Start Your Own Business (112 page)

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Who has control?
A worker is an employee if the person for whom he works has the right to direct and control him concerning when and where to do the work. The employer need not actually exercise control; it is sufficient that he has the right to do so.

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Right to fire.
An employee can be fired by an employer. An IC cannot be fired so long as he or she produces a result that meets the specifications of the contract.

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Training.
An employee may be trained to perform services in a particular manner. However, ICs ordinarily use their own methods and receive no training from the employer.

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Set hours of work.
Workers for whom you set specific hours of work are more likely to be employees. ICs, on the other hand, usually establish their own work hours.

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Sole proprietorships.
If you are a sole proprietor, every year you must file Schedule C (
Profit or Loss From Business
) with your Form 1040 (
U.S. Individual Income Tax Return
) to report your business’s net profit and loss. You also must file Schedule SE (
Self-Employment Tax
) with your 1040. If you are a calendar-year taxpayer, your tax filing date is April 15. Fiscal-year taxpayers must file their returns no later than the 15th day of the fourth month after the end of their tax year.

In addition to your annual tax return, many self-employed individuals such as sole proprietors and partners make quarterly estimated tax payments to cover their income and Social Security tax liability. You must make estimated tax payments if you expect to owe at least $1,000 in federal tax for the year after subtracting your withholding and credits and your withholding will be less than the smaller of: 1) 90 percent of the tax to be shown on your current year tax return or 2) 100 percent of your previous year’s tax liability. The federal government allows you to pay estimated taxes in four equal amounts throughout the year on the 15th of April, June, September and January.

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Partnerships and limited liability companies (LLCs).
Companies set up with these structures must file Form 1065 (
U.S. Return of Partnership Income
) that reports income and loss to the IRS. The partnership must furnish copies of Schedule K-1 (
Partner’s Share of Income, Credits, Deductions
), which is part of Form 1065, to the partners or LLC members by the filing date for Form 1065. The due dates are the same as those for sole proprietors.

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Corporations.
If your business is structured as a regular corporation, you must file Form 1120 (
U.S. Corporation Income Tax Return
). For calendar-year taxpayers, the due date for the return is March 15. For fiscal-year corporations, the return must be filed by the 15th day of the third month after the end of your corporation’s tax year.

“Opportunities are
usually disguised as
hard work, so most
people don’t recognize
them.”

—ANN LANDERS

 

 

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S corporations.
Owners of these companies must file Form 1120S (
U.S. Income Tax Return for an S Corporation
). Like partnerships, shareholders must receive a copy of Schedule K-1, which is part of Form 1120S. The due dates are the same as those for regular corporations.