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Setting up a scope shop
Dear Small Biz Adviser:
I have everything I would like to start
my small business. I am a scopist, and I would just have the reporter
1099 me. Is this legal? What about a separate account? Will the
bank ask me for a tax ID or such in order to open a business account?
Thank you,
Miss Jenny
Dear Miss Jenny:
Your profession had me scrambling for my dictionary. As
you can tell, I am not found around courthouses very often. For
the benefit of our other readers, a scopist is one who performs
computerized editing of court proceedings from the transcript provided
by the court reporter.
Since there appears to be more and more legal proceedings,
I believe you are in a very lucrative career. I also learned there
are quite a few scopists with Web sites.
When it comes to Form 1099, you must define whether
you are contracted, as opposed to being an employee. The Internal
Revenue Service has a list of characteristics that differentiate
between contract workers and employees. The agency considers you
an employee if an employer controls:
- When and where you conduct the work.
- What tools or equipment your use.
- What workers you hire or have assist with the work.
- What work a specified individual conducts.
- What order or procedural sequence is to be followed
when conducting the work.
In addition, employees typically:
- Have less personal and monetary investment in the
conduct of work or a project.
- Are limited in the amount of outside work they
can solicit for personal gain.
- Are paid by the hour for a wage or by time period
for a salary. However, the contractor can make a profit or incur
a loss. The employee is not expected to incur a loss for work
performed.
- Are provided with benefits, including employer
match of Social Security and Medicare deductions from that employee's
compensation.
- Are engaged with the intention of permanency. In
other words, the employer is seeking a continuous relationship
with the individual.
And you are an employee if the nature and content
of the contract for hire specifies employee status rather than contractor
status.
There are other conditions to define an employee,
but all the conditions listed above must be continuously maintained
in order to define the person an employee. Likewise, the reverse
conditions are continuous for an independent contractor.
In short, you are a contractor if the person or company
paying for the work controls only the resulting work, not the means
or method by which you perform the work. An employee is controlled
in how he or she conducts the work and the end result.
Another issue is the type of profession in which you
are engaged. There are specific conditions applying to several of
these professions. I strongly urge you to read IRS
Publication 15-A, Employer's Supplemental Tax Guide. It
provides the most comprehensive language describing all conditions
regarding the distinctions between the employee and independent
contractor.
IDs and bank accounts
Regarding tax ID numbers, if you do not employ anybody then
your Social Security number will suffice for the IRS. However, some
states do require a formal tax ID apart from your Social Security
number. Typically, these are states in which you must pay state
income tax. If that is so in your case, then apply
with the IRS for a federal employer identification number (FEIN).
If you are incorporated or operate a limited liability
company, then open up a commercial operating account with the bank
of your choice. Proprietors are not required to have specific business
accounts, but it helps to separate other income from business income
and many proprietors choose to do so. Customers feel more comfortable
with a proprietor's reliability if they are writing out a check
to the name of a company as opposed to the name of the business
owner. It also makes good public-relations sense.
Anticipate having to provide the bank with a copy
of the articles of incorporation, partnership limited liability
company documents filed with the state, occupational licenses and
fictitious name registration.
Keep in mind that banks must report the deposits made
to commercial accounts. It's another way the IRS can monitor whether
a business is filing proper tax returns associated with income.
You will also notice that a withdrawal cannot be simultaneously
conducted when making a deposit. Those transactions must be separate.
This further insures a more accurate accountability of business
income generated.
I do hope this gives your further direction. I wish
you well.
-- Updated: Aug. 15, 2003
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