to paying taxes. It is therefore very important that you work with an accountant who understands how Amazon businesses work.If you are operating in the United States market, and have sold more than $20,000 worth of product or 200 transactions by January 31st, then you will need to fill out a 1099-K form.This guide by Intuit Quickbooks provides much more detail on completing and submitting 1099-K forms.As a US resident, taxes are payable at the Federal and State levels. Tax rates also vary by jurisdiction. Non-US taxpayers are required to file a W8-BEN form, regardless of how many sales are made.Alongside income tax, you need to be aware of your sales tax obligations. Here is a map by TaxJar that explains tax rates and filing requirements for each State. As an FBA seller, you will have inventory in dozens of States, which creates nexus - therefore requiring you to register for sales tax as well.This sales tax starter kit provides much more information about what you need to know to comply with State sales taxes.
Can someone give advice to a new young business owner about LLC formation and taxes?
Wow, this could be a book. Where to start? The 1099-K shows your gross payments from PayPal by design. You won't actually be taxed on your gross income, because you are entitled to deductions against that income for your expenses in generating that income, but PayPal's instructions from the IRS are to report gross amount of all reportable transactions. See Instructions for Form1099-K (2021). The IRS will expect to see that income reported on the return with the tax ID number of the individual(s) to whom the 1099-K was sent. If you had income in 2021. because you are not yet organized as a business entity, that income will be reported on Schedule C on each of your tax returns, and each of you will take your own expenses against that income. This is where you need a professional who has knowledge of your situation to go over your finances for the business in detail; I wouldn't delay in finding someone. You don't necessarily need a CPA just for taxes - there are many qualified people who specialize in tax preparation for small business who are not CPAs. Check out all avenues - get referrals from your local CPA society and also your local chapter of the National Association for Tax Preparers (NATP), and also talk to people in your area who run small businesses and find out who they use. Don't be afraid to shop around. This is like finding a plumber or an electrician; you want someone who is qualified to do the job and on whom you can call whenever you have a problem that requires his expertise. Take your list of questions and concerns with you, schedule an appointment and make it clear that you are not looking just for someone who can prepare your taxes but someone who can give you advice and guidance on getting your business properly set up. You do have to make sure that all of the income on the 1099-K is properly reported. The IRS has a computer matching program where they match the payee ID on Form 1099s with the return from that individual, and if the income isn't there they will flag your return for review. I don't know whether PayPal is reporting all of the income to one payee or not; if there is only one person getting a 1099-K then you will need to discuss how it's handled with the preparer. It does not matter that none of the income was removed from the business; if you have net income it will be taxed. The default treatment of a multi-member LLC is a partnership, not "each person filing personally their percentage of the business". If you don't choose to be treated as an S-corporation, you will have to file a partnership return where all of the income and deductions are reported, and then each member of the LLC will receive a Schedule K-1 which shows his proportionate share of the net income from the business to be reported on the return. The same thing happens if you choose the S-corporation route. What's best for you depends on your overall business picture, and again you need someone you hire that is close to the situation to advise you on that. One other misconception that I will correct - neither partnerships nor S-corporations are taxed at the business level. Both are pass-through entities, and the income flows through to the individual partners/shareholders and is taxed at their individual rates. Good luck to you!
What are the fees on different vacation rental sites such as Airbnb, TripAdvisor and VRBO?
Thanks for the A2A! I hope this answers the question:1. Host and Guest Service FeesEach time a reservation is booked, Airbnb deducts a 3% host service fee from the subtotal, which is before taxes and fees. Keep in mind the fees are rounded to the nearest dollar. Be sure to deduct this Airbnb fee from your income when calculating expenses.There’s also a guest service fee which guests pay, and this can range from 6-12%. The higher the subtotal amount, the less tax is charged. These fees cover the costs of running Airbnb.2. Not Exactly Airbnb Fees . . . TaxesYou might have to pay income tax on your Airbnb income. This may require filling out a W-9 form. Airbnb could collect taxpayer information to help with this process, for both US taxpayers and non-taxpayers. Fortunately, Airbnb will issue a Form 1099-K to hosts who make over $20,000 and have more than 200 reservations. Airbnb will also issue forms to non-US citizens, whether they have a US Taxpayer Identification Number or not.Check out Ernst & Young’s guide on the taxation of rental income from Airbnb. The good news is that the guide also includes information on tax-deductibles like mortgage payments, maintenance, insurance, etc. Be sure to take a look at the guide and consult an expert so that you can follow the laws while taking advantage of tax benefits.Depending on where you live, there is a local tax that has to be paid on rentals ‡ this is known as occupancy tax, but can also be referred to as lodging tax, room tax, sales, tourist tax, or hotel tax. This tax is owed on providing accommodations and other chargeable services, like cleaning or hosting extra guests. The guest pays this tax but the host is responsible for transmitting the payment.In some cities, Airbnb collects and transmits this tax on behalf of the host. Otherwise, the host has to collect it on their own by including it in the nightly rate or in the Special Offer, which is a feature that allows hosts to create custom prices for guests which sent a booking inquiry. It can also be collected in person but should be done as soon as the guest arrives. Keep in mind, it’s usually better to do these kind of transactions using Airbnb’s website so that you can seek help when needed. Hopefully Airbnb will get to a point where it is able to collect and remit taxes for hosts in all cities.3. Airbnb Fees That Help HostsThere are certain fees that shouldn’t make hosts frown! A security deposit is a way for hosts to protect themselves and their properties if something should go wrong during a guest’s stay. The amount is totally subjective to the host. Should the host need to make a claim on the security deposit, they only have 48 hours to do so after check-out.The cleaning fee is also for hosts to charge guests on a one-time basis to cover the cost of turnover. This can especially be convenient if you use a cleaning service.Related: How do I price my Airbnb property?These Airbnb fees are important to those who have Airbnb investment properties because they should be assessed when thinking about costs, pricing strategies, Airbnb occupancy rate, and more. More importantly, it’s better have everything legal when investing because disobeying the law could lead to losing the investment all together.Use Mashvisor’s investment property calculator and enter these Airbnb fees in the “Other” cell to get a better idea about returns and costs.Related: Investment Property Calculator For Analyzing Real Estate InvestmentsSource: Airbnb Fees Investment Property Owners Should Know About
Does Uber take taxes out of the driver's pay or is the driver responsible to pay taxes?
As everyone knows by now (because everyone seems to be preoccupied with Uber withholding taxes ‡ even people who aren’t Uber drivers), Uber does not withhold taxes, and drivers are totally responsible for their own tax payments. However, the drivers are not “1099 contractors”, and are not working for Uber in any capacity. It is not at all like a company that “hires” independent contractors to do particular jobs from time to time.Yes, Uber drivers are self-employed, but they are not “working” for Uber at all. (In fact, if anything, Uber is “working” for them ‡ for which Uber is being paid its commission. The only reason why the driver doesn’t have to furnish a 1099-MISC to Uber when the commissions are over $600 is that payments to a corporation are not reportable in the same way.) So Uber is not reporting that it is paying compensation to the driver. What Uber is reporting is the gross amount that it collected on behalf of the driver, and then paid it to him/her ‡ before deduction of its commissions. That’s why the report is on a 1099-K ‡ not a 1099-MISC.Reporting on a 1099-K is required only when Uber pays a driver more than $20,000 or collects more than 200 transactions. My understanding (though I can’t prove it) is that Uber “voluntarily” reports even below those thresholds “for the drivers‡ convenience.” But whether it does or not, it is reporting the same thing.The driver may also receive a 1099-MISC. If so, that has nothing to do with fares. That would report other payments that Uber may have made to him/her, if they total over $600. I’m not really familiar with the details of those payments, but i understand that Uber pays drivers incentives and bonuses for various things, like referring new drivers, etc.; those types of payments would be reported on a 1099-MISC as “nonemployee compensation.”
What does it mean to work under a W2 contract?
What does it mean to work under a W2 contract?I was a contract worker for several years, and I pretty much agree with Peter Stanwyck’s description, but a description of my experiences might give some context. As Peter said, I worked as an employee of staffing agencies, and they arranged for me to work as a contractor at various organizations. The duration of any given contract could be for a few hours to a year or more.Each January, I would get a W2 tax form from each staffing agency. That form reported gross wages, various tax withholdings and any other amounts withheld for purposes such as a 401(k) or health insurance for the prior year. In contrast, an independent contractor might contract directly with the organization needing the work done. Fees for that work are paid directly to the contractor, with no withholding of taxes and such; this type of worker should receive a form 1099 in January where the fees are reported to the contractor and to the government. A 1099 contractor is responsible to pay all taxes to the government.If you’ve been reading between the lines, you might recognize contractors as “gig economy” workers—kept employed only as long as the hiring organization wants to keep us or until the end of our part in a project for which we were brought on to perform. The variety of jobs can be “interesting,” as they say. But it is an unstable way to be employed. As an example, I spent far more of 2021 between gigs than I would have liked. In January 2021 I received ten W2 forms, from nine different employers. One of the employers sent me two W2s because they bounced me around to different cities with different tax rates, and they couldn’t fit all of them on one W2.One perhaps humorous aside. Each staffing agency wanted prospective staff to undergo drug screenings, so I got exposed to several area labs that performed the service. I started teasing about leaving each of them with a cup of “Jim’s Best.”
What are Airbnb operating costs?
1. Host and Guest Service FeesEach time a reservation is booked, Airbnb deducts a 3% host service fee from the subtotal, which is before taxes and fees. Keep in mind the fees are rounded to the nearest dollar. Be sure to deduct this Airbnb fee from your income when calculating expenses.There’s also a guest service fee which guests pay, and this can range from 6-12%. The higher the subtotal amount, the less tax is charged. These fees cover the costs of running Airbnb.2. Not Exactly Airbnb Fees . . . TaxesYou might have to pay income tax on your Airbnb income. This may require filling out a W-9 form. Airbnb could collect taxpayer information to help with this process, for both US taxpayers and non-taxpayers. Fortunately, Airbnb will issue a Form 1099-K to hosts who make over $20,000 and have more than 200 reservations. Airbnb will also issue forms to non-US citizens, whether they have a US Taxpayer Identification Number or not.Check out Ernst & Young’s guide on the taxation of rental income from Airbnb. The good news is that the guide also includes information on tax-deductibles like mortgage payments, maintenance, insurance, etc. Be sure to take a look at the guide and consult an expert so that you can follow the laws while taking advantage of tax benefits.Depending on where you live, there is a local tax that has to be paid on rentals ‡ this is known as occupancy tax, but can also be referred to as lodging tax, room tax, sales, tourist tax, or hotel tax. This tax is owed on providing accommodations and other chargeable services, like cleaning or hosting extra guests. The guest pays this tax but the host is responsible for transmitting the payment.In some cities, Airbnb collects and transmits this tax on behalf of the host. Otherwise, the host has to collect it on their own by including it in the nightly rate or in the Special Offer, which is a feature that allows hosts to create custom prices for guests which sent a booking inquiry. It can also be collected in person but should be done as soon as the guest arrives. Keep in mind, it’s usually better to do these kind of transactions using Airbnb’s website so that you can seek help when needed. Hopefully Airbnb will get to a point where it is able to collect and remit taxes for hosts in all cities.3. Airbnb Fees That Help HostsThere are certain fees that shouldn’t make hosts frown! A security deposit is a way for hosts to protect themselves and their properties if something should go wrong during a guest’s stay. The amount is totally subjective to the host. Should the host need to make a claim on the security deposit, they only have 48 hours to do so after check-out.The cleaning fee is also for hosts to charge guests on a one-time basis to cover the cost of turnover. This can especially be convenient if you use a cleaning service.Related: How do I price my Airbnb property?These Airbnb fees are important to those who have Airbnb investment properties because they should be assessed when thinking about costs, pricing strategies, Airbnb occupancy rate, and more. More importantly, it’s better have everything legal when investing because disobeying the law could lead to losing the investment all together.Use Mashvisor’s investment property calculator and enter these Airbnb fees in the “Other” cell to get a better idea about returns and costs.Source: Airbnb Fees Investment Property Owners Should Know About
Are cryptocurrencies like Bitcoin taxed? If so, how?
It’s actually rather simple. In the USA, the IRS has issued guidance that cryptocurrency is treated as an asset—just like the stocks in your brokerage account. (This treatment is for tax purposes only).*IRS Virtual Currency GuidanceFull Draft Notice, 2014–21I am an expert on Bitcoin and the evolution of cryptocurrencies, but I am not an accountant or tax adviser and I have not carefully read these guidelines. But, as a taxpayer, I can comment on the treatment of asset sales. What follows is a layperson explanation of asset treatment and it should not be misconstrued as expert advice…AcquisitionLike shares in a corporation, you typically don’t report anything at the time of acquisition (this assumes that you acquired the asset for investment purposes and not as compensation for work performed or in exzchange for something that you sold). Of coures, you should retain clear records and receipts.LiquidationYou must report the capital gain upon selling virtual currency or converting it into something else of value.In Kind Exchange (Wash transactions)But just like a Picasso painting or stock in an aerospace company, if you convert it into a substantially similar asset (or buy a substantially similar asset a short time after the sale), then you are generally not required (or allowed) to record your gain. Instead, you may be required to treat as a “wash sale”. This means that the gains can be reported another day.I suspect that converting between like values of a virtual currencies constitutes a wash. Check with your accountant or tax advisor, of course![2021 UPDATE]: The 2021 Trump tax reform explicitly eliminates the wash sale exemption s for cryptocurrency. Even a direct conversion between two currencies (e.g. Bitcoin and Bitcoin Cash) results in a taxable / reportable event on personal tax filings.* Operating an Exchange or any Money Handling BusinessTreatment as an asset is for the purpose of tax reporting only! If you exchange or hold virtual currency on behalf of other individuals or organizations—or simply offer a Bitcoin ATM to a store or bus station, FinCEN guidelines make it very clear that you are a Money Service Business (MSB), a qualified custodian, or perhaps even a currency exchange. That really changes the game. You must now comply with regulations, training and oversight. Operating an MSB entails:Business permits/licensing (both Fed & State)Training and licensing of your staff (possibly even as brokers)Report and meet cash reserve requirementsCompliance with anti-money laundering regulations (AML)Compliance with Know your Customer regulations (KYC)Compliance with the Racketeer Influenced and Corrupt Organizations Act (RICO)In some communities, you may even need to meet requirements related to your hours of operation, or you may need to offer a notary service to your community.…and, perhaps, a dozen other hurdles. Effectively, if you exchange currencies or handle money for others, you must become a bank to be legal.Ellery Davies is a frequent contributor to Quora. He is also co-chair of Cryptocurrency Standards Association and editor at A Wild Duck.
If you drive for Uber or Lyft, how do you write off your gas, insurance, and other car-related expenses on your taxes?
In any independent contractor position, you are technically a small business for tax purposes in the US. When doing your taxes, you use Schedule C to report income and expenses from that business. You should receive a Form 1099 from the company paying you. That's your income. It's not wages so it goes on the Schedule C, not on the wages line of your tax form. If you have any other business income it goes here too.Your business expenses (gas, insurance, depreciation of your car, and so on) go on various lines of the Schedule C as well. A tax preparer or at least software can help make sure you get the deductions you're entitled to take. Also you file a Schedule SE to pay self-employment tax which is to pay your social security taxes.