Why Did I Just Get a 1099 MISC in the Mail?

Why Did I Just Get a 1099 MISC in the Mail?This post is brought to you by GoDaddy Online Bookkeeping (formerly Outright) the simplest way to manage your small business finances online. Sign up today for a less taxing tax time!

You probably thought you were done getting mysterious tax forms in the mail, yet this one shows up and ruins your day. You weren’t expecting any more forms at all and were even close to finishing up your taxes once and for all. What are you supposed to do with this thing?

The answer is you must have done some freelance work at some point in the last year, because the 1099-MISC is the form that independent contractors and freelancers receive in lieu of a W-2. Whether or not you remember performing a freelance job or not is irrelevant – it’s time to deal with it.

If this is the case or if you’re still learning about tax documents, we’re here to help! Let’s take a look at what the 1099-MISC is and how you can use it.

What it is

As stated above, the 1099-MISC is what independent business owners like freelancers get at tax time instead of a W-2. But why do you get a separate form? Why don’t your clients just send a W-2 and be done with it?

The answer is in how different parties handle taxes. When you have an employer, they handled most of your tax liabilities for you. They withhold the portion of your taxes the government agency needs and pay it in for you. This doesn’t happen with freelancing. You have the pleasure of paying the necessary taxes to state and federal taxing authorities yourself.

So when April rolls around, employers send a W-2 that has not only your income info but also how much tax they paid in for you. A 1099-MISC, though, only has how much money you made through that particular client. So if you charged someone $1000 to write blog posts for a year, they will send you a 1099-MISC that shows your total income through them as $1000.

What to do with it

You’re probably wondering why you need a tax form to tell you how much you made through clients. After all, you keep good small business bookkeeping records, so what’s the big deal?

Well, this information also goes to the IRS so they know how much income they should expect to see you declare on your income taxes. So don’t file it away just yet.

The first thing you should do with the form is to check your records. Are you sure that 1099-MISC is correct? If you got multiple forms, have you checked that they’re all correct? Verify independently that the form matches your records; otherwise, you’re going to have a big problem on your hands when the IRS comes knocking.

For example, say a client accidentally recorded that they paid you twice for a job. They’ll send you and the IRS a record that they paid you $2,000 this year, while you were actually only paid $1,000. The IRS will expect to see you declare that $2,000 on your income taxes, and will make noise if you don’t.

When you’re sure your 1099-MISC forms are correct, file them away for a few years. Even though the IRS ostensibly has a copy of your 1099-MISC forms, you never know when you might get a “dreaded letter” fro the IRS and need to make your case.

How many 1099-MISC forms did you receive this year? Were they all correct?

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Business Basics: The Single Member LLC

Limited Liability Companies were, originally, meant to be a replacement for the standard partnership. In 1977, the IRS ruled that it would treat the very first LLC, a Wyoming-based oil company, as a partnership for tax purposes. That meant any money earned by the company would flow through it, directly to the members of the LLC. It wasn’t until 1988, however, that the IRS chose to recognize all LLCs as partnerships, rather than corporations. LLCs are thus, at the federal level, treated as partnerships, which complicates matters for Single Member LLCs. Single Member Limited Liability Companies thus face challenges unique to its business structure – challenges that anyone considering forming a SMLLC should know about and expect.

Single Member LLC

What are the differences between a Limited Liability Company and a Single Member LLC?

The main difference is right in the name. A single member LLC only has one member, or owner. Limited Liability Companies were primarily created to protect the interests of everyone involved in running the company. The assets and debts of the company were its own, and the assets and debts of each member was their own. If one member misbehaved and owed creditors money, the creditor could not seize control of the LLC – they could only collect on the proportional share being paid to that owner. Likewise, if the company went bankrupt, the personal assets of the members were safe. Single Member LLCs, on the other hand, are not partnerships and it has been up to the state courts to decide how much protection a single-member LLC should really provide.

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50 States of Incorporation: New Mexico

This week we’re covering the Land of Enchantment – New Mexico! Though admitted to the union in 1912, New Mexico has, for centuries, been home to the native Navajo, Pueblo, and Apache people. With the fourth-largest native population in the United States, New Mexico continues to be an important center of Native American culture. This culture, along with New Mexico’s stunning natural beauty, are the two of the main drivers of one the state’s biggest industries – tourism.

Along with tourism, New Mexico has a rich deposit of fossil fuel and natural gas, and is home to multiple military bases. In fact, federal spending is one of the biggest sources of revenue for New Mexico. The government of New Mexico is always looking for ways to help small businesses grow, and there are loads of tax incentives available to entrepreneurs in the state! But what does it take to start a small business there? How do you form an LLC or incorporate in New Mexico? And are there any special rules you should be aware of?Incorporate in New Mexico

What is needed to start your small business in New Mexico?

Anyone that does business in New Mexico has to register with the New Mexico Taxation and Revenue Department, and be issued a CRS Identification number. Your CRS number is used to collect and pay tax on gross receipts. In addition to registering, all new small businesses should apply for a ‘Doing Business As’ name with the Secretary of State’s office so that they can advertise, collect checks, and open a bank account under their business’s name. If you’d like, we are happy to run a free DBA name search on your behalf!

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Business Basics: Limited Liability Partnership

A Limited Liability Partnership is a very interesting type of business structure. Limited Liability Companies already combine the ease of running a partnership with the protection of a corporation, and the IRS originally ruled that LLCs would be taxed as partnerships. So what is the difference between a Limited Liability Partnership and a Limited Liability Company? And which one would be the best structure for your company?Limited Liability Partnership

What is a Limited Liability Partnership (LLP)?

We’ll answer the easiest question first. An LLP is very similar to an LLC – both protect the company’s owners from lawsuits and debtors, and both have a pass-through tax structure, meaning anything the company earns passes through it, directly to the owners, without being subject to any corporate income tax. However, a Limited Liability Partnership offers an extra bit of liability protection to each partner. So, just like in a Professional Corporation, the other partners in an LLP will not necessarily be liable for the consequences stemming from another partner’s actions.

Do all states recognize LLPs?

Yes, though the laws recognizing LLPs vary from state to state. The majority of the states have adopted the Revised Uniform Partnership Act, which includes a provision for LLPs stating ‘An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership.’ In layman’s terms, that essentially means that the company, and not the individual partners, is responsible for any obligations stemming from contracts or torts. The states that haven’t adopted the RUPA instead opted for their own laws to recognize LLPs, but all follow the same basic pattern.

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Business Basics: Corporate Seals

Corporate seals are a remnant of the middle ages, back when official documents were legitimized by a hot wax imprint of a seal or crest. The practice of ‘sealing’ documents kept on throughout the centuries, though the hot-wax method eventually gave way to rubber stamps and paper seals. Today, corporate law still allows for the use of corporate seals, though they are no longer as important as they once were. This week in business basics we answer a few of the most commonly questions we receive about corporate seals, and let you know if you should get one for your own corporation. Corporate Seal

What is a corporate seal?

A corporate seal is essentially a signature for your business. When you incorporate, you turn your business into its own, legal entity. Since a corporation cannot sign anything, a corporate seal is used to mark legal and official documentation. These days, most corporate seals are either rubber stamps or steel embossers, and are normally designed to fall apart if tampered with to help avoid fraud.

Do I need a corporate seal?

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3 Ways to Insure Your Home-Based Business

3 Ways to Insure Your Home-Based BusinessListen up, especially if you run a business from your home: About 60% of home-based businesses lack adequate coverage, according to a survey from the Independent Insurance Agents & Brokers of America. Don’t be part of that 60%.

Here’s why it matters. What if a deliveryman slips and falls on your front step while delivering parts for an order? What a child gets hurt at a home daycare? In either scenario, the business owner could find his or her finances on the line because of a lawsuit. Many home-based business owners leave their livelihoods to chance because they believe their ventures are covered under their home insurance policy – a big misconception. A typical homeowner’s policy, for example, provides only $2,500 coverage for business equipment, which is usually not enough to cover everything a business owner might use. Additionally, the homeowners policy won’t provide any coverage for liability issues associated with the venture.

If you work from home or own a home-based business, keep the following are three basic options for insurance coverage in mind.

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Important Tax Dates for Businesses in 2014

Important Tax Dates for Businesses in 2014This guest post is brought to you by GoDaddy Online Bookkeeping (formerly Outright) the simplest way to manage your small business finances online. Sign up today for a less taxing tax time!

When tax season begins, many business owners struggle to keep all the dates they have to remember in order. We thought we would give you a quick list of all the  major tax days coming up through April so you never forget a big tax milestone again.

January

15th – 4th Quarter Quarterly Estimated Taxes

When you’re a business owner or a freelancer, you don’t pay taxes like most workers do. Instead of money coming out of your paycheck every period, you pay taxes on the work you do or items you sell. You pay this money, called quarterly estimated taxes (QETs), every few months.

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50 States of Incorporation: Missouri

Missouri – the “Show-Me” state – is the subject of this week’s 50 states of incorporation, but first we want to show you why Missouri is such a great place to start a business. Missouri has long-been an important economic hub because America’s three great rivers – the Missouri, the Mississippi, and the Ohio – all flow through the state. And though shipping has died down and Missouri is no longer the sole Gateway to the West, the state has shown an amazing propensity towards adaptation, and some of the most successful high-tech companies in the world call Missouri home.Incorporate in Missouri

Monsanto, one of the world’s biggest bio-technology companies, is based out of Missouri, as is Boeing Defense, Space & Security, a leading aerospace and defense-research firm. But the company that Missouri is most famous for has to be St. Louis’s Anheuser-Busch. It is, in fact, so loved that Busch’s St. Louis brewery was declared a national landmark in 1966.

Missouri knows how important small business is to the state, and the government offers loads of incentives and programs to help small businesses get started properly. Missouri lists many of the public resources that are available, and it is especially supportive of its agricultural industry; Missouri has 108,000 active farms, the second highest amount in the United States.

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Business Basics: Delayed Filings

Delayed FilingDelayed filings aren’t the most popular business-related topic, but pursuing a delayed filing can actually be very beneficial to a new small business. When you opt for a delayed filing, you essentially put your business’s paperwork on hold. So if you, for example, have decided to form an LLC, you can actually ask the state to not start the approval process until later in the year. And while it may seem counterintuitive to ask the state to sit on your paperwork, and effectively put your business plans on hold, delayed filings can save you a bit of money and time when it comes to your start-up.

Money saved

‘Nothing is certain in life but death and taxes,’ and the minute your business springs to life, you are liable for all sorts of taxes and fees. If you opt to start your business before the end of 2013, you’ll have to collect, report, and pay taxes for 2013, even though your business was around for less than a month. Delaying recognition also means you could avoid the annual reporting fee for your state for 2013, possibly saving you hundreds of dollars.

Time saved

January is one of the busiest months for government agencies. It is when they begin to work their way through the backlog of paperwork that inevitably accumulates at the end of the year, and year after year I’ve received notices from state agencies all across America regarding a backlog that won’t be surmounted for weeks. A delayed filing will, however, help you avoid that backlog because most states place delayed filings in a priority queue. So after all of the time-critical filings are handled, the state moves directly into approving delayed filings. By opting for a delayed filing, you can avail of all of the benefits of filing in the new year, and avoid the January rush.

Should you opt for a delayed filing?

It really depends on the needs of your business. I’ve always recommended forming a Limited Liability Company or incorporating as soon as possible but, when you do so at the very end of the year, you could get stuck paying annual taxes and fees for the right to operate your business in December. Every state is different, but most will allow you to push your filing date at least thirty days into the future. If you expect your business to be around for a while, and I certainly hope you do, choosing a delayed filing will simply mean operating as a sole proprietorship for one more month before the protection of an LLC or Corporation kick in. If you want to save some time, and possibly quite a bit of money, consider a delayed filing when sending your paperwork into the state.

Would you like to learn more about delayed filings? Or are you ready to form your own LLC or Corporation? Give us a call at 1-877-692-6772 and we’ll be more than happy to help you out!

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Business Basics: S-Corporations

Incorporation is one of our specialties, and many of our clients come to us because they want to incorporate their business. After all, incorporation helps protect you in the event of a lawsuit, and forming a separate business entity helps separate the company’s debts from your private assets. However, our customers also often ask us about a real caveat to incorporation – double taxation. After you incorporate, your business has to pay a tax on any income that it earns, subject to the federal and state corporate income tax rates. On top of that, you still have to pay tax on income you earn from working for the corporation. Effectively, this taxes the same amount of income twice, and that heavy burden frightens many small business owners, most of whom don’t have much extra capital to throw around. There is, happily, a way to avoid double taxation, and it is the subject of our Business Basics post for this week – filing for S-Corporation status.

S-Corporation

Chapter 1, Subchapter S of the Internal Revenue Code allows smaller businesses to avoid paying federal, and usually state, corporate income tax. S-Corporations are the most popular type of corporation in the United States, with 61.9% of all active corporations filing Form 1120S to apply for S-Corp status.

In order to qualify, your corporation must have fewer than 100 shareholders and issue only one class of stock. If your corporation qualifies, you can file for S-Corp status, which will allow any income earned by the corporation to pass through the business, untaxed, directly to the shareholders. You, of course, still have to pay your personal income taxes, and by law must take a reasonable compensation as a wage. But your corporate income, in most cases, will stay untouched.

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