Accounting for Sole Proprietors: Tax & Bookkeeping Tips

So, all those mandatory insurance premiums an independent contractor has to cover for themselves (based on whatever P&G decides) count as business expenses, right? But I was wondering about the actual taxes and surcharges paid by the contractor...
Does anyone know if we're actually required to file a Form 941 now just to account for those specific contributions?

Thanks

Aaron Young85 said:So, all those mandatory insurance premiums an independent contractor has to cover for themselves (based on whatever P&G decides) count as business expenses, right? But I was wondering about the actual taxes and surcharges paid by the contractor...
Does anyone know if we're actually required to file a Form 941 now just to account for those specific contributions?

Thanks

If you're talking about the tax and surcharge prepayments, starting now, monthly prepayments will be calculated and paid based on the figures from the 2015 annual tax return... which basically means the old IRS notices are being phased out...
Yeah, as of January 1st, 2016, reporting those owner contributions on the JOPPD form is officially required. It’s just that instead of waiting for a notice from the IRS, you'll have to calculate the contributions yourself. The tax code actually specifies the exact codes to use for each category of person when filling out the JOPPD...

cosmictinker24 said:If you're talking about the tax and surcharge prepayments, starting now, monthly prepayments will be calculated and paid based on the figures from the 2015 annual tax return... which basically means the old IRS notices are being phased out...
Yeah, as of January 1st, 2016, reporting those owner contributions on the JOPPD form is officially required. It’s just that instead of waiting for a notice from the IRS, you'll have to calculate the contributions yourself. The tax code actually specifies the exact codes to use for each category of person when filling out the JOPPD...

And, for what it's worth, taxes and surcharges don't count as business expenses...

Look, cosmictinker24, for real though, where can I actually find a specific example for sole proprietors? I need to see what I'm supposed to be typing in here. Is it basically the same deal as filing payroll tax and health insurance contributions for an employee, just adding in those estimated tax prepayments from my income?

amberbadger17 said:Look, cosmictinker24, for real though, where can I actually find a specific example for sole proprietors? I need to see what I'm supposed to be typing in here. Is it basically the same deal as filing payroll tax and health insurance contributions for an employee, just adding in those estimated tax prepayments from my income?

There isn't one. I'm just scavenging through random sites online... I have no idea if anything official has even been posted yet..
Maybe the IRS will eventually cough up some examples..

Starting January 1, 2016, anyone running their own business—whether they're reporting based on gross income or net profit—is responsible for calculating their own payroll tax and health insurance contributions.

- These folks handle their own math, put together monthly reports—basically their W-2 filings—and send them straight to the IRS
- The payment deadlines haven't shifted, so you'll still need to have those contributions paid up by the 15th of each month for the previous month's work

Here’s how the monthly bases for self-employment insurance contributions look for 2016:

Small business owners (gross income) = $1741 (using a 0.65 multiplier)
Small business owners (net profit) = $2947 (using a 1.1 multiplier)
Freelancers (gross income) = $2947 (using a 1.1 multiplier)

Due to some updates in the regulations regarding how government revenue and mandatory contributions are handled, new specific tax codes for self-employed individuals were added, effective January 1, 2016.

8230 Social Security contribution (Part I)
2330 Social Security contribution (Part II)
8796 Employment tax
8605 payroll tax and health insurance contributions
8133 payroll tax and health insurance contributions

Annual Tax Return

- In Attachment UPO under section 971, we're looking at determining the income tax prepayments for self-employment for the upcoming tax year.
- They also updated the "Long-term Asset List."
- There's a new required form—Form P-PPI—which is basically a summary of all business income and expenses for the year; freelancers have to attach this to their annual return (Form DOH).

- Self-employed taxpayers pay their determined income tax when they file their annual return (which is due by February 29, 2016).
- For those specifically covered under Article 18, once the deadline for filing the 2015 annual return passes, any previous notices regarding income tax prepayments become void.
- Starting in March 2016, monthly prepayments will be calculated based on the numbers from the filed 2015 annual return.
- You'll start paying this monthly prepayment starting March 2016, which is also when you submit your W-2 (funds move from account 1430 to 1619).

- Income tax prepayments are due monthly by the last day of the following month, based on what was reported in the previous year's annual return—essentially, the 2015 tax liability is just split across the months you actually worked.
- If a taxpayer lists other types of income alongside their self-employment earnings on the annual return, the prepayment for the next period is only calculated based on the self-employment portion.
- These monthly prepayments cover the months immediately following the annual return deadline (so for 2016, that means March 2016 through February 2017).

Source: RIPUP, Milivoj Friganović, M.Sc.

Carol Price4 said:Starting January 1, 2016, anyone running their own business—whether they're reporting based on gross income or net profit—is responsible for calculating their own payroll tax and health insurance contributions.

- These folks handle their own math, put together monthly reports—basically their W-2 filings—and send them straight to the IRS
- The payment deadlines haven't shifted, so you'll still need to have those contributions paid up by the 15th of each month for the previous month's work

Here’s how the monthly bases for self-employment insurance contributions look for 2016:

Small business owners (gross income) = $1741 (using a 0.65 multiplier)
Small business owners (net profit) = $2947 (using a 1.1 multiplier)
Freelancers (gross income) = $2947 (using a 1.1 multiplier)

Due to some updates in the regulations regarding how government revenue and mandatory contributions are handled, new specific tax codes for self-employed individuals were added, effective January 1, 2016.

8230 Social Security contribution (Part I)
2330 Social Security contribution (Part II)
8796 Employment tax
8605 payroll tax and health insurance contributions
8133 payroll tax and health insurance contributions

Annual Tax Return

- In Attachment UPO under section 971, we're looking at determining the income tax prepayments for self-employment for the upcoming tax year.
- They also updated the "Long-term Asset List."
- There's a new required form—Form P-PPI—which is basically a summary of all business income and expenses for the year; freelancers have to attach this to their annual return (Form DOH).

- Self-employed taxpayers pay their determined income tax when they file their annual return (which is due by February 29, 2016).
- For those specifically covered under Article 18, once the deadline for filing the 2015 annual return passes, any previous notices regarding income tax prepayments become void.
- Starting in March 2016, monthly prepayments will be calculated based on the numbers from the filed 2015 annual return.
- You'll start paying this monthly prepayment starting March 2016, which is also when you submit your W-2 (funds move from account 1430 to 1619).

- Income tax prepayments are due monthly by the last day of the following month, based on what was reported in the previous year's annual return—essentially, the 2015 tax liability is just split across the months you actually worked.
- If a taxpayer lists other types of income alongside their self-employment earnings on the annual return, the prepayment for the next period is only calculated based on the self-employment portion.
- These monthly prepayments cover the months immediately following the annual return deadline (so for 2016, that means March 2016 through February 2017).

Source: RIPUP, Milivoj Friganović, M.Sc.

Thanks, Mr. Milivoj... I'm still a bit lost on when exactly we're supposed to submit the W-2 for contractor contributions... Is it on the actual day we pay them, or is there some kind of deadline by the 15th of the month? Does anyone know if that's actually spelled out somewhere?...

hold up, hold up 🤔 so you're telling me we have to file a W-2 every single month for both taxes and payroll tax and health insurance contributions? and does a W-2 also need to be filed just for switching from one account type to another, or will the geniuses over at the IRS somehow magically handle that themselves?
I've got two small business owners who are so incredibly clueless it's actually painful—and now I have to deal with this nonsense too. Honestly, if it’s going to be this much of a headache, just scrap the whole thing already...
How do you even fill out these W-2 forms? Is there an actual example somewhere?
If they pay their payroll tax and health insurance contributions for December back in December, will that actually clear? I'm really hoping to skip sending the form entirely so I don't have to spend my life explaining the same thing five different times until they finally get it...
Not to mention, I'm doing all this crap as a favor 🙏 because apparently, we're all just out here doing free labor...

The W-2 for payroll tax and health insurance contributions uses the actual payment date if you pay by the 15th—but if the filing happens after the 15th, the date defaults to the 15th since that's when the contributions actually become due... I think I read that somewhere, let me try to dig it up...

I was honestly pretty surprised by what Milivoj wrote regarding those advance payments... it seems like total nonsense! Based on the logic above, it should be the payment date if settled by month-end, or the last day of the month if filed later 🤔🤔 ...that’s just my take on it, though, so don't hold me to it...

I'll do some digging, and if I find anything useful, I'll post it here, 🙂

Small business owners are going to be in such a mess now. They're used to having a bit of wiggle room, and now they're being squeezed tight—again, and once again, it's us taking the hit. Honestly, we should be asking for early retirement benefits after all this crap they've piled on our shoulders!

Man, if the proposed amendments actually strip out non-taxable income under section 39—meaning the W-2 will only cover per diems and travel reimbursements moving forward—then woohoo! At least there's one decent thing happening!

It’s quite a situation... honestly, the moment you even suggest raising your rates because of all this new red tape and the extra workload it brings, people just freeze up. It's like they can't handle the reality of it. I have to wonder, are any of you planning to adjust your fees for small business clients to account for these new regulatory requirements? For instance, I haven't touched my pricing in years, despite the fact that everything has shifted under our feet. The sheer volume of work has essentially doubled; my entire desk is covered in spreadsheets just to make sure I don't miss a single filing requirement. My rates are still stuck where they were five years ago, back when half of this stuff wasn't even on the books. How are you all navigating this dilemma when it comes to setting your prices?

Carol Price4 said:The W-2 for payroll tax and health insurance contributions uses the actual payment date if you pay by the 15th—but if the filing happens after the 15th, the date defaults to the 15th since that's when the contributions actually become due... I think I read that somewhere, let me try to dig it up...

I was honestly pretty surprised by what Milivoj wrote regarding those advance payments... it seems like total nonsense! Based on the logic above, it should be the payment date if settled by month-end, or the last day of the month if filed later 🤔🤔 ...that’s just my take on it, though, so don't hold me to it...

I'll do some digging, and if I find anything useful, I'll post it here, 🙂

Small business owners are going to be in such a mess now. They're used to having a bit of wiggle room, and now they're being squeezed tight—again, and once again, it's us taking the hit. Honestly, we should be asking for early retirement benefits after all this crap they've piled on our shoulders!

Man, if the proposed amendments actually strip out non-taxable income under section 39—meaning the W-2 will only cover per diems and travel reimbursements moving forward—then woohoo! At least there's one decent thing happening!

Give me a break! 🕺 On top of everything else, now we have to sit around playing waiting games, wondering when some small contractor will finally decide to actually pay their payroll tax and health insurance contributions or their deposits—and you know there are plenty who pay their own stuff separately from what they owe for their employees—all while we’re expected to turn in the W-2 forms immediately.
Thank God I don't handle a ton of small businesses, or I'd be losing my mind... 🙄

Honestly, am I just being dense or what? 😁
So, for freelancers and small business owners, those monthly contributions for 2016 stay exactly the same based on the set rates. They don't budge from month to month.
The due dates haven't changed either. So why on earth would we need to file the exact same paperwork every single month, just potentially on a different day?
And they’ve always charged interest for late payments anyway. What's the point of this change?

I get it when you have employees and stuff—the numbers shift because payroll changes, and it makes it easier for the IRS to keep tabs on employers.

But for us? This feels like a massive waste of time. We already know exactly what we owe in July for the entire year.

Carol Price4 said:Starting January 1, 2016, anyone running their own business—whether they're reporting based on gross income or net profit—is responsible for calculating their own payroll tax and health insurance contributions.

- These folks handle their own math, put together monthly reports—basically their W-2 filings—and send them straight to the IRS
- The payment deadlines haven't shifted, so you'll still need to have those contributions paid up by the 15th of each month for the previous month's work

Here’s how the monthly bases for self-employment insurance contributions look for 2016:

Small business owners (gross income) = $1741 (using a 0.65 multiplier)
Small business owners (net profit) = $2947 (using a 1.1 multiplier)
Freelancers (gross income) = $2947 (using a 1.1 multiplier)

Due to some updates in the regulations regarding how government revenue and mandatory contributions are handled, new specific tax codes for self-employed individuals were added, effective January 1, 2016.

8230 Social Security contribution (Part I)
2330 Social Security contribution (Part II)
8796 Employment tax
8605 payroll tax and health insurance contributions
8133 payroll tax and health insurance contributions

Annual Tax Return

- In Attachment UPO under section 971, we're looking at determining the income tax prepayments for self-employment for the upcoming tax year.
- They also updated the "Long-term Asset List."
- There's a new required form—Form P-PPI—which is basically a summary of all business income and expenses for the year; freelancers have to attach this to their annual return (Form DOH).

- Self-employed taxpayers pay their determined income tax when they file their annual return (which is due by February 29, 2016).
- For those specifically covered under Article 18, once the deadline for filing the 2015 annual return passes, any previous notices regarding income tax prepayments become void.
- Starting in March 2016, monthly prepayments will be calculated based on the numbers from the filed 2015 annual return.
- You'll start paying this monthly prepayment starting March 2016, which is also when you submit your W-2 (funds move from account 1430 to 1619).

- Income tax prepayments are due monthly by the last day of the following month, based on what was reported in the previous year's annual return—essentially, the 2015 tax liability is just split across the months you actually worked.
- If a taxpayer lists other types of income alongside their self-employment earnings on the annual return, the prepayment for the next period is only calculated based on the self-employment portion.
- These monthly prepayments cover the months immediately following the annual return deadline (so for 2016, that means March 2016 through February 2017).

Source: RIPUP, Milivoj Friganović, M.Sc.

Is this a mistake, or are we actually going to have to file Form 941 for income tax prepayments too?
I can't find any extra details anywhere. Every single resource I look at only mentions payroll taxes (starting in February for January's figures)

Arthur Lopez3 said:Is this a mistake, or are we actually going to have to file Form 941 for income tax prepayments too?
I can't find any extra details anywhere. Every single resource I look at only mentions payroll taxes (starting in February for January's figures)

It’s not an error—that's just RIPUP's text. I haven't dug deep into the proposed tax code changes yet, but they probably tucked that in somewhere; I doubt they just made it up out of thin air...

😵😵

Carol Price4 said:It’s not an error—that's just RIPUP's text. I haven't dug deep into the proposed tax code changes yet, but they probably tucked that in somewhere; I doubt they just made it up out of thin air...

😵😵

If that were actually the case, we could all just collectively decide to fudge a decimal point or two—you know, for our own benefit.
But that’s not happening, since taxes and surcharges are going to be assessed based on the tax return rather than through the payroll filings (shame about 😁).
I guess that little consultant got a bit ahead of himself!

A colleague was asking me how year-end contributions are calculated. She’s got an office for her licensed engineering practice on top of her regular full-time job. I guess it gets complicated. Maybe.
Carol Price4 explained it all to me. I thought I had everything figured out until yesterday...
Honestly, I’m just completely lost today. Nothing makes sense anymore.

As I understand it, contributions are calculated at year-end based on the difference between total income and expenses. I guess.
Can I find out my totals? And if so, how do I actually pay them? Also... which accounts am I supposed to be using here? 🤔 ),
So, what’s next? How am I supposed to handle this in the KPI? Is this actually following the cash principle, or is it more like an exception—kind of like how we deal with depreciation? I guess I need to know if this gets recorded in the KPI for 2015, even though the filing isn't due until February 28, 2016. Maybe that's the catch.
Fellow accountants, I need some help here. This poor bookkeeper is in a bit of a bind. 😵 🙂

Richard Howard55 said:A colleague was asking me how year-end contributions are calculated. She’s got an office for her licensed engineering practice on top of her regular full-time job. I guess it gets complicated. Maybe.
Carol Price4 explained it all to me. I thought I had everything figured out until yesterday...
Honestly, I’m just completely lost today. Nothing makes sense anymore.

As I understand it, contributions are calculated at year-end based on the difference between total income and expenses. I guess.
Can I find out my totals? And if so, how do I actually pay them? Also... which accounts am I supposed to be using here? 🤔 ),
So, what’s next? How am I supposed to handle this in the KPI? Is this actually following the cash principle, or is it more like an exception—kind of like how we deal with depreciation? I guess I need to know if this gets recorded in the KPI for 2015, even though the filing isn't due until February 28, 2016. Maybe that's the catch.
Fellow accountants, I need some help here. This poor bookkeeper is in a bit of a bind. 😵 🙂

For self-employed contributors, you pay those in 2016—it follows the cash basis, so once the payment goes out, it hits the expenses, 😉 meaning it doesn't count until the following year...

Hey everyone,

I’m still digging through the weeds regarding bad debt write-offs for freelancers... specifically when it comes to those under the R2 tax bracket. The guidance on how to actually record this in the business ledgers is pretty thin to say the least.😢
Is it handled as an in-kind receipt—you know, things like statute of limitations expiring or companies being struck from the registry?
And if we're talking about bankruptcy or liquidation, does that mean it doesn't count as a KPI receipt? If not, how do we handle those cases?
Do I need to draft a formal decision to authorize the write-off?
If anyone out there has actually dealt with this, I could really use some advice. Thanks.

Richard Howard55 said:A colleague was asking me how year-end contributions are calculated. She’s got an office for her licensed engineering practice on top of her regular full-time job. I guess it gets complicated. Maybe.
Carol Price4 explained it all to me. I thought I had everything figured out until yesterday...
Honestly, I’m just completely lost today. Nothing makes sense anymore.

As I understand it, contributions are calculated at year-end based on the difference between total income and expenses. I guess.
Can I find out my totals? And if so, how do I actually pay them? Also... which accounts am I supposed to be using here? 🤔 ),
So, what’s next? How am I supposed to handle this in the KPI? Is this actually following the cash principle, or is it more like an exception—kind of like how we deal with depreciation? I guess I need to know if this gets recorded in the KPI for 2015, even though the filing isn't due until February 28, 2016. Maybe that's the catch.
Fellow accountants, I need some help here. This poor bookkeeper is in a bit of a bind. 😵 🙂

Is this actually how it works?

Carol Price4 said:For self-employed contributors, you pay those in 2016—it follows the cash basis, so once the payment goes out, it hits the expenses, 😉 meaning it doesn't count until the following year...

So, does that mean my tax base and local surcharges are just the net difference between what comes in and what goes out?