Payee, payor, payer – what’s the difference? Let’s break down these designations so you can distinguish who pays what on your taxes and transactions. Payee The “ee” suffix can be confusing for many, and that’s why we wanted to walk through the definition of payee with you today. The “ee” usually denotes that the role in question is the receiver of the action. For example, if your business or industry wants to honor you at a conference with an award or other accolades, you would be the honoree. Therefore, the payee is the party that will receive payment in exchange of products or services. You can have a single payee in a transaction or there can be multiple. For example, when you receive a tax refund, for your personal or business taxes, you are the payee. The IRS is providing the payment, and you are receiving it. Designating your role as payee also often means identifying whether the transactions are subject to income or other taxes – the payee in a retail transaction (the business) will have to pay tax on that revenue, for example. Investment management transactions (with retirement or other investment-focused accounts) will often include payee accounts where the business will receive payments for the benefit of a client’s separate account. Payor/Payer Conversely, if the payee is the one who receives the payment, then the payor (or payer) is the one providing or sending out that payment. When it comes to payor vs. payer, the only true distinction is that “payor” is the preferred spelling for legal documents and instances. For tax purposes, the payor is the payment provider. Some examples of payors would be an employer paying their workers, a person writing a check, and any other entity that is settling a financial obligation. Where It Gets Tricky For many businesses, individuals, and independent contractors, transactions and tax relationships can get complicated quickly. Miscommunication abounds in many areas of business, and that’s why …
6 Basic (But Powerful) Tax Strategy Tips
Are you looking to take your business tax strategy to the next level? Here are some basic – but powerful – tips to keep you on track for next tax season. Leverage Your Business Expenses One of the worst feelings, from a business operations standpoint, is learning about a new or applicable deduction after you’ve filed your business taxes. Business expenses, in nearly every form, are a perfect opportunity to boost the effectiveness of your tax strategy. And it’s more than just keeping your receipts organized. When you are thinking about your business taxes, you should also be thinking about your business expenses – the ones you have, the ones you need, and the ones you could take on to optimize your tax return and refund status. From loan interest to home office expenses, insurance, and work-related meals, you’ve got a lot of expenses tied to your business. Start strategizing ways to make those expenses work for you. Instead of waiting for old equipment to break down or reacting to expensive, production-halting expenses, plan them out where you can. Your company cars are always depreciating – create a good schedule for replacing them or servicing them that also maximizes your financial benefits come tax time. Donate with Purpose Some of the biggest tax deductions can come in the form of charitable donations. But creating a good tax strategy means not only taking into account how much your business can give, but also what organizations you’re giving to and how they could build helpful professional connections down the road. Partnerships with charitable organizations are a great way to: connect to specific communities build rapport with philanthropic movements in your industry show your clients and customers that your business is an asset to the field you work within. You can choose where to donate based on the charity’s proximity to your industry, your brand values, and the communities in which your businesses reside. Choose Your …
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What To Do When You Have Business Tax Errors
It feels like the tax code changes weekly sometimes. And in any business process, we know that errors are costly. So, let’s talk about what to do when you encounter business tax errors. Determine Which Business Tax Errors Need to be Corrected Math is a tricky subject – and tax code math is some of the trickiest math to do since every business decision and its financial outcome can affect your calculations. But before you start worrying about every single decimal point, a great first step once you realize you have business tax errors is to assess whether the error even needs to be corrected. “A broken clock is right twice a day.” “You used the wrong equation and got the right answer,” – these phrases are perfect for describing business tax errors versus your reportable tax liability. Big tax errors are going to affect your tax liability and – ultimately – your business. But not all errors need to be corrected. If you have math errors that don’t result in higher tax liability when corrected, you don’t need to correct them. But if your error ends up creating more tax liability for your business – those need to be corrected as soon as possible. And if there are many different business tax errors, you may have to file an amended business return to ensure that you and the IRS are on the same page when it comes to reporting your tax liability. Double-Check and Amend Your Tax Return Depending on your business structure, amending your tax return to account for business tax errors means filling out either a Form 1040-X (for sole proprietors and single-owner LLCs), Form 1120-X (for C corporations), or Form 1120-S (for S corporations). Amended tax returns can’t be sent electronically, they have to be completed on paper and then mailed out. Make sure you double-check your returns, even if you paid a professional service or CPA to prepare your business taxes for you. You can amend any of your tax returns up to three years after the original return was …
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IRS Forms 1098 & 1099 Instructions
IRS Forms come with detailed instructions, but they can sometimes be hard to understand if you aren’t a tax expert. Let’s break down some of the general IRS Forms 1098 and 1099 instructions. General Instructions for Information Returns There are several information returns listed in this 31-page general instructions sheet from the IRS for the tax year 2022. And much like the Terms and Conditions pages, IRS instructions aren’t the most exciting or easy-to-read material. They do make it as straightforward as possible, but tax codes are long and tedious, and difficult for veteran tax experts to understand – so the first thing you should remember about how to file IRS forms is that they change often. That’s why having a dedicated resource like eFile360 can be beneficial: you’ll always have a real person to reach out to with questions. The 1098 and 1099 instructions also work for a number of other information returns, like 1096, 1097, 3921, 3922, 5498, and W-2G. You’ll find a table of contents that directs you to the latest changes, who, where, and what to file, and much more. This instructions sheet is now labeled for “continuous use,” which means you can click this IRS link and it should reflect the latest changes for those information returns and the filing process to use. Filing Instructions There are a few big 1099 instructions to pay attention to when you start the filing process for these IRS forms. The first thing to remember is that right now the electronic filing threshold is set at 250 forms. That means if you have 250 or more 1099s, 1098s, etc., to file for the tax year 2022, you must file them electronically. But that’s only for right now. If new instructions or updated articles are shared by the IRS, that threshold could change, which may affect your filing process. It’s best to use electronic filing and organization like the services eFile360 offers, both for accuracy and in case the threshold changes in a way that impacts you or …
7 IRS Tax Tips for Businesses in 2022
The IRS Newsroom has a section of their website dedicated to IRS Tax Tips, and we’ve compiled the best ones from 2022 related to business taxes. Non-employee Compensation & Backup Withholding In an IRS Tax Tip from July 2022, the agency reminds businesses that if they hire independent contractors, they aren’t responsible for withholding the employer portion of income, Social Security, or Medicare taxes. But any compensation equal to or more than $600 paid to these non-employees must be reported on Form 1099-NEC. In order to file this information return, you must know the nonemployee’s TIN, which can be one of the following numbers: Social Security Number (SSN), Employer Identification Number (EIN), individual taxpayer identification, or adoption taxpayer identification. Because of this nonemployee relationship to the business, these businesses are sometimes stuck in situations where the payer (your business) is required to withhold taxes from payments known as backup withholding (the current rate is 24%). Business Taxes & Travel Deductions Another July post from the IRS tax tips page talks about the importance of knowing what business travel expenses are tax deductible. Generally, these travel expenses must be “ordinary and necessary.” For example, it would be considered tax-deductible to stay in a regular hotel room for an industry conference but booking a penthouse suite or other luxury room will not be. Travel tickets and fares – Uber, train rides, plane tickets, and the like – are deductible. Lodging, business calls, and even laundry or dry cleaning are included, and these deductions aren’t just reserved for corporate employees – self-employed individuals can take advantage as well! For a more thorough list of the deductions, check out this IRS article. And for a bonus explanation about enhanced business meal deductions, check out this article. Spear Phishing Threats Some of our favorite IRS tax tips come in the form of …
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What Is the Employee Retention Tax Credit & Can My Business Benefit?
The Employee Retention Tax Credit has seen some recent amendments that have made it so that many more businesses, initially either excluded or those who chose PPP loans instead, are now eligible for several thousand dollars per each retained employee during 2020 and 2021. Read on to find out if your business qualifies. Employee Retention Tax Credit: Recent Changes That Could Help Your Business During the pandemic, there were several tax relief programs and items that made their way into the tax code. Some were near-permanent, and others were only for a short time during the worst of the lockdowns and layoffs. The Employee Retention Tax Credit was one of those programs, but it has seen big changes that may mean larger tax credits are available for your business even if you’ve already filed your business taxes for 2020 and 2021. The Employee Retention Tax Credit is one that has recently been expanded. In the early days of the program, businesses were told they could choose either PPP loans or the Employee Retention Tax Credit (ERTC). Because the PPP loans were more of a focus point for financial institutions like banks and other financial services providers, many businesses chose to take PPPs. But now, that stipulation is gone. So. Even if your business took a PPP loan to be able to continue paying your employees, you may also still be eligible for the ERTC. There are a few main ways to qualify for the Employee Retention Tax Credit if you paid employees during most or even just some of the pandemic: Full or Partial Shutdown: Your business is eligible if it was fully or partially shut down by any federal, state, or local shutdowns – these include travel restrictions, capacity restrictions or maximum occupancy gatherings, and more. Gross Receipts (Revenue) Lost: Your business is eligible if you experienced revenue loss in certain quarters of 2020 and 2021 as compared to those same quarters in 2019. How Much Tax Credit Does Your Business …
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