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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11612
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My daughter lives in Hawaii and is working for a high end clothing

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My daughter lives in Hawaii and is working for a high end clothing store. Her boss has asked her and all of the other employees to get a General Excise Tax license. I am not in Hawaii but from my research it looks as though the owner of the company is asking her employees to essentially become their "own business" and she will then pay them as general contractors. I believe this would mean that my daughter would then need to pay her excise taxes on top of her normal federal and state income taxes. This does not seem like a good deal for my daughter to me as she only makes 10.00 an hour plus commission. I can't seem to find online what the tax rates would be for her. I need some advice for her.

Thank you!

NPVAdvisor :

Hi,

NPVAdvisor :

Hawaii does not have a sales tax; instead, they have the general excise tax, which is assessed on all business activities. The tax rate is .15% for Insurance Commission, .50% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others.

NPVAdvisor :

Su yes, this would be on top of her other taxes ...

NPVAdvisor :

On the plus side, however, your daughter will essentially be her own business and can deduct all business expenes

NPVAdvisor :

*including this excise tax, from her federal taxes

NPVAdvisor :

thia would be the case if the boss is, indeed, payng her as a contractor and providing a 1099

NPVAdvisor :

If she receives a S-2 however, and is paid wages, as an employee, then the owner of the bsusiness should be paying the excise tax (the boss"

NPVAdvisor :

sorry for the typo (a W-2)

NPVAdvisor :

depending on wht her business expenses would be, (if she is, indeed, paid via 1099 as an independent contractor, the net benefit could actually be higher as a contractor

Customer:

My concern is that - to be safe - she would probably need to hire a tax service to help her evaluate her tax burden - another exense, make quarterly payments, and, unless she lists herself as an employee would not be paying in to her social security, would not have the protection of workers compensation should she have an injury at work. It just seems to me that this should be the responsibility of her employer. I have never heard of such a thing in a retail store environment - but I know Hawaii is an unusual state.

NPVAdvisor :

I agree, that this is atypical ... the commission piece makes it a little more in line with convention

NPVAdvisor :

on the workers comp piece, sh needs to check but may health incurance policies DO provide for what's called 24 hour coverage (meaning that she WOULD be covered at work BECAUSE the WC isn't available)

Customer:

I see your point. The commission part of this is a little hazy right now and I am asking her to get that pinned down. I don't want to throw a buch of questions at you for my 30.00 commitment, but can you tell me roughly what she would expect to pay in taxes on her 1099 income?

NPVAdvisor :

and on the xosicial security piece you are right

NPVAdvisor :

she WILL have to pay in both the employee and employer portions, but, again, for many, the ability to deduct expenses on her schedule C m ore than offsets that

NPVAdvisor :

that's called self-employment tax, (paying both sides of the social security)

NPVAdvisor :

and finally on the estimated payments...

NPVAdvisor :

It means paying in 4 times rather than having it withheld, but not neccesarily more tax ... once again, the as a busines pwner she would only be taxes on profits not all revenues

NPVAdvisor :

your concerns are valid, but if she's successful, the contractor route can be more lucrative (after taxes)

NPVAdvisor :

it really dep[ends on the numbers, what sorts f ex[penes she chan now deduct that would have been the employers' in an employee situation

Customer:

OK, so she would pay the 4% excise tax plus taxes on any profits. The profits could then be considered her "income" on a personal level and that is usually roughly 20%. Does that sound correct?

NPVAdvisor :

Hre are the tax brackets fort 2013

NPVAdvisor :

  • 10% on taxable income from $0 to $8,925, plus

  • 15% on taxable income over $8,925 to $36,250, plus

  • 25% on taxable income over $36,250 to $87,850, plus

  • 28% on taxable income over $87,850 to $183,250, plus

  • 33% on taxable income over $183,250 to $398,350, plus

NPVAdvisor :

so if she had, say, 30,000 in profit

NPVAdvisor :

she's pay (I'm assuming single) 10% on the first 8924

NPVAdvisor :

than 15% on the rest

NPVAdvisor :

so not quite that bad.... again taking off those expenses first is what things turtn on

NPVAdvisor :

that's federal

NPVAdvisor :

but that gives you a fell,a dna place to start inrunnung the numbers

NPVAdvisor :

plus remember that on state and feredal it's TAXABLE income she will also have the personal exemption, and standard OR itemized deductions

Customer:

This has been extremely helpful and gives me (and maybe her) a new perspective on this. She'll be able to deduct her travel, babysitting, lunch, and probably a lot more under the guidance of a good tax professional. I will find out what state taxes might be in addition to the excise tax and ask her what her commission might net her and then get her to get a solid agreement signed if she wants to pursue this. Thank you very much.

NPVAdvisor :

YW, here are the HI satat income tax rates

NPVAdvisor :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Customer:

Thank you very much. I have to get my butt back to work but I very much appreciate all this information!

NPVAdvisor :

You are very welcome

Customer:

Ill be sure and give you a good rating this evening when I get back home. Thanks again!

NPVAdvisor :

:)

Lane and 4 other Tax Specialists are ready to help you

Thanks so much, Josh.

Let me know if I can help further.


Lane

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