Hi All, My father is opening his third business and has asked me to take on the accounting for it (yes, I’m qualified) as he won’t be as hands on in business #3 as he is in #1 and #2.
Since this will be a second source of income for me that I don’t need he asked me to research if there is a way to pay me tax exempt. Ie, if I open a 501-3c or something similar and get paid through that can I set the money aside for my child’s college fund (I’m not interested in setting up a 529 account)
I’m wondering if there’s a separate entity I can establish so I’m not an employee but rather a contractor to be smart with my obligations.
Why not have your father pay you as an independent contractor then? He would issue you a 1099 and the payment to you would be deductible on his business’ tax return (or personal tax return depending upon his business’ classification).
On the other side, you’d pick up the income on your personal tax return and be liable to pay the tax (both self-employment tax & ordinary income tax).
This is the path I’m thinking makes the most sense for our situation. But I also don’t want to be personally responsible for double the tax if I go 1099 vs being W2. I won’t have much in the way of deductions as a 1099. Some mileage as I don’t intend to work out of my home
I’ve started going down the path of creating my own S Corp and he can just pay me as he would his attorney but I think my tax liability would be even higher.
We’re not talking huge dollars here (maybe $10-$20k a year) but my primary source of income is in the 24% income tax bracket so really just trying to limit exposure there
No, am S Corp isn’t a good move here.
For the lowest overall taxes, between him and you, 1099 contractor is the way to go. It’s less taxes than if you are an employee (QBI deduction, no unemployment or workers comp).
This is really the answer I needed above all else. Thank you so much!!
I think I can bump up my retirement contributions in my day job (we have a mega backdoor ROTH available) to offset the liability of going this way on my end and my dad will just have the higher liability on the company side unfortunately
Your dad does not have higher tax liability if you go as a contractor. he just deducts your pay as an expense. The government will get less of the money, overall, if you work as a contractor.
Your drive to the office will not be a deductible expense. I see you mentioned that elsewhere. The drive to you first work location of the day, and home after, is considered personal.
" Ie, if I open a 501©(3) or something similar and get paid through that can I set the money aside for my child’s college fund (I’m not interested in setting up a 529 account)"
omg. let him hire someone else to get involved in his tax dodge scheme. don’t work under the table or anything like that.
bookkeepers/accountants can be liable for tax dodge schemes if they do the bookkeeping for them. (see lawsuit involving past president, children, and all the accountants/cfos/etc)
Haha promise there’s no tax scheme. He was recently audited by the state and there were no findings and his accountants for business #1 and #2 have told him he doesn’t need them bc his books are so clean. He’s just trying to save his kid some money
To your point about being held liable, the more research I do the more I’m with you here and think I need an LLC to separate this from my personal finances.
I’m not sure how old your child is, but if your father pays you via 1099, technically you’re self employed. You can then hire your child to work for your business, and if your child earns $12,950 or less they are not required to file a tax return.
https://www.irs.gov/businesses/small-businesses-self-employed/family-help