As Benjamin Franklin once said, ‘In this world, nothing can be said to be certain, except death and taxes’. He was definitely right, as anyone who fails to pay his dues or pays less than what he is supposed to pay to the Internal Revenue Service (IRS) can face some serious consequences. The IRS is known to charge such individuals with not only penalties but also the back taxes along with interest. The letters that are often sent by the IRS are often confusing and downright scary, especially if you do not understand them. Avoiding your taxes or filing them incorrectly can end up to be a very expensive and stressful situation for you. There are ways to fix the situation without too much expense or headaches. Continue reading
Last week we talked about the most hated small business taxes among small business owners. This week, we’re asking our small business experts what they’ve learned about taxes since opening up shop. These were our ten favorite answers:
1. “As a mobile pet sitting business, one of my favorite write-offs is mileage. Most people forget to keep track of their miles and just guess, but often they are getting less credit than they should. I keep a notebook in my car to keep track of mileage, then when I get home at the end of the day I transfer it to a spreadsheet. This way I have all my mileage ready for tax time, and have it in both paper and digital form.” -Chris Herath, Atlantic Pet Sitting Continue reading
Did that intro cause you to freak out a little? That means you’re one of the lucky business owners who only have to worry about sales tax on an annual basis. On the other hand, only having to deal with sales tax once a year has its downsides. Often this means you simply forget what to do when sales tax time rolls around. Continue reading
Just like the annual trip to the dentist, tax season has crept up on us once again. To take the analogy a step further – if you have brushed, flossed, and rinsed as you should, your visit to the dentist will be quick and pain-free (both physically and financially). However, if not, the pain will long and agonizing. Similarly, if you have kept your accounting records in order the whole year with a constant eye on the upcoming tax season, preparation of your accounts will be pain-free (both from a time and cost factor). If not, the auditor may come to pay you a visit.
Thankfully, these days there are numerous tools to ease the burden of preparing all your tax season documentation. The following are five tools that will help you through the tax season with a minimum of fuss.
1. Salary Calculator – If you haven’t been using a salary calculator to assist in calculating what is left of your gross salary after taxes or to extrapolate weekly, monthly, or annual wages from an hourly wage rate, then you have been wasting your time. There are salary calculators freely available online. They are easy to use and are an excellent basis for preparing your tax return.
Let’s just start out by being completely honest with each other, shall we? We all hate, hate tax season! Either we completely despise it or we run around in circles with our hands flailing about just thinking about it. I hated filing my returns too. I procrastinated until the last minute on the dreaded date – April 15th. I felt like there was ticking time bomb, ready to explode somewhere, but let me just wait till 10 seconds on the clock and do something trivial while time flies by. Have you ever felt the same thing? Don’t worry though, tax season does that to you.
I know procrastination can seem like the best idea in the world, but here’s some friendly advice: don’t do it. Just don’t. When it comes to filing your returns, planning in advance really helps. It may even help you reduce your income tax liabilities, because you’re thinking about it more thoroughly than you would if you were filing at the last minute. So, no more last minute fretting. Follow these tips and you’ll do just fine.
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?
This 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.
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.
In the midst of tax season, it’s easy for some aspects of your small business to take a back seat. Since it’s important not to lose focus, sometimes the best solution is to utilize the convenience of social media.
Here are three simple ways social media can help during tax season:
1) Schedule Content in Advance
Although most experts indicate that real-time posts are the most effective means of engagement via social media, there is no harm in scheduling content from time to time to stay connected to your customers. Continue reading
When tax return day arrives, many people may wonder if they could have received more money than what they actually were refunded. This leaves many people left wishing that they had taken the time to hire an accountant before their taxes were due, instead of filing them on their own. And although most of your tax return is self-explanatory and can be done on your own, there are still many things that can be missed out on.
Instead of going about it alone, it certainly pays to consider hiring an accountant to do your taxes. Some of the benefits to hiring an accountant to add a helping hand during tax season include: Continue reading
The standard “corporation” format used by businesses to protect personal assets and minimize personal liability can also include other types of business entities, including S-Corporations and Limited Liability Companies (“LLC”). The corporation is America’s most popular and oldest form of business entity. However, with the tax advantages of Limited Liability Companies and S-Corporations, other types of business entities are quickly becoming more popular.
An LLC combines the limited liability shield traditionally associated with corporations, the structural and financial flexibility of partnerships, and the tax benefits of “pass-through” taxation. As a pass-through entity, the LLC pays no income tax. Instead, items of taxable income, gain, loss, and deduction pass through the LLC to its owners, and are reported by them on their separate income tax returns. Similar to the corporation, an LLC is recognized as a separate legal entity from its “members.” Thus, an LLC can own property and commit itself to contractual obligations.
IRS Treatment of the One-Member LLC
An LLC with only one member/owner is automatically considered to be a sole proprietorship unless an election is made to be treated as a corporation via IRS Form 8832. Thus, the sole member of an LLC will file Form 1040 (U.S. Individual Income Tax Return), and will include Form 1040, SCHEDULE C (Profit or Loss from Business) with his/her tax returns.
Regardless of how many members the LLC has, the LLC may file an Election to be Treated as a Corporation for Purposes of Taxation (IRS Form 8832). If an election is made to be treated as a corporation, the LLC must file Form 1120 (U.S. Corporation Income Tax Return).