Great question. Employment and payroll expenses differ. Once you have sustainable revenue to sustain w2 employees, I would suggest working with a company like Gusto to keep it all straight.
Thanks for shedding light on this Rebecca, much needed. Can you also shed some light on what channels through which to disburse compensation? For instance should one pay via direct deposit from salary account to employee account? Or utilize a payroll system?
Until you can justify becoming a w-2 employee of your organization and use payroll software like Gusto, I would take direct deposits or checks written to you directly from the business account. I would categorize this expense under contractors and I would issue a 1099 at the end of the year for the ED and any other contractors paid. This is just my opinion and not meant to be financial advice. Definitely seek advice from a qualified accounting/tax professional.
The organization is tax exempt, so they pay no taxes on revenue or profits. Salaries to individuals and contractors are business expenses for the nonprofit, just like rent or electricity. The individuals being paid are NOT tax exempt. They're people like anyone else and they must pay taxes. If you get a job at March of Dimes it's no different than getting a job at Apple. You get paid and you must pay income taxes. Therefore the organization and the individual are completely different entities.
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How much should you be setting aside for taxes if you end up transitioning to W2 employees instead of issuing stipend/1099 contractor ?
Great question. Employment and payroll expenses differ. Once you have sustainable revenue to sustain w2 employees, I would suggest working with a company like Gusto to keep it all straight.
Thanks for shedding light on this Rebecca, much needed. Can you also shed some light on what channels through which to disburse compensation? For instance should one pay via direct deposit from salary account to employee account? Or utilize a payroll system?
Until you can justify becoming a w-2 employee of your organization and use payroll software like Gusto, I would take direct deposits or checks written to you directly from the business account. I would categorize this expense under contractors and I would issue a 1099 at the end of the year for the ED and any other contractors paid. This is just my opinion and not meant to be financial advice. Definitely seek advice from a qualified accounting/tax professional.
@@forpurposelive thank you for the insight. Much appreciated
I have a question. Does the salary get tax cause a non profit is tax exempt? Thanks for the info
The organization is tax exempt, so they pay no taxes on revenue or profits. Salaries to individuals and contractors are business expenses for the nonprofit, just like rent or electricity. The individuals being paid are NOT tax exempt. They're people like anyone else and they must pay taxes. If you get a job at March of Dimes it's no different than getting a job at Apple. You get paid and you must pay income taxes. Therefore the organization and the individual are completely different entities.
This is just a “how to manage cashflow”. Not how to pay yourself. The legal structure is the important part here…