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Where e-filing information return forms comes full circle. We support 1099, 1098, W-2, and Affordable Care Act forms.

Archives for February 2021

Accounting Basics for Small Businesses

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When starting a business, it’s important that you understand how to set up your business’s finances. In this article, we’ll cover the basics to set your business up for financial success. Set Up Your Bank Account After you create your business plan, register your business, and receive your Employer Identification Number (EIN), it’s time to set up your business bank account.  You will want to open checking and savings accounts. It’s best to use the checking account for regular expenses and receiving payments, but you will want to use the savings account to organize funds and plan for taxes. A good rule of thumb is to save 25%-33% of your income for business taxes. We recommend transferring that amount every time you process payroll. You may be able to automate this process, too, so ask your bank.  Remember: You don’t want to mix business and personal expenses in any form. Having a business account is not only beneficial for tax purposes, but it also helps you proactively monitor profits.  Budget How will you pay for supplies, outsourced services, payroll, and more? From the beginning, it’s best to budget, which means tracking your income and expenses. Obviously, you want to make more than you spend, so budgeting from day one helps you stay on track and adjust expenses according to your needs and income. Budgeting is the foundation of accounting as it will later allow you to pay your bills, create financial statements, and grow your business.  As you begin budgeting, it’s also important to create a process for organizing your important documents, such as W-9s and receipts. Then, make a habit to budget and organize important documents to ensure that your business is financially healthy.  Part of budgeting is calculating gross margin, which will enable your business to thrive and grow.  According to Shopify, gross margin “represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or …

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What is Form W-9 and How Does It Help Me With Form 1099?

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As a business owner or accountant, you understand how important TIN checking is, but how do you get TINs in the first place?  What is Form W-9? To request a TIN from an employee, freelancer, or contractor, you can use Form W-9.  According to the IRS: Use Form W-9 to provide your correct Taxpayer Identification Number (TIN) to the person who is required to file an information return with the IRS to report, for example: Income paid to you.  Real estate transactions.  Mortgage interest you paid.  Acquisition or abandonment of secured property.  Cancellation of debt. Contributions you made to an IRA. Why is Form W-9 Important? If you pay full-time employees, you likely have procedures established where you collect their personal information, including their TIN. But what about your freelancers and contractors?  It’s important to have a procedure for collecting their TINs, too. Form W-9 makes this easier. Mark J. Kohler explains the importance of Form W-9 well: The W-9 is your “best friend.” Some of you may be frustrated that you don’t have the information you NEED to issue Form 1099. One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor’s mailing information, Tax ID number, and also require them to indicate if they are a corporation or not (saving you the headache of sending them a 1099 next year).  Having a contractor’s W-9 on file before tax season will make filing 1099s much easier. What to Do if You Receive a W-9 If you receive a W-9 from a company or person, it’s important that you complete the form accurately and return it to the company that sent it to you. That company or individual will likely keep that form on file to reference during their end-of-the-year accounting, so be prepared to receive a Form 1099-NEC or similar form from them next …

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Is TIN Checking Necessary?

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Many e-filing services provide TIN checking as an additional service to e-filing and paper filing. But what is the service? And is it necessary?  Many of our customers ask these questions when they use eFile360 to file their 1099s and related forms for the first time. Most customers want to be informed before they complete their order while others are suspicious of add-ons in general. So we wanted to clear the air: TIN checking isn’t necessary to file your 1099s, but this service can save you a lot of headaches.  What is a TIN? A TIN is a Taxpayer Identification Number. It is also called a “95-number” or “tax-ID” number. A TIN is an umbrella term that means the following: Social Security Number (SSN) Employer Identification Number (EIN) Individual Taxpayer Identification Number (ITIN) Adoption Taxpayer Identification Number (ATIN) Preparer Tax Identification Number (PTIN) Business owners typically use their EIN to file business taxes and their SSN to file their personal taxes, but this may differ based on your unique situation. When it comes to filing 1099s, 1098s, ACA forms, and W-2s, business owners need to know the TIN for each employee, freelancer, and independent contractor that works for them.  Tip: While you may only need to file a form if you pay that employee or contractor $600 within a calendar year, it’s always best to document their TIN before they start working for you. This way, you know that you have their TIN on file way before tax season. What is the TIN Error Reconciliation Process? When it comes to tax reporting, it’s vital that all of the information you file is accurate – including the TINs of your employees and contractors.  This is where the TIN error reconciliation process comes into play. This process is three-fold: Check your records Use a TIN checking service, which efile360 offers File Form 1095-C when you find TIN errors  The first portion of this process involves you double-checking …

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Deductions 101 for Small Business Owners

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Every small business owner knows that they need to take advantage of deductions around tax time, but what are deductions? And how are they beneficial?  Deduction Basics A tax deduction is a reduction of taxable income based on certain business-related expenses that you can claim on your taxes, such as rent, business-related subscriptions, and travel.  Put simply, deductions can reduce your business’s total amount of taxable income. By claiming a deduction on your business taxes, you end up paying less to the federal government.  Tax deductions are also called “tax write-offs” or “write-offs.” Deductions vs. Tax Credits A tax credit is an incentive for a business to strengthen the economy, enhance people’s lives, improve society, and improve its industry in some way. Tax credits are offered by the government in an effort to reward businesses for doing good in their community and in the U.S. at large.  In short, deductions are based on expenses while tax credits are based on societal improvements. Deductions reduce the total amount of income that your business is taxed on while tax credits reduce your tax bill.  Tax credits benefit businesses dollar for dollar, while deductions benefit businesses by a percentage depending on your tax bracket. In general, tax credits are more valuable to businesses in lower tax brackets, while deductions are more valuable to businesses in higher tax brackets.  Both deductions and tax credits can help your business pay a smaller tax bill, so it’s important to work with a tax preparer to ensure you’re taking advantage of all of your options. Unsure where to start? We cover that here. To learn more about tax credits, read this article by FreshBooks.  Is There A Master List of Deductions? Surprisingly, the IRS does not have a master list of small business tax deductions. Instead, they provide a general rule of thumb for small business owners: To be deductible, a business expense must be both ordinary and …

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