Posts by urbanwalker72

George Price10 said:I was supposed to be working with some Italians, but the deal fell through. During that time, I was checking with the IRS because I needed a way to get paid, since there was no other option. Eventually, the job was postponed and then canceled entirely, leaving me with an active tax ID. I assumed everyone had to have one, but after reading the discussions here, I realized the system messed up—I have a legitimate tax ID despite not being registered for sales tax. It’s confusing because I thought if I owed anything, the IRS would just handle the calculations when they sent my tax assessment, given how everything is integrated within the US system. The items I bought were intended as business equipment.

Regarding that deal with the Italians, were you meant to be providing services to them or receiving services from them?

If that was the case, you really should have requested to cancel your sales tax ID once the deal collapsed.

Only then would the ID be removed, preventing others from applying the reverse charge mechanism and ensuring you wouldn't be hit with sales tax obligations until you actually cross that $75,000 threshold $0.00.

As it stands, they likely checked the database, saw you had an active ID, and were legally obligated to shift the liability onto you.

I am not entirely sure what your options are now, other than perhaps reporting the liability on a tax form and paying it. If you don't, the IRS will probably reach out to you in six months or a year to settle up. Or maybe they won't; it all depends on how far those data exchange lists go. Knowing how these agencies operate, it might actually be in your best interest to just wait and see if they even notice.

George Price10 said:I am operating as a sole proprietor. By chance, I was assigned a tax ID by the IRS. I recently purchased some music gear online for up to $16667 and used my tax ID when registering for the online store. My shipment arrived with a tax-exempt invoice. Since the total is under $77,000, am I exempt from reporting this, or is it mandatory regardless?

It is mandatory. I find myself wondering how such a coincidence occurred—why would you possess an EIN if there is no functional need for it? Furthermore, one must consider whether this equipment is intended strictly for professional use or for personal enjoyment.

Brandon Jackson4 said:I'm all set, since sales tax isn't due until payment is collected.
Along with my sales tax return, I’ll be submitting the UN ledger through the IRS portal.
I have a question about how invoices should be entered into the UN (IRS electronic system):
Should they follow the invoice date or the actual payment date?

In the physical paper ledger for incoming invoices, I record them by the invoice date, but for this digital version, it feels more logical to list them based on when the bills were actually paid.
Or does it not really matter?
Thanks.

The order doesn't technically matter, though you should still stick to the issuance date.

Brandon Jackson4 said:Thanks, I'll send over a new sales tax form, and I'll include an explanation for the correction along with the income tax filing.

It doesn't make much sense to send an explanation for a sales tax change via supplemental filings. When you enter a new sales tax form as a correction, there is a 'Notes' section within the IRS portal where you can simply state why you are making the adjustment.

Brenda Chase3 said:Whenever we have to file an amendment—which is obviously necessary if you spot a significant error—we just submit a new version. As soon as the IRS agent pulls up the updated form, the old one is automatically voided. I don't know how the backend logic of their software works, nor do I care to, since I’m certainly not one of their programmers, but I am very familiar with the workflow because we've handled this plenty of times. The agents basically tell you that the easiest way is to just send the correction. There is a remarks section where you can explicitly type "amendment," but even if you leave that blank, they pull the latest filing and the previous one gets wiped from the record. It essentially overwrites the old data.

Regarding sales tax, the only way this becomes "automatic" is if the agent manually deletes the old filing and accepts the new one.

Quincy:

I don't know how their specific software handles the backend logic, nor am I particularly concerned with it since I'm not one of their programmers; however, I am familiar with the procedure because we have navigated it before, and the agents often suggest ways to make things easier.

What you really ought to be concerned with is the software used for your tax refunds and the systems that flag accounts for audit.

It seems the agents themselves don't always follow the standard guidelines, which means an innocent taxpayer could end up being flagged as high-risk without any actual cause.

Quincy:

Just submit the correction using the notes field to indicate it's a "correction." Even if you don't write anything, they take the new form and the previous one is essentially overwritten on the account ledger.

Since we are discussing sales tax corrections, if we are talking about fixing a form from a prior fiscal year, shouldn't the adjustment be applied to the December filing of that period (which functions as the annual summary) rather than just altering the specific past form? Shouldn't the correction only be reflected in the current year's records to account for that discrepancy?

Brenda Chase3 said:Just resubmit the corrected form; that should effectively override the old one. However, I’d suggest giving your case officer a quick call once you've sent it over just to make sure they manually select the updated version so it doesn't get overlooked. Though, if I recall correctly, the system usually triggers a notification light for the representatives whenever a new submission comes through.

It seems to me that sales tax filings don't automatically overwrite one another like other types of forms might. I am quite uncertain about what recent changes they have implemented, but this certainly isn't how an efficient system ought to function. Unlike certain reports that are fully automated and subject to software-driven validation upon entry into the database, sales tax documentation should ideally necessitate an agent's intervention to manually void any erroneous filings.

When you are amending a sales tax return, it really ought to be mandatory to include a detailed explanation for the correction. While I am unsure of their specific internal protocols, such a requirement seems essential for clarity.

I would advise against filing frequent sales tax amendments for trivial matters, as the IRS might flag your account as high-risk simply due to the frequency of your corrections. While the underlying system is fundamentally sound, there appears to be a lack of adequate training for the personnel operating it, so one shouldn't expect seamless performance.

Douglas Grant26 said:Could use a little clarity here. How does a sole proprietorship actually function once you cross that $250,000 threshold? I’m working a steady W-2 job alongside this.
Once I hit that limit, do I just start tacking sales tax onto every invoice, and am I required to start keeping full books?
If we look at a scenario where the business pulls in $500,000 a year, my Social Security contributions stay capped at the maximum bracket (around $7,500), so I'd essentially be paying an additional 25% on that $500,000—minus that top-tier flat tax amount since I've transitioned to standard taxation.

Is it just me, or is the effective cost of taking that 25% draw actually lower here than it would be with an LLC? With an LLC, you'd deal with higher costs due to estimated quarterly payments, not to mention the legal headaches of being employed by two different companies simultaneously.

I am afraid I cannot follow your reasoning. Once you surpass that $250,000 mark, you transition into formal bookkeeping, at which point your total tax liability and contributions will be determined by your net profit, especially since you already have a primary employer.

holloweagle10 said:I have another question for you all 😉 . An employee is currently working in a manager role at the company. However, there was a filing made at the District Court where she was officially listed as a Director alongside the board members. Does an employment contract addendum need to be drafted immediately, and should we update her status with Medicare regarding the job title right away... or can we just wait until January 1st?

In my view, waiting until the start of the new year is acceptable, provided her salary doesn't fall below the required threshold for a director position.

holloweagle10 said:Does anyone happen to know if it’s possible to adjust the pension records for a worker who isn't employed anymore? We need to update the insurance base...

You might want to try using the online Social Security portal or whatever the digital equivalent is called; there really isn't any harm in attempting it. Just navigate to the section for updating insurance bases and see if they grant the request.

John Hall52 said:I suppose I follow that the Tax ID is the key factor, but I am wondering—is it actually okay for me to record their invoice, or perhaps issue an invoice to a customer without charging sales tax, if I notice in the database that the company name listed is different from the one on the actual invoice we received or sent?

Of course you can. If a corporation undergoes a name change, it doesn't fundamentally alter its legal existence; it remains the exact same entity, merely wearing a different label. Their tax identification number serves as the ultimate guarantee of this continuity, much like how a Social Security number identifies an individual regardless of any changes to their name. That ID is tied directly to the company's tax profile within the system.

driftingtinker77 said:Quick question for the group. If I'm running a small business and my revenue hits the $300,000 mark, $0.00 I’ll be required to register for sales tax. But what happens regarding income tax? I've heard conflicting numbers floating around—specifically 24% and 36%. Which rate actually applies in this scenario? I don't have an accountant on retainer just yet since I'm still in the process of launching everything... thanks for any insight!

Up to $360 $0.00 the rate is 24%, then it jumps to 36%. Unlike a flat-tax setup, here your taxable income is simply the difference between your total revenue and your total business expenses according to your books.

It is highly probable that what he is viewing under "requests" isn't an actual tax assessment, but merely a standard form pre-populated with data pulled directly from the IRS database.

One would need to verify whether the effective date field has been completed; if that remains blank, then no official assessment has been issued.

Brenda Chase3 said:What you’re describing just doesn't hold up in the real world at the IRS. I remember one instance where we were working with two different small business owners—each filing separately—and when we entered a dependent deduction on their tax return that wasn't reflected on their official W-4, the local IRS office in the suburban neighborhood and Chicago wouldn't budge. They insisted the business owners come in personally to update their W-4 forms first.
Now, I am kindly asking you to explain how it is even possible for tax authorities to operate this way. Of course, we didn't get into a heated argument with them; it was simply more efficient to just follow their lead and change the paperwork so we could wrap up the filing as quickly as possible.
Given that the tax officials here don't seem to have any answers themselves when you ask them nicely, they clearly just make it up as they go along. That’s why we take the "better safe than sorry" approach and demand that all updates be made to the W-4 as well.
Look, none of us are stupid here. It’s not like I’m hiding their W-4 under my pillow or playing games with them; I'm simply pointing out the kind of situations that actually happen at the IRS. For me, it’s much safer to ensure everything is updated correctly rather than trying to debate the business owners or the tax agents, which would inevitably require drafting formal letters and dealing with all that red tape.
As for the idea that deductions should be calculated for people who haven't submitted a W-4, that is utter nonsense, though I know it happens. If someone fails to provide their W-4, they don't get the standard deduction, and I truly cannot fathom the laziness involved in an employee failing to just pull their own documentation together.
In many cases, I play it extra safe and request documents more often than strictly necessary. The IRS office handling my account always tells us to submit everything perfectly, like total perfectionists, because I know there is someone there who will stare at a single piece of paper like it's a foreign language and demand every detail be drawn out perfectly. That is why I sometimes advise clients based on the hurdles I've personally hit within the system. Besides, why should it be such a struggle for a business owner to put a W-4 in a folder with the rest of their files? It isn't like the paper weighs a ton and won't fit in a binder.
Everything you mentioned is valid, but it doesn't apply to every single agent at the IRS. It seems they blindly follow whatever their software spits out; I have no idea what specific logic drives their programming, nor do I have the time to sit around studying their internal workflows.

🤣 I believe what you are saying, but it seems obvious that you shouldn't place your trust in them.

Then could you please explain to me how it is possible for the IRS to operate this way?

It is quite simple: the individuals working there simply lack the necessary expertise. What else is surprising about that?

No one tests them for competency, their salaries are relatively modest, nobody is held accountable, and there are no consequences for errors.

How could the outcome be anything other than this?

Of course, we didn't argue, because it was easier to just make the change to speed things up and resolve the filing as quickly as possible.

Naturally, avoiding conflict is easier. However, six months down the line, you'll find yourself on the IRS website using their "contact us" form, explaining that you couldn't find any regulations stating that a business owner without a salary or pension needs a PAC, yet the local branch is demanding it.

The system works such that the Headquarters will demand explanations from the branch manager, the department head, and the staff regarding why these demands were made, which might actually lead to some learning.

There is no other way to educate the staff.

Since the IRS agents themselves don't seem to know anything when asked politely, it’s clear THEY are just winging it, so we might as well take a chance and insist that the changes are reflected on the PAC as well.

Yes. They are the ones who trigger the avalanche of incompetence.

In my view, it isn't the agents, but rather the Department of the Treasury.

Everything you said is true, though perhaps not for every agent at the IRS, as they seemingly just blindly follow whatever their software tells them; I have no idea what principles they operate on, nor do I have the time to study their methods.

Well, it isn't a matter of the software; it is a matter of fundamental ignorance.

Brenda Chase3 said:As for me, I have absolutely no idea what I would even do with his business card... I certainly wouldn't be walking around with it in my purse. ☕

Exactly, it serves absolutely no practical purpose anymore.

Back before 2005, the IRS used to require a copy of your employment contract and your personnel file just to set up a PAC.

Even though it was nothing more than bureaucratic red tape and sheer nonsense, at least back then they understood the actual function of the PAC.

Brenda Chase3 said:Of course a small business owner can claim child tax credits and maintain their own tax withholding profile with their children listed. I personally know people with at least five kids where all those credits are applied because their business income is treated as their "pay," and for the sake of these credits, a business owner is treated just like any other employee on their tax filings. That’s why when you file your annual return, there’s a specific section to list dependents and credits. Small business owners have their own withholding profiles under their names, just like any standard employee.

That's what happens when you try to memorize the rules instead of understanding how they actually work.😁

As you pointed out, a business owner has full access to their funds—they basically use what we might call an advance on their earnings.

Their total tax liability for the year is determined through the annual tax return that you file for them. In that filing, you include the children as tax credits if they qualify and if the owner chooses to claim them as dependents.

The withholding certificate doesn't actually impact that process.

That document is strictly used to calculate standard deductions for employees or retirees receiving steady income. It functions on a monthly basis during payroll or pension distributions. On an annual basis, everything relies solely on the tax return (whether it's the simplified version for individuals or the standard one for contractors and freelancers).

https://www.irs.gov/forms-pubs/about-w-4

A withholding certificate (like a W-4) is a form that tracks data regarding standard deductions (the non-taxable portion of income), local municipality residency, and other essential details for an employee, retiree, or any individual receiving income from employment, which allows an employer or payer to calculate the correct amount of income tax withholding during payroll or pension disbursements.

Standard deductions, municipal residency, and other variables used to determine withholding for non-self-employed income are recognized and established exclusively through the withholding documentation held by employers, payers, or the taxpayers themselves.

An independent contractor who keeps formal business books is not tied to those specific withholding forms under the federal tax code, as the regulations clearly show.

In my experience, anything can happen in practice; you see people who have worked for twenty years without ever having a formal withholding setup, yet their accountant has been applying standard deductions to their pay for their entire career.

Now we see the opposite happening, where people are setting up withholding files they don't even need.

I honestly can't wrap my head around what you're actually doing with that withholding paperwork for a business owner; I fail to see its purpose here. 😁

cosmictinker24 said:The employee is actually the daughter of a small business owner, and he's been claiming her as a dependent until now...
Will she just be removed from the deduction for these last two months when the annual tax return is filed?
Or does he need to submit a request to amend his own business tax records?

🤔 If this individual is simply a sole proprietor filing taxes under standard income rules without drawing a regular W-2 salary, then he wouldn't even utilize an IRS withholding certificate, let alone claim a dependent through one.

An IRS withholding certificate exists solely to facilitate the application of standard deductions during payroll or pension calculations; it serves no other administrative function.

However, if she was previously listed as a dependent, a withholding certificate cannot be issued for her until that status officially ends, so everything seems to be in order.

One would just need to verify whether the business owner even requires such documentation if he isn't receiving a formal salary or pension. If he does, then it is fine.

cosmictinker24 said:Look, the filing went through, but my inbox is still empty.
It’s her first job, so she doesn't have a tax history yet... I guess that might be why.

It might be prudent for her to request the opening of an account through the IRS website.

copperpanther14 said:Thanks for getting back to me.

Every time I ask around, nobody can give me a straight answer about which books I actually need to maintain. Some people just mention paying taxes based on certain flat-rate estimates, while others suggest there's an option where I submit a form at the end of the year—using my own business records—to deduct expenses from my income before calculating what I owe.

I would really love for someone to clear up how that second option works.
Also, since I already have a full-time job, how much in self-employment tax am I actually looking at? Some say zero because my W-2 job covers everything, but others talk about specific thresholds without being able to tell me how to calculate the actual math...

The IRS basically told me to go talk to an accountant. Honestly, I’d be more than happy to pay for some professional consulting or whatever you call it, provided I can find a firm that already handles small home-based businesses so they can walk me through the details.🙂

It really comes down to a matter of choice.

You can choose to keep full business books, where your total revenue minus your business expenses equals your taxable income.

Alternatively, you can opt for a simplified flat-tax structure.

Since the flat-tax route is incomparably more advantageous and involves far less paperwork, I assumed you would likely gravitate toward that path.

Also, regarding social security and Medicare taxes—how much exactly will I need to pay, considering I already have a full-time job? Some say I won't owe anything because my employer covers everything, while others mention certain thresholds, but they can't tell me exactly how to calculate my specific liability...

While your primary employer handles your main payroll taxes, these are additional contributions triggered by engaging in what is considered "secondary employment."

If you decide to keep detailed business books, your actual net profit serves as the base for these taxes; however, under the flat-tax system, the amount is determined by the specific bracket you fall into. Initially, you would likely start in the first tier.

Try reading through this...

The IRS told me I should reach out to an accountant.

That is a bit of a gray area. While they are technically obligated to assist you, they shouldn't really step in and act as your private bookkeeper, as they serve as an oversight body; doing so would create a conflict of interest.

Finding that perfect balance is quite difficult.

...well, honestly, I would gladly pay for some professional consulting or whatever it's called, just to find an accounting firm that handles small home-based businesses so they can walk me through everything in detail. 🙂

Tax consulting will run you about $100 per hour, if not more, and this is a relatively straightforward matter... You would likely just receive a formal written opinion filled with legal jargon that won't necessarily make things clearer.

Accounting firms often find it hard to justify charging you for something this simple, so they tend to avoid it; and if they haven't worked with micro-businesses before, they might not even know the answers.

It isn't particularly complicated, and I believe you are capable of handling it yourself.

copperpanther14 said:Hey there!

I’m looking for someone with some experience in home DIY to answer a few questions for me.

I have a steady job, but I’m thinking about starting a side hustle making jewelry, souvenirs, and other keepsakes. Since I'd only be bringing in a few hundred dollars a month to start, I'd probably just open a small home-based business.
I have a question regarding the following:

Are there any business books out there that would allow me to handle my own bookkeeping and then just submit all the necessary tax and contribution forms myself? Basically, if I make a certain amount of revenue, I pay taxes and contributions based exactly on that number. Also, would I still need to file a specific quarterly tax return for this?

Can I sell my products to a local shop or souvenir boutique for them to resell? If I do that, will I need to include product declarations and barcodes on everything?

What kind of bank account are we talking about here, and can those funds only be used for this specific business venture? Also, how exactly do I go about withdrawing the profits I make?

I would be so grateful if someone with actual experience could weigh in here. I’ve reached out to several accounting firms, but they all tell me they don't take on clients with side hustles, and I’m really just looking for some reliable advice.

A home-based craft business can be set up as a sole proprietorship under the simplified tax regime. You wouldn't need to worry about payroll tax filings. Under this structure, you are capable of managing all your own business books.

2. Am I allowed to sell my products to a retail store or a souvenir shop for resale? If I do, would I need to include a product declaration and a barcode on those items?

Yes, you certainly can; I see no reason why you couldn't. You can draft the product descriptions yourself, and a barcode isn't strictly required—it’s really just one specific technical option available to you.

3. What kind of bank account should I open, and must the funds from that account be used exclusively for the needs of the craft business?

You would open a standard business checking account. Once the money is there, you can spend it on whatever you choose.

In that case, how do I pay myself the profit I earn?

You are free to use the money from your business account as you wish. It functions much like an owner's draw.

I would be extremely grateful if someone experienced could answer me. I have sent these inquiries to several accounting firms, but they always tell me they don't take on clients with small home crafts, and I would really like to receive verified answers.

I am not an expert in this field, but it seems quite strange that there are accounting services unable to support a small home craft business through a simplified tax system.

If they cannot handle that, one wonders what they actually specialize in.

Nathan Evans78 said:It’s honestly funny how much less informed Americans can be when brokers and financial advisors have basically taken over everything—even filing your taxes. The average Joe doesn't always have the extra cash to pay for those premium services, so he ends up making his own calls, which might make him look "less savvy," but at least he isn't getting fleeced by middlemen.

The reason we don't deal with intermediaries is quite simple—in the USA, everything is strictly monitored. There isn't a massive demand for consulting services because, frankly, it would just be throwing money down the drain.

In the States, people pay for these services out of pure caution; they understand that the system actually works, the chances of slipping something illegal past the authorities are slim, and the risk-to-reward ratio is heavily stacked against them.

Take the fear of the IRS, for example. Over here, people tend to treat the local tax authorities like a joke, especially within entrepreneurial circles, accounting firms, auditing agencies, and tax consultants.

If you look at our local business forums, you see posts every single week from people claiming they "got away" with something regarding their taxes, leading them to believe their lucky break was actually legal. 🤣

Essentially, what we have is a model characterized by an extremely high nominal tax burden paired with very little actual oversight.

Brandon Walker6 said:So, we're running this LLC that isn't part of the VAT system, which means we don't have a tax ID for that. Now we've gotta bill some guy for translation services, but here’s the thing—he’s an Italian guy who actually owns a vacation rental house right here in the States, and he's fully registered in our tax system with a valid US tax ID. Since these services are taxed based on where the recipient is located, I guess I'm wondering... do we need to grab his tax ID and invoice him using the reverse charge method? Or do we just skip it and add a note saying we aren't in the tax system per the local regulations? Basically, the service is tied directly to that rental property he's running here in the US. Personally, back in Italy, he runs a totally different business that has zero to do with this specific job.

If your sole business relationship is with that individual holding the domestic tax ID, then you would simply list the exemption under Section 90 on the invoice. Otherwise, if you were providing the service to an entity in Italy, the reverse charge would apply.

In this particular scenario, it is clear that a reverse charge wouldn't be applicable; it would be functionally impossible to shift the tax liability to a US tax ID while simultaneously recording it in the way required by the accounting standards.

wearystag57 said:I don't quite follow your logic, but if I were in your shoes, there are a few things I’d probably look into first:
1. Just how much are you actually going to lose to taxes? If you go through with the plan you're thinking about, I suspect you might end up handing over closer to 45% of everything you make—just a heads-up on that.
2. You might want to check if you'd basically be flagging yourself for tax evasion for all of 2019 and taking a hit. I'm not entirely sure how the rules work for late filings, but I think you usually have an eight-day window after a payment to report it. Honestly, instead of throwing yourself under the bus, it might be smarter to just start paying taxes regularly on all your future income and maybe just... not mention what happened before.
3. Maybe look into setting yourself up as a sole proprietor or a freelancer. I'm not sure how that works specifically for students, but it's usually the cheapest way to handle taxes. Without hiring an accountant, it could actually be more cost-effective than whatever method leaves you losing 45%. It’s kind of like a flat-rate system; as long as you stay under, say, $50,000 a year, you just pay that set amount—I think it's around $150-$$667 a month, if I recall correctly.

P.S. There’s really no reason to panic or rush into anything right this second—the odds of anyone ever asking you about that specific income and tax situation aren't super high. Still, you'd definitely feel a lot better if you were staying current with it, especially if your earnings start to climb later on.

If he earns $1667 per month, after accounting for his foreign income, he is left with $1000, while $333 goes toward Social Security and $333 disappears into federal taxes.

It is worth noting that about 95% of those taxes can be recovered through an annual tax return, though Social Security contributions remain non-refundable.

Quincy:

2. Look into whether you could essentially self-report for tax evasion for the entirety of 2019 and face a penalty. I am unsure how the process works for late filings, but I believe the standard requirement is to report within 8 days of receiving payment. If you are considering throwing yourself under the bus, perhaps it would be wiser to simply start paying taxes regularly on all future earnings and leave the past unmentioned.

The concept of tax evasion exists primarily in the criminal code and specifically targets intentional misuse in commercial business operations to the detriment of the treasury, typically involving registered corporations. There is a higher probability of being struck by a meteor than facing a criminal charge here, as the necessary elements for such a case are entirely absent.

He isn't running a registered business, he isn't keeping formal books, the amount isn't substantial enough, and there is zero intent of wrongdoing—not to mention that 95% of the tax paid is eventually returned via a refund....

As for not mentioning the previous earnings, one could certainly take that route. It would be the simpler path.

Quincy:

3. Research setting up a sole proprietorship; I am not certain how it affects students, but a sole proprietorship is likely the most cost-effective way to handle your taxes. Without needing an accountant, it might even be cheaper than the method where you lose 45% to the government. It functions similarly to a flat-rate tax; as long as you don't exceed $45,000 annually, you pay that fixed rate, which I believe is roughly $1,200$667 per month.

If he registers as a sole proprietor, he may lose his status as a full-time student—at least in theory. Previously, these things weren't linked, though they might be now. In that scenario, besides the taxes mentioned, he would also have to pay $400 in monthly contributions.

Quincy:

P.S. There is no reason to panic or rush right now because the likelihood of anyone ever questioning that income or its taxation is minimal, though you would certainly feel more secure if you were paying them. This is especially true if that income starts to increase over time.

I concur. In my view, it is time to begin properly in 2020.