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Ed Johnson
Ed Johnson, Tax Preparer
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3 of my friends including me start teaching spanish at a church.

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3 of my friends including me start teaching spanish at a church. We have about 50 students and we earn about $45000 per year.We pay 10% percent of our income to church. We devide the rest in 3. Can we pay tax as an individual contructor as a tutor? If not, what is the best way to pay tax?
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear cricket,

 

If this is paid as cash or reported on form 1099, you would file schedule C to determine your net profits. http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

 

Then you file form 1040-SE to determine your ss and mc taxes. SS and MC taxes are figure in the form of Self Elmpoyment tax. (hence the initials SE). The rate is 15.3%. BUT half the SE tax is carried to the front of the form 1040 to reduce adjusted gross income. Form 1040-SE: http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

 

The 10% is a thithing. You would apprtion that between the three of you so you can take a tax deduction for a charitable congtribtion on your 1040.

 

You would divide the 45,000 equally between you in order to claim on the schedules C and SE.

 

 

Customer: replied 5 years ago.

Thank you for the responce. We don't have any business license . We just want to help church and help people who want to learn Spanish. If we need to pay self-employment tax, don't we need to apply for the business license first? Can we just pay tax for the cash income for teaching Spanish as a tutor? Is this have to be a business?

 

Expert:  Ed Johnson replied 5 years ago.

Dear Cricket,

 

I understand that the form says "net business profit". The IRS classifies self-employment income as business activity, even though a formal business has not been established. All income earned through cash payment for personal services that are not tips, and 1099 income with box 7 income, to be self-employment income requiring the filing of schedule C.

 

All such employment income, that escapes W-2 treatment, is subject to SS and MC taxes in the form of SE tax.

 

There is no state in the U.S. that requires a business license to be self-employed. However to be self-employed by profession may require a license. For example: one can not hold themselves out be an attorney without a license; one can not hold themselves out to be doctor, nurse, CPA, etc without a license. I know of no license one needs in your state to teach Spanish in that environment.

 

However, it does not matter if you have a license or not. Even if someone were illegally self employed by virtue of requiring a license for their profession, they are still required by federal law (I.R.C) to report all income even if it is illegal.

 

Remember the stories about Al Capone...they got him for not reporting his illegal profiteering income to taxes. He got caught for tax evasion.

 

A person can be a drug dealer, prostitute, hustler, gambler, or Spanish teacher, and they have to all report their self-employment income on schedule C and pay SS and MC taxes on schedule SE. (I can not judge if people really do report the taxes illegally gained).

 

You are not a business, it is self-employment and is considered business activity by the IRS.

 

http://www.irs.gov/pub/irs-pdf/p525.pdf

 

 

 

 

Customer: replied 5 years ago.

Thank for the responce.

Please let me make sure that I understand you right.

1. We can claim self-employment income, even if the business has not been established, because it is considered as a business activity by IRS. We don't need to get a business license.

2. Divide our in come in 3 first.

3. File Schedule C

4. File form 1040SE for SS and MC tax

5. Claim the amount we pay for the church use for our charitable congtribution on form 1040.

Did I understand you right?

Do we never need to get a business license as long as we teach at a church? Because this is a busiess activity at a church?

 

 

Expert:  Ed Johnson replied 5 years ago.

Dear cricket,

 

Thank you for getting back to me.

 

Confirmed:

 

you claim self employemetn income even though you have no business license.

 

Divde your income between you first. YOu can do it as a partnership, but that is another story. Just divide the income by three. If the income comes to one persons name, then you would have to fill out a partnership return and schedule K-1 to allocate.

 

form 1065 http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf

 

Partnership return: http://www.irs.gov/pub/irs-pdf/f1065.pdf

 

Now this is complicated for your level, so you can insist on a form 1099 form the church and self allocate attaching a statement to the 1099. Technically you should use the partnership form.

 

Then fill out form Schedule C,and SE

 

AND then you can take each of your share of charitable contribution.

 

Very often when people say business license all that means is registering as a business with the state. If you are not a profession who requires a license, and you have no need to charge sales tax, you have no need to register with the state.

Customer: replied 5 years ago.

Thank for the response.

I looked at the form 1065 and it has

Employer identification number and Date business started coloms.

We don't have the number. Is this number same as Federal Tax ID?

What is Federal Tax ID?

So we cannot use this form even if technically it is the right way to do??

 

What is your opinion of our language classes to be licensed as a school, even if we have classes only once a week at church?

Expert:  Ed Johnson replied 5 years ago.

Dear Cricket,

 

You can use your own SSN.

 

I just gave you the form for partnership to be aware of it.

 

Here is the problem you have. Who is getting paid the money? and who is the person the 1099 is being reported to. That person needs to use the partnership return. OR at least a K-1 form to apportion the 1099 income.

 

ELSE you can for go that and simply apportion the income between you and your friends equally; provide each person a copy of the 1099; and then attach a note explaining the apportionment.

 

You can use the form. The person who receives the 1099 in thier name is XXXXX XXXXX who uses his ssn in as the EIN number.

 

The partnership form is not necessarily required, but it provides a means of allocating the funds that provides documentary evidence of each persons share from the whole.

 

Each partner would then be required to complete their own schedule C and SE.

 

I do not believe your langauge classes have to be licensed. Just do not put yourselves out as certifed language instructors unless you are. Do not advertise your program as a certified program, unless it is.

 

To determine if you are REQUIRED to complete the partnership return, read this document.

 

http://www.irs.gov/businesses/small/article/0,,id=98214,00.html

 

http://www.irs.gov/publications/p541/index.html

 

Remember I have given you both a formal and informal way to do this. I have to give you both ways. I do not mean to confuse you.

 

 

 

;

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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