287 High Street, Suite 319, Holyoke, Massachusetts 01040, United States
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Do Sole-Proprietors Get Paid?
The short answer is no, at least not in the sense of getting a weekly paycheck, as one does from a job. The reason for this is that, while a sole-proprietorship can certainly hire employees, the business and the owner herself are indivisible, one-in-the-same, and cannot be split into employer and employee. This is true even if there is an LLC, but, as is often the case, the owner chooses to disregard it for tax purposes. In order pay herself a salary the business owner must establish a separate entity, such as a corporation, to do so (notwithstanding she is still the only one controlling the other entity).
Of course the real answer is that a sole-proprietor's pay is as much, or as a little, as the business's net income, regardless of whether she uses it for personal purposes, which some call a “draw,” or leaves it in the business bank account. No matter what some eager payroll services may tell you, that money is already yours, no intermediary necessary. While some prefer the security of a regular paycheck, it can never beat the upside of when your business is profitable, and you are rewarded for your own hard work. And from a tax perspective, for a small-business owner it is almost always preferable to be self-employed rather an employee, most notably due to the 20% Qualified Business Income Deduction, which only applies to self-employment earnings, not wages.
Since we mentioned Limited Liability Companies, will take the opportunity to remind everyone that while they limit the business's liability, you are still personally liable for your own actions, so, particularly when you're providing personal services, and it is only you, the LLC will not save you. Nevertheless, will also again remind those of you who do have LLCs (or certain other small entities) that you must file a Beneficial Ownership Interest Report with the Financial Crimes Enforcement Network (FinCEN) before the end of the year, if you established them in a prior year, or within 90 days, if established this year; in 2025 new registrants will only have 30 days to do so.
There are of course many more nuances to all of this, and at Holyoke Tax Service, we are always happy to help you with any of them.
Amnesty!
The Massachusetts Commissioner of Revenue has just announced a tax amnesty program, which will be in effect from November 1, 2024 through December 30, 2024. The major features of the program are 1) a waiver of late-payment, late-filing, and most other penalties, that applies in most cases, including for those who have already filed and/or are on payment plans; and 2) a limited (3-year) look-back period for those who have not filed returns for a number of years, and are not subject to several disqualifications, meaning essentially that they will only have to pay tax going back to 2021.
Of course there are many caveats to the program, perhaps most significantly that all tax and interest must be paid in full during the amnesty period, and there is generally an application required, but as always, we are here to help you navigate all this.
BOIR
This is a very important reminder to those of you who own small entities, such as LLC's (even if disregarded for tax purposes) and closely-held corporations, that you must file a Beneficial Ownership Interest Report with the Financial Crimes Enforcement Network (FinCEN) before the end of this year. It is a rather simple task, but the penalties for not doing so are extraordinarily onerous. (If you registered a new entity this year you have 90 days to report. See more details below.)
On the New & Improved Massachusetts Child & Dependent Care Credit
What great news when coming into the office on a Sunday morning!
With a little persistence was able to convince the Massachusetts Department of Revenue to conform to what the law (as perhaps a rare exception) quite unambiguously states. Goes to show that you really can win against the "system," not only in small things like this, but, with enough perseverance, and belief in your cause, big things as well.
Client: "Hi David
I think the letter you sent might have changed their mind. I received a refund of $226 and then got another one recently in the amount of $310, which I believe is is the amount you indicated was for the tax credit.
Thanks for your efforts. Much appreciated."
What I had previously written to client: "Hi .., apparently the DOR prefers to be obstinate. Chapter 62(x) says, "The credit is available to taxpayers who maintain a household that includes at least one individual who is (1) under the age of 13 and who qualifies for the federal exemption for dependents provided by Internal Revenue Code (“Code”) § 151. "You maintain a household that includes your son who is under age 13 and qualifies as a dependent (and whom you would have claimed as such, excepting that you released the exemption to his non-custodial parent). I will send a reply to the letter."
BOI Required Reporting
Small business owners, are you ready for Beneficial Ownership Information required reporting, which begins with the new year?
And we are talking about the smallest of the small; while there are exemptions for larger companies, as well as banks and other financial institutions, and non-profits, the US Corporate Transparency Act requires that just about anyone else who has registered an entity, typically a corporation or now highly-fashionable LLC, with the Secretary of the Commonwealth to file a report. This includes single-member LLCs that file tax returns as disregarded entities (Schedule C of Form 1040, just as any other sole-proprietorship).
Existing entities have all of this year to complete their reporting, whereas new entities registered in 2024 will have 90 days (reduced to 30 days in 2025 and on) to do so, as well as an additional information requirement.
Although also a part of the Treasury Department, the agency administering the program, the Financial Crimes Enforcement Network (affectionately known as FinCEN) is otherwise entirely separate from the Internal Revenue Service; nonetheless, at Holyoke Tax Service we will be including assistance with this reporting with our other services. If we may assist you with this, and of course any income tax filing, please message us here, or call or text to 41-210-0102.
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About Us
Our Office
- 287 High Street, Suite 319, Holyoke, Massachusetts 01040
- Conveniently located near Holyoke City Hall and the Holyoke Transportation Center
- Please call, text, or message us for an appointment (please see our policy above)
David Yos
- Over fifteen years of tax preparation experience.
- Holyoke resident since 1999.
- Married to Jacqueline Yos, with two daughters and five grandchildren.
Our Services
- Preparation of all 1040 series tax forms
- Form 990 - Tax-Exempt Organizations
- Authorized IRS e-filer
- Small business returns
- Rental property returns
- Multi-state returns
- Your proactive adviser: W-4's, estimates, etc.
- Please ask about other services we may provide.