The IRS defines a “seasonal business” as one which is dependent on income earned during peak periods of the year. A ski resort, lawn care service or summer beach rental may all be considered seasonal businesses.
Unfortunately, these businesses have to pay taxes like any other organization. While there are some differences related to payroll taxes, most seasonal businesses are responsible for paying sales tax, state tax and other taxes depending on your specific venture. Here’s what you need to know about paying taxes as a seasonal business owner.
[Read: 4 Ways to Turn Your Seasonal Business into a Year-Round Success]
Taxes for seasonal employees
One area in which your tax return might look slightly different as a seasonal business is in payroll taxes. Many business owners hire seasonal workers — defined by the IRS as anyone who works for six months or less — to help with the holiday rush. However, seasonal hires are subject to federal and state income taxes, just like any other worker. Unless the employee is an independent contractor, you must also withhold FICA taxes (Social Security and Medicare).
[Read: What to Know Before Hiring Gig Workers]
Tax experts recommend that you ask every seasonal worker to fill out an IRS W-4 form. “This form is used by employers to determine the amount of tax that will be withheld from each paycheck; however, Form W-4 worksheets filled out by many employees do not distinguish between part-year jobs and full-year jobs,” wrote Cover & Rossiter, a CPA firm.
Alternately, if you prefer to work with independent contractors, ask each of your team members to fill out Form W-9. The IRS W-9 is used to record information about a contractor so that their earnings can be reported at year-end.
In addition to collecting either W-9s or W-4s from your seasonal workers, you will have to file Form 941 to report your seasonal payroll. These forms only need to be submitted during the quarter(s) for which those employees are working.
“The main rule is seasonal employees are subject to the same tax withholding rules that apply to all other employees,” wrote the IRS. “As an employer, you normally have to file a quarterly Form 941 to report your employees’ wages and withholding. However, seasonal employers do not have to file a Form 941 for quarters where you haven’t paid wages and don’t have a tax liability.”
In any tax quarters in which you do not have seasonal employees, tell the IRS that you will not file a return by checking the "seasonal employer" box on Form 941 for every quarter you file Form 941.
In addition, you may need to pay self-employment tax as a seasonal business owner.
Other seasonal business tax considerations
Seasonal employees will need to report tips as taxable income. A student waiting tables at a restaurant over the summer, for instance, will need to keep track of the tips they earn during this time.
“Taxpayers earning tip income need to report it. It’s a good idea to keep a daily log for accurate reference when working any position, permanent or temporary, that involves tips,” said the IRS. “Taxpayers need to report cash tips of $20 or more during any single month to their employer.
Publication 531, Reporting Tip Income, has more information about reporting tip income correctly.”
In addition, you may need to pay self-employment tax as a seasonal business owner. The threshold for reporting income is $400 net profit. When you achieve that milestone, fill out Form 1040-SE as part of your tax return. Make sure that you keep meticulous records of your receipts, payment information and quarterly tax payments to make filing taxes easier when the time comes.
Labor laws for seasonal workers
Finally, it’s important to know some of the labor regulations governing the rights of seasonal workers. Avoid penalties and fines by adhering to the Fair Labor Standards Act, which includes seasonal employees for minimum wage and overtime protections. This means you must pay an hourly wage of at least $7.25 per hour and 150% of base salary for overtime work. This rate may be even higher, depending on where your business is located. Washington, Colorado and Massachusetts all have higher minimum wage limits than the national level.
To get specific advice on seasonal business taxes, speak to an accountant or tax expert in your area.
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