Even though we have taxes due every year, we always have some questions. The tax code changes frequently, and it’s extremely complex. Here are some of the most common tax and tax season FAQs. How Can I Lower My Tax Bill? Far and away, the biggest tax questions are always some variants of “How can I lower my taxes?” and “What deductions am I eligible for?” Tax deductions and credits are the most common way to reduce your tax obligation, whether you are doing your individual or business taxes. The hard part about this question is that it’s different for everyone. A lot of your tax information comes in the form of Information Returns, the forms like 1099s, 1098s, W-2s, and others that show you what your financial activity looked like throughout the tax year. These Information Returns help you fill out the tax forms you need in order to take advantage of many of these deductions and tax credits. eFile360’s top-tier e-filing services offer you a great solution for filling out and storing these forms. What Are This Year’s Tax Changes? Every year, the IRS makes adjustments to the tax laws, processes, and procedures based on the latest government regulations, technology changes, and overall performance during the last tax season. This tax question is one that people are worried about all the time. American taxes are like a high-level puzzle: you have to put all the pieces together, solve the equations, and hopefully submit the right answers. But if the rules have changed, you may be making inadvertent mistakes. The IRS website, specifically their Newsroom, is a great way to stay up-to-date on any and all changes that are coming up during the next tax season. What’s the Difference: W-2 vs. 1099-NEC? The 1099-NEC is one of the newest Information Return forms to be (re)instated. These forms are used to calculate non-employee compensation, including freelancer and independent contractor work. W-2s are given to employees of a business early on during tax …
Estimated Tax Payments: What Entrepreneurs Need to Know
Estimated tax payments can be confusing. It’s easy to say, “I’d rather just pay them all at once, so I’ll wait until tax time next year to do them.” But missing those payments can be costly for your business, and no small business owner has time for extra expenses right now. What Are Estimated Tax Payments and Who Pays Them? Estimated tax payments are something every small business and self-employed individual has to worry about. Because income taxes and others are not automatically taken out of these types of employees’ paychecks, the amounts that the business or individual will need to pay is estimated, and then paid quarterly throughout the year. Typically, sole proprietors, partners, and S corporation shareholders are responsible for paying estimated tax, if they expect to owe tax of more than $1,000 (or $500 for corporations) when their return is filed. This includes any income that isn’t subject to withholding tax, like interest, dividends, capital gains, business earnings, and more. Estimated Tax payments are made quarterly, on or around the 15th of January, April, June, and September of each year. Here are the 2022 due dates: April 18, 2022 June 15, 2022 September 15, 2022 January 17, 2023: Please note that you do not have to make the last January payment if you file your 2022 tax return by January 31, 2023, and you pay the entire balance due with your return, according to IRS Instructions. You do not have to pay estimated tax if you meet all three of the conditions below: You had no tax liability for the prior year You were a U.S. citizen or resident for the whole year Your prior tax year covered a 12-month period Why Should I Keep Up with Estimated Tax Payments? The taxes that are applicable to this rule include things like federal income tax (ranging anywhere from 10 to 37%), state and municipal tax (typically between 0 and 14%), and self-employment tax. Many businesses lose their way during this part of the …
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Employee vs. Freelancer: Who Should I Hire?
We recently talked about the huge increase in freelance work in the past few years, but how do you know when to hire employees versus freelancers? Employee vs. Freelancer: What’s the Difference An employee is someone who typically performs job tasks that are controlled by others (a supervisor, owner, CEO, etc.). Freelancers, on the other hand, are typically in charge of their own projects and workload. This doesn’t mean freelancers don’t work with anyone else at your company, it simply means the freelancer is the one who can bid on or accept (depending on the industry) the jobs they want to do by picking and choosing for themselves, rather than projects or tasks being assigned to them by management. Quick Pros and Cons of Employee vs. Freelancer There are pros and cons to hiring employees over freelancers and vice versa. The biggest pros to hiring full employees are that you are able to control their workloads, you have a dedicated presence in the role, and you can train them to your own specifications and needs. There are also very few restrictions on what kind of work you can assign to an employee. However, there are some cons to employee hiring. There are more laws and regulations attached to hiring and paying an employee. Hiring an employee also means you will need to invest more time and money into this person to help optimize their participation in the role you’ve given them. The pros for hiring a freelancer are the opposite of the pros associated with employees. While you can set a deadline and dictate certain projects or parameters, you can’t tell the freelancer or independent contractor how they should do the work. They get to do it how they want to, often with you or other leaders in your company having some say or final approval in the deliverables once they’re finished. But the responsibilities associated with a freelancer as a worker do not rest with you. Freelancers have more freedom, which means the regulations that you must follow …
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ACA 2022: What You Need to Know
The ninth annual ACA open enrollment period started on November 1, 2021, and it runs through January 15, 2022. This period is longer than it has been previously. Because of that, we also wanted to run through the latest changes and updates for ACA 2022. Changes to Choices and Premiums As with previous years, marketplace premiums are changing for 2022. They will be about 3% lower than 2021. 32 more insurers are participating in the marketplace next year as well, bringing the total to 213. According to KFF, consumers in the marketplace will have a choice of almost 83 health plans in 2022, up from 46 plan choices in 2021. The American Rescue Plan Act also changed the healthcare marketplace plans and premiums. ARPA, among other things, extended eligibility for premium tax credits to include people with income levels more than 400% of the federal poverty level (FPL). When broken down, consumers on these plans end up contributing a maximum of 8.5% of their income toward the benchmark silver plan. Active Renewal Is Your Best Bet If you or your employees are currently enrolled in a 2021 marketplace plan, you can let the Open Enrollment period pass and you will automatically be moved to a similar plan for 2022. But active renewal is still your best bet when it comes to ACA 2022. If you allow the marketplace to passively enroll you in a similar program to previous years, you may end up paying more in monthly premiums because the 2022 ARPA changes aren’t optimized for your ideal plan. Extremely Low-Income Enrollment For individuals with very low income levels (up to 150% FPL), a new monthly enrollment opportunity will be available. These opportunities will include zero-premium plans with greatly reduced deductibles. State-Based Marketplaces This year, three states have launched state-based marketplaces in Kentucky, Maine, and New Mexico. The Future of ACA Marketplace Enrollment Due to a special COVID-based enrollment period that ended in August of …
Best Practices for Working with Independent Contractors
Just like hiring a new employee, there are tons of best practices when it comes to working with independent contractors. Here are some of our favorites. First Thing’s First: Paperwork You know the feeling when you are thinking about something you have to do, but you’re in bed or somewhere inconvenient, so you tell yourself, “I’ll remember, I don’t need to write it down"? We all know it’s not true, right? That’s the same feeling you should get when it comes to requesting paperwork from independent contractors. Always do it first, so you (and they) don’t forget! Before any work is started or agreements signed, you’ll want to give your independent contractor a Form W-9 and have them fill it out and return it. W-9s are for your records and they help you with filing your taxes later. Once you have that settled, you can start negotiations, contracts, or any other agreement you are looking to create. Establish Communication Expectations and Boundaries This one goes both ways. Because the nature of an independent contractor relationship can range from short-term or temporary to long-term and near-permanent, it’s important to set boundaries for when and how you are going to communicate with each other. This includes discussing which days and times work best for phone calls, emails, texts, etc., as well as which communication medium you would like for specific things like project updates, discussion of issues, or amendments to the original project. Do you want weekly updates? Daily? Would you like to set up meetings after each project phase is complete? The more you offer upfront, the easier it is to work through any issues that may arise later. Boundaries are also important. If your independent contractor doesn’t work weekends or is going on vacation during your time together, those things need to be respected. If you anticipate lots of “off the clock” questions, discuss with the contractor what medium or communication method will work best to catalog …
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Hiring Independent Contractors as an LLC
LLCs don’t always have the ability to hire a part- or full-time employee for a project. Here’s how it works when you are hiring independent contractors as an LLC. Get It in Writing Just as you should always have a clear contract when you are an employer or employee, or even just entering into a good-faith partnership for a limited time, you should know your rights and be transparent with your expectations. For your own safety and peace of mind, you should have a written contract drawn up any time you hire an independent contractor (even if that person is your family member or friend). You’ll also want to make sure you have proof of a real and separate business. Whether this comes in the form of a project estimate complete with letterhead and logo or you take a screenshot of an applicable landing page on the independent contractor’s website. Make Sure They are Considered a True Independent Contractor There isn’t a perfect set of criteria that defines what an independent contractor is. That means you have to do your research – make sure they qualify as an independent contractor. Legal Zoom has some great examples of circumstances that might raise red flags as far as determining an independent contractor’s status: A former employee is rehired to do work similar to their old job, even if temporary or part-time An intern is doing actual work, not just shadowing or learning; be sure to check the six criteria related to interns You provide the equipment, supplies, tools, or ongoing office space the worker uses The worker replaces one of your employees or supervises any of your employees The relationship is ongoing and long-term, not project-based Keep Up on Department of Labor Standards The Balance SMB recently reported that the Department of Labor has developed new standards for determining independent contractor vs. employee status. The ruling was set to go into effect in March of 2021, but currently, all regulations were frozen by …
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