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I see a couple of good options. One being using QuickBooks and the payroll module/add on. You can buy QuickBooks for approximately $200-300 and the payroll module is around $200 as well. So total cost here is around $400-500. (estimated)
The QuickBooks payroll module is very easy to use and is very easy to prepare your annual/quarterly payroll tax returns as well as your annual W-2 and W-3. You can even prepare your 1099s in it if applicable. See the website here for more information - http://quickbooks.intuit.com/ - I believe this is the best accounting/payroll system out there for small business. (It is also probably the most popular)
You could also use an excel based calculator which will assist you in preparing your payroll checks and tax deposits. The downside of these calculators is that it does not assist in the preparation of your Payroll Tax Returns Form 941/940. These are the ones that most people find confusing and QuickBooks makes it a snap.
Payroll is one of the most complicating tasks for small business owners which really adds no value to their business. I recommend QuickBooks. It is easy to use and update. Once you run the process a few times it becomes routine and there is very little room for error.
I hope this helps you. Please let me know if you have any further questions.
I wasn't really asking for payroll method advice. Giving my situation, I am more looking for a way to qualify for EITC without doing a formal paycheck and w2 for myself. Example: Can I still qualify for EITC if I just do a 1099 for myself in stead of a paycheck?
Oh I see what you were getting at.
Yes you can still qualify for the EITC without a W-2. What type of business do you have? a S-Corp, LLC, or C-Corporation?
Since this is an LLC (I am assuming a single member LLC) you should not be issuing yourself a W-2.
The LLC would not issue you a W-2. Instead you would report the income and expenses from the activity on your Schedule C of Form 1040. If you drew money from the LLC that is completely okay as you are not taxed on distributions from the LLC, you are taxed on the earnings/profits. This would give rise to self-employment income and thus you would still qualify for the the EITC as you would still have earned income. You will still qualify for the EITC assuming you will meet all the other criteria which you state that you have met above.
One critical fact that you outline above is that the LLC is running continuous losses. Using the methodology above would not provide for earned income if the business did in fact have a loss, thus you would not qualify for the EITC.
Basically you will not qualify for the EITC if you do not have earned income. Merely issuing yourself a W-2 to from your single member LLC to "create" earned income would be breaking the rules. You will need a profit from your LLC before you will become eligible for the EITC.
I hope this helps, please let me know if you have any further questions.
So for 2011 tax return which I am trying to do now, since I have not formally pay myself wages, I will not be able to find a way to qualify for EITC? If your answer is yes, then is it a way to retro a 1099 or pay check to myself. I did withdrawn cash from company account for personal use.