Forced to incorporate is a quirk of the company.

Hi June,

I'm a New York City Indie Sound mixer for TV, 10 years. Thanks so much for your very informative web site.

I'm so confused this is the second company that has sent me an email with this content. "Hi Sheila, Helen forwarded your invoice and w-9 form to me – however, we cannot pay you via a w-9 form. Because you are not incorporated, we need to pay you via a w-4 and withhold payroll taxes. You will be issued a w2 for 2010 tax reporting purposes. We are obligated to follow the instructions of New York State Department of Labor. Please complete the attached, including a signature and a withholding exemption amount on line 5. You may email it back to me, mail, or fax." I have not sent a reply to this request.

I am wondering if i should incorporate (which you don't suggest). Some years ago I used a DBA. I could I use the name I used then to get a tax id number and set up a bank account and ask this company to issue me a 1099 to the DBA?

If all my vendors start doing this will I lose my ability to deduct.

I welcome your comment.
Sheila


Hi Sheila,

If you are legitimately self-employed then there is no New York state department of labor law that says you must incorporate or you must be an employee. That demand is a quirk of the company.

Here's my post with good overview of the requirements for self-employment: Employee vs. Self-employed. And here's a post of someone in a similar situation: Forced to be an employee!

If the company will accept a federal ID # or a DBA [doing-business-as meaning a name other than your own] or even an LLC then by all means do one of those rather than work as an employee or even more cumbersome and expensive, forming a corporation.

Would be great if you could get me a copy of the instructions of New York State Department of Labor that Helen says they are obligated to follow.

Pleased that my site is helpful. Thanks for letting me know.

-- June

Don't incorporate just because the big boys tell you to.

Hi June -

GREAT info, i could spend hours reading your fantastic advice!

A couple questions please: 1. I just completed a 3 week freelance job - they want me to incorporate to be paid (they have Department of Labor issues) - I think this is crazy and makes little sense, which I told them.

They then asked me to do an EIN with a DBA, I'm slightly more open to that, although I still think it's a lot to ask (and potential cans of worms for me) for just 3 weeks of pay.

They claim they can't do 1099 because of their upcoming audit, can't take chances. Any ideas?

2. Once this job is over, I will file for unemployment (I was laid off prior to this 3 week gig) from a major corporation. Will any of the above scenarios prevent me from collecting? Because I don't want to jeopardize unemployment (I'll need it to fill gaps between freelance assignments) by filing a sole proprietorship EIN, etc - that would be truly unfortunate.

Thanks for your help!
Kelly
PRODUCER, JUST BEGINNING!
BROOKLYN, NY


Wow, Kelly! What an endorsement. Hours reading tax stuff. Thanks.

Many corporations attempted to skirt around the regs dealing with employee versus self-employed so that they could save about 25% to 30% in payroll taxes and employee benefits. They cheated. Some got caught. What often happens is that they devise ways that "look good" but really aren't so good.

By that I mean, the corporation will hire someone who should be classified as an employee but instead hires that person as an indie. The corp then insists that the indie incorporate in order to cover its own rear-end should there be an audit.

Don't incorporate unless the three weeks of income is really, really a lot of money.

An EIN and a DBA is no problem for you. Just a little extra work. Check these posts on EIN-employer identification # and these on DBA - Doing Business As . If your bank won't accept payments to your DBA name then you'll need to open another bank account.

Each state's unemployment regs are different. Check New York's requirements before you take any action. Might want to read these posts first unemployment compensation .

Best,
June

1099-MISC is a requirement.

Hi June,

I am a self-employed web designer from PA.

I've been "indie" for 6 or so years and up until now, have never been asked to fill out a w-9 form and frankly, don't like sending my social security number to my (house painter)client, who will then give it so some accountant.

The client just emailed me and said his accountant wanted me to fill it out to be on "record". This is for a job that I completed 6-8 months ago and was paid for in full by his business check (a little over $700) made out to my name, as i have no business identity. I will pay income tax on what i made from him - and i don't understand why he can't write off my expense as a advertisement expense.

So do i have to give these people my social security number? And what are they going to do with it?

thanks for any info you could provide!

Amy
PA


Hello Amy,

Your painter client is correct and so is his accountant. You were supposed to have been receiving 1099s for "the last 6 or so years." 1099s W2s W4s W9s

Anyone who hires you is supposed to give you a W-9 to fill out so that he may have your name, address and social security # in order to send you a 1099-MISC a year-end.

Whether you are paid in cash or check or chickens if it's $600 or more you are supposed to receive a 1099-MISC.

Not wanting to give your social security # to someone for whom you work could be construed as paranoia or careful business practice.

If it's paranoia: Get over it. If it's careful business practice get a federal ID # and use that # instead of your social security #. EIN-employer identification #

Read all the posts in the links above and you will feel much better because you will understand that this is a required by the IRS.

-- June

eBay Sellers: Recordkeeping For Purchases & EIN How-tp

Hello.

I have purchased your book and it has been very helpful.

I have my own ebay business. It started selling mostly things in the house I was no longer using. Now, I purchase items at yard sales and resell them on my store. If I keep a list of items that I purchase at yard sales and what I paid for them, will this serve as a receipt for expenses?

Also, I want to expand my business this year by buying some wholesale items to put on my store. Some require an EIN to purchase. Do you recommend getting an EIN? I am a little afraid to use my social security number when purchasing items.

Your advice would be appreciated. Thanks so much!

Tammie
Lewisville, NC


Dear Tammie,

It's good to hear that you business is growing. Not an easy thing in these hard times. And It's also good to hear that my book is helpful to you.

Your goal in keeping purchase records is not simply to know what you paid for items, your records also need to show that you have a "business motive." That means the more business-like your records or the more they can show that you put some time and effort into them, the better your image should the IRS take a look.

So yes keep a list. If possible get a receipt -- bring your own paper & pen -- from the garage sale seller. Save the ad announcing a garage sale. Take a camera and photograph the sign at the end of the driveway that alerts passersby to the sale. If you buy a big item then photo it. Anything that shows you're doing your best to keep accurate records.

And yes, an EIN is a good idea in your case. Here's the link to apply. And here are some of my posts on EINs.

Best,
June

Get an EIN for Security Reasons

Hi June,

LOVE your website and blog. Not only is it informative, but it's damn entertaining as well.

I have a quick question about EIN's. I'm an independent consultant for large companies and firms. I usually go to a company, teach a 2 day-long seminar to its employees and then move on to the next job. I've only been doing this for about 2 years now, but I find that when invoicing for my work, I'm constantly giving out my Social Security number to every company that pays me.

I'm starting to think that from an identity theft standpoint it might be smart to get an EIN to use for my business activities. Should I?

And if I do, can I still use my Social Security number for other reasons (medical forms, year-end taxes, dealing with the Social Security administration when it's time to collect SS benefits, etc.)

Thanks very much, and keep up the good work!
Josh


Hi Josh,

Glad you like my stuff. Thanks.

Yes, by all means get an EIN. Use it for all your business papers. Your EIN and your social security number will be used on your tax return. Both will appear on your federal Schedule C: Profit (Loss) From Business.

You would still use your social security number for all personal paperwork such as medical, etc.

Here's some more info on EINs and how to get one EIN-employer identification # .

Cheers,
June

More On EINs (Employer Identification Number)

Use may use your Social Security Number as your sole proprietorship’s identifying number, unless:

• You must withhold taxes from a subcontractor you've hired.
• You hire one or more employees.
• You set up a self-employed retirement plan (does not include a SEP).
• You are an LLC
• You deal in products that require you to file a Federal excise, or alcohol, tobacco and firearms return.

If one or more of the above applies to your business, you will need to get a nine-digit employer identification number (EIN). An employer identification number, as with many IRS terms, is incorrectly named. All employers must have an EIN but, as you can see from the list above, it's not only employers who must have one.

In the United States everyone must have a Social Security number. Hospitals give them out when a child is born. Think of an EIN as a Social Security number for a business.

Many of you have asked whether you need to get an EIN. Here's a cheat sheet to guide you. The links take you to the EIN application process.

You will need an EIN if you answer "yes" to any of the following questions. If you answer "yes" go here to learn How to apply for an EIN or click the YES .

Do you have employees? YES NO

Do you operate your business as a corporation or a partnership? YES NO

Do you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms? YES NO

Do you withhold taxes on income, other than wages, paid to a non-resident alien? YES NO

Do you have a self-employed pension plan other than a SEP? YES NO

Are you involved with any of the following types of organizations? Trusts, Exempt Organizations, Estates, Farmers' cooperatives? If yes. talk with a tax pro.

Note that the IRS now requires an LLC operating as a sole proprietorship to have an EIN.

Here's a couple questions on EIN from my readers.

Hi June! (it's my mother's name, too!)

I am an Actor-Filmmaker living in New York City and have been an indie for 8 years. I am getting married in September and I will be taking my husband's last name. However, I would like to keep my maiden name so I can keep my stage name, accept checks, sign contracts, etc. I am thinking of filing a DBA form. Is that the right move? If I do, do I need a Tax Identification Number from the IRS (this was an option for an additional fee on LegalZoom.com and I'm not sure I need it)? I guess I'm also confused how to use the DBA with my bank account and keeping tax records.

Any advice for a struggling artist?

Thank you so much for supporting us indies! Your support means a lot! I look forward to hearing from you.

All the best,
Sarah


Dear Sarah,

I have many clients who use a maiden name as well as a married name or a hyphenated name with both. Some guys use both a birth name and a stage name. No DBA is required.

Check with your banks and see what they require.

It's a legal situation so best to check with a lawyer, however, I suggest signing contracts with both names.

No you do not need an EIN to use both names.

Happy September wedding!
June

}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}

Hi,

I went on Amazon.com to find a book to help me with taxes. I saw your book, and plan on getting it. However, I have a few questions that may not be in your book, because they have to do with my occupation and a Fictitious Name. I'm thinking of doing graphic/website design here in Florida, generating work from an office in my home. I would perhaps have clients in various parts of Florida and perhaps out of state, via the Internet. The business would be just me; no employees.

Someone suggested that I use my social security number for tax purposes, rather than get an EIN number. And, I'd rather have a Fictitious name, other than mine, appear on my business cards, letterhead, and such.

Is it possible to work as a graphic/website designer without the need of an EIN number, and have a fictitious name?

I look forward to reading your book, since the reviews are all positive.

Sandra


Dear Sandra,

The feds do not require you to have an EIN for a fictitious name. However, since you will have checks made out to you in your business name, your bank may require it .

Best,
June

EINs and Pensions

Hi June,

Thanks for your website. It gives lot of information for starters like me.

I just started working as indie software consultant. I wanted to open a solo 401k also. I read in your blog like if I want to contribute to solo 401k I need EIN number. If I apply for EIN number, I have to use that EIN number for my clients. Is that correct?

and also Do I have to open a business account with that EIN number or my personal account should be fine?

Thanks
Mani
Tallahassee, FL


Dear Mani,

EIN stands for Employer Identification Number. Here's a couple of my posts on EIN-employer identification # (2)

When you establish a 401k and certain other kinds of self-employed pensions you must get an EIN for the pension. That's because the pension is an entity -- something that is separate from you -- and it must have its own identifying number.

For some pension plans, once assets exceed $250,000 a tax return for the pension must be filed. It is Form 5500 or Form 5500-EZ. You, the indie, must then also have your own EIN because it is required on the Form 5500.

Keep in mind this does not mean that you have two EINs. Your pension has an EIN and you have an EIN.

You do not have to open a checking account with your EIN. You may use your personal account as long as you are not operating as an LLC.

I don't know what you mean by "use that EIN number for my clients."

-- June

EINs in Germany

June --

This is my question: During my first deployment in Iraq (2007-2008) I started selling books, DVD, and other items online in my free time as a hobby, after a couple of months I was receiving more than a few hundred dollars from Amazon, Ebay and other websites for my sales every two weeks, but the net income was very small ex: of $600 amazon deposit, only $50 would be real profit.

In order to get wholesale prices from the on line suppliers I got an EIN (Sole proprietorship, internet sales) from the IRS website and I kept selling. I really didn’t know a single thing about taxes, I didn’t keep any records or receipts of the books or dvds that I bought to resale online….. and I didn’t take it in consideration when I got the EIN from the IRS either, that the Army taxes office in Iraq couldn’t help me to file my taxes because of that EIN. So I didn’t file in 2008.

After we left Iraq I stopped selling because I don’t know what to do with this tax and EIN situation, I want to fix this and find out how to keep selling without getting in trouble.

I read in the IRS website that you can cancel the EIN number and retake at any time, do you think I should do that?

I ‘ve been trying to talk to someone that does taxes for Americans here in Germany but it’s not that easy.

I would like to hear what you would do if you were me.

Thanks a lot!!
steven


Dear Steven,

Do not get rid of your EIN. Having an EIN really doesn't make much of s difference in your situation.

Very simply: Keep on selling. Claim the income on your tax return and reduce it by your expenses. You must keep a record of expenses. On your tax return, your tax preparer will put your social security # and your EIN.

I have clients in Iraq and in Germany. I think you'll be able to find someone in Germany who can prepare your tax return for you. The preparer just needs to know the basics of filing a return for a self-employed person. Start by asking at the base then at the bank.

Best,
June

EINs and LLCs: Updated

Dear June,

Subject: "Payee" Name on Checks that are Written to Me?

I am an LLC operating as a sole proprietor in CO. The IRS does not require an EIN for my situation, so I have never used one. I have always instructed clients to write checks to my company name. Twice in the past year two clients received letters from the IRS. I haven't seen the letters, so I don't know the exact context, but the bottom-line is that my clients believed that if I wanted to continue to receive checks with my company as Payee, then I would have to provide them with an EIN.

For tax purposes, the IRS site clearly states that an EIN is not necessary for an LLC operating as a sole proprietorship.

For legal purposes, it's my understanding that you should always receive checks in your company name. So, how should a check be written?

Additional Information that May Be Relevant I like "clean" tracking, so I deposit the checks into a business account from which I also pay business expenses. When I want to pay myself, then I transfer funds from my business account to my personal account.

An EIN has seemed unnecessary, and it's never been a problem until this year. I loathe the idea of adding yet more numbers to my life. Is it feasible to continue avoiding an EIN

Thank you in advance for your guidance!

Rose

P.S. I diligently searched your book (which I bought many years ago, and often refer to and recommend to others). Trust me, I'm not just flattering you; your book is great and I wonder when you will write an update. I also searched your blog. I'm confident that either (a) my question is not already answered on your blog, or (b) I don't know the right key words to use when searching the book's index or searching your site.


Dear Rose,

This is an update to an earlier post on EINs.

The IRS now says that an LLC must have its own EIN.

If at all possible get a copy of the letters your clients received from the IRS. You said the the clients "believe" they can't pay you unless you have an EIN. Well ... what's that really mean?

You are also correct that in order to maintain the protection of the LLC checks should be made out to the LLC. Whatever name your LLC is registered as, is the name the checks should be made out to. Be sure you have that name on invoices and business cards so that clients will have a reference.

If your clients plan to send you a 1099 at year-end they will also need your address and your EIN.

Thank you. I am so pleased that you use my book as a reference. That is what it is meant for! By he way, all the basic information and how-to instruction in Self-employed Tax Solutions, although written several years ago, still applies for 2008 tax returns and so far for 2009 as well. Specific numbers may have changed but method has not. For instance, although the per mile rate for auto deduction changes every year, or even every half year, the all-important simple method I explain for keeping mileage records and the deductions for auto expense have not changed.

Best,
June

Don't let them force you to incorporate!

June --

I have been a designer, illustrator, children's book author for 3 years as a sole proprietor.

A company I've been freelancing with for years has just requested I incorporate so they can write a check to me as a business instead of writing a check to me as an individual.

I've looked into S-corp and LLC, but before I spend the money I was wondering the following:

1. Will the combination of a DBA and an EIN do the same thing as an LLC in terms of my personal information (such as SS# and name) not being disclosed to the company and instead appearing as a business?

2. What are the main advantages/disadvantages of S-corp v. LLC

Cambria from Brooklyn


Hello Cambria,

Yes, a business name and an EIN will not expose your name nor your social security number. It's a terrific way to get around the request of your client. For example checks can be made out to Design Delights, ID# 22-1111111.

You may apply for an instant EIN -- stands for employer identification number -- here.

WARNING!! Do not incorporate.

OK. Now that I've said that I'll review a couple things I've already said on this blog and elsewhere.

An LLC is a Limited Liability company. Note that the “C” means “company” not “corporation.”

Be aware than an LLC is not a Federal tax entity but a legal business structure set up under the laws of each state. Because LLCs are formed under 50 different sets of state law, regulations governing an LLC depend upon the state of organization. The legal treatment of an LLC may vary from state to state. If your business is an LLC it has liability protection similar to that enjoyed by a corporation. You are not personally liable for the debts or liabilities of the LLC. That means a disgruntled supplier could go after your office equipment (a business asset) as payment for a delinquent invoice but could not confiscate your kitchen appliances (personal assets).

The legal entity, LLC, may be set up for tax purposes as a sole proprietorship, a partnership or a corporation.

Go here for my various posts on LLCs.

Be sure to check out the book that can simplify your tax and financial life, and save you money! Self-employed Tax Solutions.

Best,
June