How to Categorize Payment from a W2 Job
Ryder
Member Posts: 2
Hi, I am a freelancer that gets paid as both a 1099 and W2. When I get paid under a W2 the company will withhold taxes for me. My CPA got a little confused on how I had categorized my W2's. She associates invoice payments as 1099, which makes sense. I was creating invoices for my W2 jobs but this caused a lot of confusion when it came time to file taxes.
At this point I assume it would be best to just create a Transaction that is not connected to a invoice for this income but am unsure how to Categorize the income. I imagine I would split it into 2 categories: one as W2 income and the other as Taxes Withheld.
My question is where would I put the Taxes Withheld that it would be easy for my CPA to understand? Is it a liability? This is income I am not receiving, just to be clear. If it is a liability what sub category would I put it in? Sales Taxes? Other Short-Term Liability?
Example:
Job paid me $900 for W2 services
I received $831.15
They withheld $68.85 for taxes (State and Federal)
Is this the best way to do this?
The alternative to this is to just not include my W2's on Wave and keep track of them in a spreed sheet (This is what my CPA suggested). I would prefer to keep it all together. Anyone have any recommendations?
Comments
Hi there @Ryder , thanks for reaching out! Thanks also for taking the time to flesh out the situation so clearly for us here.
I'm afraid that we here on the Community moderator team are no able to offer advice on this situation. We're here to help with 'how to do' rather than 'what to do', so if there is uncertainty about which categories should be chosen, I'm afraid I must advise that you speak with an accountant, as there can be implications on tax filings which are outside of my scope to advise on. If you need any help with how to categorize generally, I can definitely help with that!
Hopefully a Wave Pro will be able to help you out with this here in the Community. Thanks so much for reaching out, and all the best!
@Ryder,
You should not include your W-2 wages in your business account. Even though your W-2 may be issued to you for the same line of work, the money has already had taxes paid (social security and income taxes withheld). Your Schedule C income has not. I would highly recommend keeping it off.
@Mikeg Thank you for the advice. I imagine this is the same reason my CPA is asking me to keep it separate. My follow up to this is that when I need to show proof of income I usually use wave to do so. If my W-2's are not in my books then it is not a accurate proof of income. With this in mind, is it still best to keep my W-2's separate? Say just on a separate account on wave or simply a spreed sheet?
@Ryder,
W-2's are reported by employers to both social security and the IRS. You would not need to provide anything further as proof with respect to a W-2. I would recommend that you have separate accounts for business and personal. Your business account would have all deposits and disbursements related to your business. Your personal account would receive your W-2 income. When you need cash in your personal account, then I would make a transfer from the business to the personal and categorize as a Owner Draw.