Do you issue 1099 forms to your farrier, vet, etc.?

[Impractical_Horsewoman]

I can see how this might get murky, since sometimes a small barn might not officially be a business (even an LLC) but is still renting stalls/has business related expenses. But unless the barn is paying the farrier directly for all the horses serviced, it’s still an individual transaction (like a housekeeper or plumber) between you the horse owner and the individual farrier.

In terms of tracking payment, it’s up to the individual to report it. Obviously, a farrier might underreport income when he can get away with it, although with more people using electronic payments, there is often more of a paper trail. Also, if a business is in business for years yet mysteriously has a tiny income despite having business expenses, I assume that would be a red flag.

Being audited sounds like such a nightmare, reporting every penny seems like the more preferable option!

[OTTBs]

One incentive for reporting their income is the ability to get any kind of a loan: mortgage, car loan, etc.

[clanter]

@goodhors

They should be paying their taxes quarterly on ESTIMATED income, before a quarter starts.

not correct, the estimated taxes are paid after the the quarter (normally with 15 days, but the IRS does publish a deadline sheet)

Payment of the year’s estimated taxes should be at least 90% of actual

Basics of estimated taxes for individuals | Internal Revenue Service

[candyappy]

@George_T_Mule

I pay our farrier in cash for the most part. What he does with it beyond that is none of my business :-).

Same here and I don’t even ask for a receipt.

[M_al]

My (in college) kid gets multiple 1099s, which means she has to file without the standard deduction so working through everything that might be an expense to deduct is nothing short of brain damaging.

I’m wondering if she should form an S-Corp for tax benefits … have any of y’all gone through that?

[clanter]

@M_al

My (in college) kid gets multiple 1099s, which means she has to file without the standard deduction

?? not really correct as The self-employed can take the standard deduction on Form 1040 and still deduct their business expenses on Schedule C .

maybe consult as CPA??

[RMJacobs]

As far as I can remember, the only benefit to having an S-corp (versus being a non-incorporated sole proprietor) is to shelter personal assets from business litigation. I did taxes for about ten years for a real estate brokerage that was an S-corp. The owner constantly pissed people off, so he needed to protect his personal assets. I had to testify in one of the lawsuits that went on and on for years.

She can take the same business expenses on Schedule C as she could for an S-corp. Just keep in mind that it’s been a very long time since I did corporate taxes, and you know how bad my memory is these days. In other words, verify!

Rebecca

[pluvinel]

@M_al

My (in college) kid gets multiple 1099s, which means she has to file without the standard deduction so working through everything that might be an expense to deduct is nothing short of brain damaging.

I think you need a CPA. I recall getting a 1099 and still taking standard deduction.

[Janet]

@pluvinel

I think you need a CPA. I recall getting a 1099 and still taking standard deduction.

Both my husband and I get multiple 1099s, and still get the standard deuction. We just need to file schedule C.

[Arzny]

My vet is incorporated, so I do not issue them a 1099.

I do issue to bodyworker, farrier, and the guy I pay to hauls way manure. I get a W-9 from them before any services are performed, which negates the whole issue of them being annoyed about it. I have to pay the penalty if it’s not issued, so you bet I’m doing it!

[Displaced_Yankee]

@M_al

My (in college) kid gets multiple 1099s, which means she has to file without the standard deduction so working through everything that might be an expense to deduct is nothing short of brain damaging.

I’m wondering if she should form an S-Corp for tax benefits … have any of y’all gone through that?

CPA here chiming in.

1. Everyone is eligible for the standard deduction. 1099’s, retirement, business or W2 wages aren’t a factor. Think of it as a lump sum knocked off your taxable income right out of the gate.
2. Generally, we recommend our clients form an S corp when they are consistently netting $50K-$60K per year. That is where clients begin to see the tax benefits. Keep in mind there are additional costs with an S corp such as: additional tax filings (due 03/15), payroll processing fees (you must pay yourself a reasonable wage) and more robust bookkeeping/record keeping required. We consider those costs when reaching the breakeven point.
3. Additionally, if the venture is temporary, it may cost more to unwind the S corp. You must file a final return, close your payroll accounts (federal and state), and any state annual reports. Here in NC there is an annual franchise tax and Secretary of State annual report fee that may be due.

@RMJacobs

As far as I can remember, the only benefit to having an S-corp (versus being a non-incorporated sole proprietor) is to shelter personal assets from business litigation.

There are tax benefits to the S corp. The most important one is that the individual doesn’t pay 15.3% self-employment tax. S corps are more about HOW the entity is taxed over business litigation. (although it does create a separate entity)

Setting up an LLC (limited liability company) creates a legal entity to shelter personal assets. So you can have an LLC, protect your personal assets, but you don’t have to be an S corp. This is more attorney territory than CPA territory.

As always, these are the general ideas. Please consult a CPA or attorney regarding your personal business plans.

[M_al]

Thanks, everyone! We do work with a CPA but last year was the first year she filed … rather, we gave her stuff to the CPA to be filed. We were surprised at how much was owed, since she didn’t make that much. Definitely not bringing in more than 10k for the year. We went through figuring out her deductions for gas, miles, clothes, packed meals during coaching, etc. so maybe that’s why I thought we didn’t yse the standard? We went down lots of TurboTax rabbit holes before throwing in the towel and paying a CPA. Sigh. Death and taxes …

[clanter]

@M_al

We were surprised at how much was owed, since she didn’t make that much.

just wondering who is claiming her as a dependent, if you then she can not use a standard deduction

if she is independent then she can use the standard deduction

also if she is working as a contractor she should be filing estimated quarterly tax payments otherwise she could be subject to penalties, even more if she paid in less than 90% owed for the year

[Displaced_Yankee]

Gotcha. I think you mean ‘business deductions’ instead of the ‘standard deduction’.

In general terms: what you were paid - business deductions (expenses) = gross income - standard deduction = taxable income.

Keep in mind, that she has to pay income taxes AND social security and medicare tax on her net income. There is no ‘standard deduction’ on social security and medicare tax. As a Schedule C/soleproprieter/1099 income she has to pay BOTH the employer and employee side of SS and Medicare. As opposed to the employer paying half and the employee paying half as a W2 employee.

[pony_grandma]

The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance)

Plus federal tax estimates and state and local tax estimates.