Tax Info For Staten Island Small Business Owners, Independent Contractors: Ideal Business Structure, Lawyer Requirements, Self-Employment Tax

Tax Info For Staten Island Small Business Owners, Independent Contractors: Ideal Business Structure, Lawyer Requirements, Self-Employment Tax

We talked about the ideal business structure for most businesses, including for independent contractors, such as Uber and Lyft drivers, food and package delivery drivers, and other structures involving primarily one person. Whether it is an LLC, an S-Corp, a C-Corp, or something in the non-profit world, there are many choices. That is one of the beautiful things about business formation in America: there are tons of options available.

We touched on liability and protecting one’s assets, along with how to file and how to do payroll. There are a lot of options available, and each has its own associated cost and time involvement.

The second topic we covered was the requirement of all businesses, if they are ever sued, to hire an attorney. If you are the owner of a business, no matter the size, you must always hire an attorney. This is in distinction to cases where an individual is sued personally, where they can represent themselves. Due to the presumption of profitability written into the laws in America, all businesses must hire an attorney to defend themselves if they are sued.

This requirement, as well as the non-relation of legal judgments to the ability of the losing party to pay, has led many a small business into bankruptcy and dissolution. Lawsuits are expensive, as are settlements and judgments. This has caused many a small company to disappear into oblivion after just one or two lawsuits. However, the proper business structure can protect at least personal assets, in most cases, from being taken.

Finally, we talked about the changing landscape of independent contractor work and the gig economy, and how the Self-Employment tax threshold is ridiculously low. In addition, it takes many gig workers by surprise their first year, as they often didn’t know that this was an after-deductions tax that is added at the end and cannot be reduced by before the final calculation deductions. The threshold is $400, and has been the same for decades. It doesn’t take much at all to make that amount in a year as a gig worker, and then it is subject to a tax of over 15%. This can quickly raise someone’s tax liability, and can cause financial strain when it is a surprise.

Here are a few of the points that were also covered:

In most counties, including Staten Island, small business owners can also register for a simple DBA, which allows them to open a bank account in the business’ name and obtain an EIN, but it offers very little in the way of protection from liability. It can sometimes be a good first step toward a corporation or LLC. Registering an LLC or corporation also usually incurs an additional initial step and cost of publication of an announcement in a Paper of Record, including a daily and a weekly newspaper in most cases.

Staten Island has an active Chamber of Commerce, with multiple memberships available. For those who enjoy networking with others, including attending dinners, talks, and events, this can be a valuable tool. It can also be a place to find local lawyers and accountants with whom to discuss these issues via their web directory.

IRS considers an S-Corp to be a pass-through entity, with Form 1120-S and Schedule K-1 for each shareholder. In New York, an S-Corp (and a C-Corp) can be filed by a single person, with a limit of 100 shareholders for an S-Corp and no limit for a C-Corp. Non-profit corporations must have three shareholders

Quickbooks offers a SimpleStart program for the business tracking, then an additional Payroll Core program to allow you to do payroll and 401(k)s. The cost is about $38/month for accounting, plus $50/month plus $6 per employee (self included) per month. Total cost: $94 per month for this program you use yourself. Compare this with an accounting firm to see what works best for you *This is just an estimate. Be sure to check with the company before making a choice.

Before Uber and Lyft entered the scene, there was a valuable market for ‘medallions,’ which were literal metal emblems that were limited in numbers issued. Thus, these medallions could be mortgaged like any other asset. But when Uber and Lyft entered the market, circumventing many requirements, including maximum numbers of vehicles on the street at any one time, use of medallions, and even commercial vehicle registration, there was a wave of driver bankruptcies and liability issues.

In the Uber and Lyft settlement with the New York Attorney General, these two companies were required to pay drivers back-pay for withheld driver earnings in 2014-2017. This settlement occurred in 2023. Many changes have been made with respect to ridesharing in NYC to protect drivers and passengers.

*Many of the independent contractor/employee status issues are decided on a state by state level. So in New Jersey, a healthcare or beauty worker who cannot leave the place where they provide services is considered an employee, and must be paid a minimum hourly wage, and they are entitled to whatever other benefits employees in that state receive.

Banner Image: Video Cover. Image Credit – Staten Islander News