Filing taxes is an essential part of the end-of-year process for businesses and employees alike. It’s important to get it right so that everyone involved can benefit from accurate taxation and avoid any potential penalties or fees. Unfortunately, mistakes on W-2 forms are common, leading to unnecessary stress and wasted time. This article will explore some of the most common W-2 mistakes and offer advice on how to correct them. Common W-2 Mistakes: Not Knowing the Difference Between W-2 and 1099-NEC We have already covered some of the most common 1098, 1099-MISC, and 1099-NEC mistakes and how to avoid them in a previous blog article. But today we wanted to talk about the difference between a W-2 and 1099-NEC employee, as well as the importance of catching and correcting mistakes on W-2 information returns before you’ve filed or reached out to a tax accountant. As most of us know, W-2 employees are employed directly by an organization. Those workers who often classify themselves as contractors or freelancers, and don’t have consistent work, pay, and benefits provided by the companies they work with will more likely be classified as 1099 workers. And this is one of our first hidden mistakes that many businesses and employees are unaware of or overlook and that’s the misclassification of employees. Because 1099 workers are responsible for paying more payroll and related taxes (like Social Security and Medicare), it benefits employers to not classify them as full-time W-2 employees. However, independent contractors who work via 1099 and W-9 forms are also much less beholden to the companies they are serving. If this is not the relationship you have with the people you are employing, then you need to classify them as W-2 employees, which keeps you in compliance and also allows for an easier time when it comes to running payroll. Not Double-Checking Employee Info Your employee tax information and details can change at any time throughout the year. Don’t wait until …
1098 Tax Breaks You Probably Didn’t Know About
Tax season can be tricky, especially when it comes to understanding all the different tax breaks available. Fortunately, there are plenty of tax breaks you may not know about that can help boost your refund. This article will explore how a 1098 tax break can help lower your taxable income and maximize your tax return. From student loan interest deductions to energy credits, these 1098 tax breaks offer great potential to save money and make filing taxes easier. 1098 Tax Breaks and Basic Info There are several different types of 1098 forms and they all serve to help individuals and businesses keep track of financial information that isn’t available on main income tax forms. Here’s a glance at all the 1098 forms: 1098 (Mortgage Interest Statement) 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes) 1098-E (Student Loan Interest Statement) 1098-F (Fines, Penalties, and Other Amounts) 1098-MA (Mortgage Assistance Payments) 1098-Q (Qualifying Longevity Annuity Contract Information) 1098-T (Tuition Statement) If you are looking for more information about how you could get a 1098 tax break and what each form is made for, read on! 1098 (Mortgage Interest Statement) The true Form 1098 is one of the most common 1098s Americans receive each year. Mortgage companies are required to provide this form if an individual paid at least $600 in mortgage interest in the tax year in question. To be able to deduct this mortgage interest from your federal taxes, you must be the primary borrower on the loan, and also be active in making payments. If you want to deduct this interest, you will need to itemize your taxes (instead of taking the standard deduction) and use Form 1098 and a Schedule A form to deduct the personal part of mortgage interest. This form can also be used for reporting mortgage insurance premium payments and mortgage points payments. 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes) This form is provided to those …
Continue Reading about 1098 Tax Breaks You Probably Didn’t Know About →
Lower Your Business Tax Liability: Did You Miss These 6 Deductions?
Planning ahead and understanding the various deductions available are key components that help lower your business tax liability. For business owners, it is important to understand their tax liabilities and maintain compliance with regulations. This article will provide long-term tips to help business owners lower their business tax liability with deductions. Knowing which deductions are available, how they are applied, and the impact they have on taxes can be a daunting task. However, understanding these deductions and taking advantage of them can save businesses a significant amount of money on taxes each year and even result in multiple years with a lower overall tax bill. Home Office Repairs, Alterations Your deductions for your home office don’t stop at the new laptop or computer desk. Repainting, re-flooring, and adding new or different lighting fixtures – all of these things are deductible if you are using the repaired or renovated part of your home for your work activities. When it comes to business expenses, many people overlook the things that seem “outside” the norm when it comes to tackling what is deductible and what isn’t. But remember – if you redid the flooring in your entire house and you only use 10% of its square footage for work, you can only deduct that amount, not the full renovation cost. It may even be beneficial to space out renovations in your business spaces over a few years if you’re able. This can help with tax planning and will lower your business tax liability for a longer amount of time. Research and Development R&D is a core component of your business. Whether you are testing new inks for a t-shirt printing business or creating new inventory software for your corporation, you have to do quality research and development to keep your business thriving and growing. These R&D tax credits (which were recently doubled via the Inflation Reduction Act) can reduce your tax liability dollar for dollar, up to …
Continue Reading about Lower Your Business Tax Liability: Did You Miss These 6 Deductions? →
Tips for Reducing Your 2023 Business Tax Bill
The upcoming tax season can be a daunting prospect for any business. With the 2023 business tax bill quickly approaching, it is essential to begin preparing now in order to maximize savings for your 2024 tax season. Planning ahead and understanding the implications of the Inflation Reduction Act will help. Fortunately, we’ve compiled some great tips for reducing your 2023 business tax bill (which will be paid during the 2024 tax season). Capitalize on the IRA The Inflation Reduction Act (IRA) was signed by President Joe Biden in August of 2022, and there are some big ways your business could use it to help reduce your federal income tax liability. According to a White House briefing, “the Inflation Reduction Act will reduce costs for small businesses by maintaining lower health care costs, supporting energy-saving investments, and bolstering supply chain resilience.” The IRA extended the American Rescue Plan’s premium tax credit for the Affordable Care Act (ACA) plans by extending them through 2025. Because of these lower healthcare costs, entrepreneurs will be able to use those available funds to help grow or start their small businesses. Small businesses will also receive a tax credit that covers 30% of the cost of switching to solar power solutions. This switch also helps lower long-term energy costs for SMB owners. And this energy efficiency can also mean a tax credit of up to $5 per square foot when these efforts deliver lower utility bills. SMBs can also see a 30% tax credit pertaining to the expenses of purchasing electric and fuel cell model vehicles – another short-term money saver that lowers expenses in the long term. On the personal side, you can upgrade your car by switching to an electric vehicle. Thanks to the IRA, you can receive up to $7,500 in tax credits for the purchase of a new electric vehicle. There are a few stipulations though: your new car must not have a price tag of more than $55,000 – if you’re buying an SUV, van, or …
Continue Reading about Tips for Reducing Your 2023 Business Tax Bill →
Best Practices to Make Your Business Payroll and Taxes Easier
Running a business is a complicated process, and the payroll and tax compliance tasks associated with it can be especially challenging. Fortunately, there are several best practices that business owners can use to make the payroll and tax processes easier and more efficient. With some planning and preparation, managing these tasks can be much simpler. In this article, we will discuss some of the best practices to make your business payroll and taxes easier while staying compliant with regulations. Payroll and Taxes: Key Components to Your Business Operations Aside from payroll as a necessity for your business continuity, there are several compliance and legal reasons to keep your payroll and taxes in order. And because your payroll affects your employee payroll tax as well as employer payroll tax and returns, you want to have things in order every time you run payroll, not just during tax prep season. This also helps keep you from missing quarterly tax payments for wages and other business items. There are several different types of payroll and payroll-related taxes, and we wanted to go through those here as we kick off this list of best practices. First and foremost, your business is responsible for preparing and filing Form W-2 for any and all wages, tips, and other compensation you’ve paid your employees in the last tax year. You’ll also need to withhold social security and Medicare taxes (including the 0.9% Additional Medicare Tax for wages and compensation that exceeds $200,000 in a calendar year) from those wages. It’s important to note that any freelancers or independent contractors you work with will not have these things withheld from the payments you send them – they are responsible for that withholding as they are self-employed. However, you will have to send them the correct 1099 forms (most often a 1099-NEC) so that any income you pay them totaling more than $600 can be reported. Then each contractor will pay the self-employment tax on …
Continue Reading about Best Practices to Make Your Business Payroll and Taxes Easier →
Common 1098 Filing Mistakes and How to Avoid Them
We’ve previously talked about Form 1098, the different types, and FAQs to help you with your filing every year. But this time, we wanted to focus on some common 1098 filing mistakes and how to avoid (or fix) them before they become a bigger or recurring problem. Need help with your 1098 filing? Contact the experts at eFile360 today! Common 1098 Filing Mistakes: Uncertainty about Reportable Points There are several confusing concepts within the 1098 filing process, as with many information returns. And one of those concepts is the who, how, and exceptions that surround reportable points for mortgage interest. A qualified person or lender of record must file Form 1098 to report all points paid in connection with the purchase of a principal residence, according to the IRS. This applies to anyone in business to collect these interest payments if the total reaches or exceeds $600 in points or other mortgage interest. Individuals and private owners who are paid for a mortgage will not need to worry about Form 1098. Several conditions must be met to create a scenario for reportable points, as well as several exceptions, all of which are outlined at this IRS link. Failing to File for an Extension If there are errors on the 1098s you send out or receive, they may result in a taxpayer’s need to file an extension. If information forms have incorrect information or errors in the calculations or other reportable amounts, it’s important to get those extension requests in sooner rather than later. It’s always better to have it and not need it than to need it and not have it, as they say. If you can’t make the April 18th deadline for 2023, or if you’re worried you won't have your corrected current tax year information returns in enough time to meet that deadline, you should start the extension process as soon as possible. The penalty for failing to file your tax return on time is 5% of your unpaid taxes for each month you are late, with a possible cumulative …
Continue Reading about Common 1098 Filing Mistakes and How to Avoid Them →