I was talking about tax withholding as a W-2 employee. It's different for 1099.
As 1099 there is no tax withholding, but you are expected to report according to what type of entity the payment is going to. I'm not sure if it's different for LLCs vs sole proprietors, but if you pay employees, there is a payroll tax, which is a liability for the employer. My understanding is that the payroll tax is what gets split between the employee and employer and withheld as "income tax". It's not a law, it's just employers spreading out the loss by making employees share the burden.
The only reason that is done (in my opinion) is so that when people go to file their tax report, they are asking for their money back because they overpaid. So instead of the "tax bill" being a literal bill that you have to pay, you are incentivized to file in order to get a refund. If you prepay through withholdings all year and then don't file, no problem, the government is happy to keep your money.
But why give the government an interest-free loan?
How do you not report? As 1099 everyone that writes me a check surely reports it.
I'm not a CPA so I don't want to say anything inaccurate, but what does it matter if your checks get reported? The liability doesn't exist until you file and report your full accounting to determine profits and losses. As an LLC I don't know if there are reporting requirements, there might be. I only know as a W-2 employee you can exercise your right to collect your entire check with no withholding. Whether you report it is up to you.
If I file once, have I forever waived my 5th amendment?
I was talking about tax withholding as a W-2 employee. It's different for 1099.
As 1099 there is no tax withholding, but you are expected to report according to what type of entity the payment is going to. I'm not sure if it's different for LLCs vs sole proprietors, but if you pay employees, there is a payroll tax, which is a liability for the employer. My understanding is that the payroll tax is what gets split between the employee and employer and withheld as "income tax". It's not a law, it's just employers spreading out the loss by making employees share the burden.
The only reason that is done (in my opinion) is so that when people go to file their tax report, they are asking for their money back because they overpaid. So instead of the "tax bill" being a literal bill that you have to pay, you are incentivized to file in order to get a refund. If you prepay through withholdings all year and then don't file, no problem, the government is happy to keep your money.
But why give the government an interest-free loan?
I'm not a CPA so I don't want to say anything inaccurate, but what does it matter if your checks get reported? The liability doesn't exist until you file and report your full accounting to determine profits and losses. As an LLC I don't know if there are reporting requirements, there might be. I only know as a W-2 employee you can exercise your right to collect your entire check with no withholding. Whether you report it is up to you.
It's by year, so no, every year is a new leaf.