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Can I deduct it when I do my income tax?

I owned a salon and I pay my employee with 1099(self-employ) instead of W2 because they get pay by commission only. Now the Washington State Employment Security Department audit my business for the last three years for over $10,000. Can I deduct the $10,000 when I file my income tax?

Public Comments

1. Dear CN: Great question and YES! The amount of state tax paid is deductible. It must be tax paid for you to be deductible on your personal return. Other wise it will be deductible on your business return. Penalties and interest do not qualify for a deduction. This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent
2. You have to determine what the 10K is for. If it is being classified as for back taxes then it is deductible as a business expense on your Sch C. You never, never, never mix the two words "employee" and 1099.
3. Yes. However, if the person is really an "employee", then using Form 1099-MISC was illegal and you must pay the social security and medicare tax that you would have paid or withheld if you had be using Form W-2. You may use Form 1099-MISC only if the person is an independent contractor.
4. what was the $10000 for assuming they determined that this was employment tax you failed to pay, only the amount that would apply to the wages they declare some of the $10000 might be penalties which are not deductible and it would be against your business, not your personal tax return
5. The part that's tax that you owed and didn't pay, yes. Penalties, no.