Hello Everyone. I have a small house cleaning company that I run with my mother who I've been paying as a W2 employee for the past couple years. I'm in NY
I've come to the realization that I don't need workers comp for her if I make her a part-owner of 1%
My question is, will she have to do her taxes any differently? Or can she keep doing her taxes the same way as previous years?
A lot to consider and a lot of unknowns. If you are running a business (having employees is usually a symptom of running a business), it is generally helpful to have a CPA near. That person should be able to tell you the different options and effects of the types of entity you use and how to accomplish your goals.
In a nutshell, if you are a sole proprietor, you cannot give 1% without creating a partnership.
Partnerships and S Corps are pass thru entities. Depending on the amounts and items passed thru she may have different individual tax effects.
C Corps stand alone (do not pass thru). She can have reportable income if dividends are issued.
All entities may eventually result in some capital transaction on her individual return at some point in the future except transfer by bequest, assuming step up in basis is allowed.
If you decide to transfer 1%, again a lot of things to think about. What is the best way to effect the transfer? Gift? Compensation? Purchase? What is the value of the business?
By your use of the word small, I am guessing gross revenue of less than $100K to $150K. Thus all in all I suspect the administrative costs will be more than the worker's comp premium saved.
