<p>D got an offer to do create and maintain websites for a few small businesses. What is better for her (resume, income tax, etc.) to work as a consultant or start her own business? </p>
<p>I’m an independent consultant with no employees, and I had to set up my own business with a license, insurance, etc, in order to properly process payments. Maybe I’m misunderstanding your question.</p>
<p>Yes, I am confused, too. I have a small business as a consultant as well… I would say in general that if she is pretty new to the working world, it isn’t a bad idea to get a few years of experience working for a company vs. striking out on your own. You need to have skills to go out on your own, and those don’t just come from a college degree. You need work experience, too.</p>
<p>Sorry for the confusion. She is a rising HS junior. This is something she will be doing during summer. She is 15 years old.</p>
<p>Thank you.</p>
<p>I still think that she should set up a business. If anyone who she’s doing work for wants to write off what they pay her on their business taxes, the IRS computers will be looking for that as business income on her end.</p>
<p>There are tax and legal complexities to setting up your own business. It would be a lot simpler for her to work for someone else, honestly. If she gets good experience it doesn’t make any difference.</p>
<p>I do not exactly know the best way to deal with it. She was asked to do this project. If it goes well, few other people might asked her to do their websites. She is working on design now. So what is the best way for her to get paid: check payable to her or to her business (assuming she starts one)?</p>
<p>She doesn’t need to set up an LLC or an S Corp, if that’s what you are asking. They can hire her as an independent contractor. She’ll have to submit an invoice. No big deal. Just get her an employer identification number (EIN) so that she doesn’t have her SSN floating around on a bunch of invoices. You can never be too safe with protecting SSNs nowadays.</p>
<p>Here’s where you apply for an EIN:
<a href=“https://sa.www4.irs.gov/modiein/individual/index.jsp”>https://sa.www4.irs.gov/modiein/individual/index.jsp</a></p>
<p>Don’t get complicated. She can be a “1099” consultant. It will not make any difference on her resume. It is the work she does that will count. It is just a Schedule C tax form and she does not have to get complicated and set up a business. She is young and it is for the summer. You still get write offs for expenses. She needs to be aware though that full 15% + social scurity taxes will be due when she files. I have worked this way for years. </p>
<p>“Setting up a business” can be real simple. I used my son as a contractor for one summer to do software testing for me and all he needed to do was go online to get a business license. He filled out the Schedule C form using Turbo Tax.</p>
<p>Good point. In most places you have to get the business license whether you set up a company or do independent consulting. I have a business license. It is BTW often another tax to pay. One thing your DD will learn is that she is not going to keep as much money as she thinks by the time she pays all of the taxes that an employer normally pays. </p>
<p>Thank you everyone for valuable information. Both my H and I are employees, so we do not know the best way to handle independent work. Let me just summarize information: she can get just an EIN and use it instead of her SSN number, but get paid under her own name or she can start her own consulting company (still have to figure out how to do it) and then get FTI for it. Now she is my dependent. Can I still claim her as a dependent is she has her own consulting company or I have to file business tax return for her company?
Thank you everyone. I am so glad we have this forum.</p>
<p>I work under my own SS number, it is my EIN. She will file W-9 with her clients. Yes she would stil be your dependent as long a she qualifies normally. Working or owning a business does not change that. She has to file taxes in any case just like any other summer job. She just works for herself instead of for someone else and does not claim herself if you claim her. If she just works on her own she reports the income on Schedule C, not a separate business filing. If she establishes a business she will have to file for the business. That was more than I ever wanted to get involved with. If you go that route get an accountant or attorney to help you. Go out to the irs web site where there is plenty of info on reporting misc income and expenses. </p>
<p>Interest! I worked for 6-8 years as a 1099 contractor in the late 90’s and never had a "business license’. I don’t even know what that means. I was a sole proprietor and had a “DBA” (“doing busines as”) certificate. Is that what y’all are calling a “business license”? </p>
<p>I am guessing she won’t make enough for it to matter, but seems like having her own business would sound slightly more impressive :-).</p>
<p>If by “start her own business” you mean incorporate and get a tax ID number, that will be more than it sounds like you guys can handle. That will involve filing a corporate return. She can “start her own company” simply by filing a schedule “C” on her own return without all the other hassle. She will still have to pay self employment taxes, but if she nets ess that about $6,000 she won’t owe tax. You can still claim her as a dependent assuming she’s a full time student under the age of 24.</p>
<p>How much are these people paying her? If it is less than $400 (I think that’s the cut-off, but you should check at the IRS website), they don’t even have to issue a 1099.</p>
<p>Happykid has a lot of self-employment income. She keeps track of the income as it comes in, and in April if there aren’t enough 1099s to account for it, oh well. Lots of the people she works for don’t issue 1099s. We figure that that is their problem with the IRS, not hers. She reports all of her income when she files her schedules C and SE and her long form 1040. Yes there are taxes due every year, but she has never made enough to not still qualify as a dependent.</p>
<p>I haven’t bothered to ask her to get an EIN. It would just be one more number for me to keep track of. </p>
<p>I have a few different jobs (being a high school senior), and while none of them pay over $400 (the most you can make before having to file taxes), all of the companies I work for have required me to fill out a W-9 for them. (I do end up making more than $400 per year, but not from any one company). I think that would be the best and easiest way for your D to do this if she’s still in high school, and no, it makes no difference on her resume.</p>
<p>ETA: I work as a tutor and counselor for a few companies, so I’m considered an independent contractor. Obviously, it would be different if it was an employee/employer job, but that’s neither her situation or mine, so I wrote from that perspective :)</p>
<p>As a contractor, I have a state business license (I’m a dba on it, so it’s probably the same thing) and my tax guy just files my personal taxes including a schedule C to report my consulting income / expenses. My son, who made a lot less money when he was a contractor for a summer, got the same kind of license and used Turbo Tax file file the Schedule C. He did have to pay the social security and medicare taxes that the employer and employee usually pays, but his income was so low he didn’t have to pay anything else. I still claimed him as a dependent.</p>
<p>We both are “sole proprieters”, by the way, so that’s probably why it’s been so easy.</p>
<p>Thanks for the reminder, irlandaise, about the $400 rule. My son made more than that, so the business license and Schedule C is the route he took. I do remember that he could have just treated it like lawn-mowing or babysitting if he had made $400 or less from any one employer.</p>
<p>Thank you everyone. We are in California and I think she needs to have a work permit since she is under 18. This might be a problem since I think it has to be sign by her school and school is over already.</p>
<p>Just from a quick search (so you may want to double check), I read that in CA a work permit for minors may be obtained during summer months from the superintendent of your district. I would check, however, and see if there is any staff at your school. At mine, most office staff works all twelve months, and you can go in for secretarial things.</p>