My business will be open from aug till Oct 31, 2012, For these last 3 month that I'm open I have 3 people(family) helping me out .. (at end on June I let all of my previous employee go except for 1 which is my cousin, and I have "hired my daughter and her friend to help me until my lease is up , I will now be paying in cash is it legal for me to give a1099 at end of year to these workers which I'm now not considering regelur employees, (at end on June I let all of my previous employee go except for 1 which is my cousin, and I have "hired my daughter and her friend to help me until my lease is up at in of Oct. then I will be closed for business. I just want to make sure in paying them as contract workers it is conidered legal. thank you I'm closing because business is not making mone
I agree with the previous two responses: if you were treating your workers as employees before, and they are essentially doing the work now, they are still your employees, and the IRS will wonder why the sudden change to independent contractor status. In other words: this will be an audit flag.
On a related note, it's not at all clear to me why you cancelled your payroll service when you knew you were going to close your business in a short time, anyway. Unless your payroll service was doing a terrible job, you might want to consider engaging them through the end of the year when you actually close down. They should already have your information (and your employees' information) input into their software, and might even be able to offer you a discount. Besides, you will need to have someone prepare their W-2's for income earned for the first half of the year.
Too many small businesses end up in trouble when their payroll person (usually a small independent contractor) quits, or when they attempt to do their own payroll. Paying what little extra you may have to pay between now and the end of the year is worth not taking the risk of facing big headaches on down the road.
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The IRS has a specific definition as to when a designation of "independent contractor" is appropriate (your state probably has a definition too for unemployment and other employee taxes). From the facts here, your workers don't appear to fit that definition, even if they are family.
I suggest you do all you can to conform to the IRS (state) rules - in the end it may save you a ton of trials and tribulations.
I hope this helps.
Steven A. Leahy
Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.
Do not do it, you will be better off closing the business now and selling its assets than be in hock to the IRS . Do not compound you problems. I would most strongly recommend seeing an attorney about shutting the business with the least amount of long term harm. What you are planning is counterproductive.
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Employment / Labor Attorney
I am a California attorney and cannot give legal advice in your state. My comments are information only, based on federal law and general legal principles. YOUR STATE MAY HAVE ITS OWN LAWS THAT OFFER SIMILAR OR GREATER PROTECTION. If I mention your state’s laws, it only means I did a quick Internet search and found something that looked relevant. You MUST check with an attorney licensed in your state to learn your rights.
Please see my Avvo guide detailing which workers are employees and which workers are independent contractors: http://www.avvo.com/legal-guides/ugc/independent-contractor-or-employee--federal-and-california-law.
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