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Everything You Need to File Taxes as an Independent Contractor

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Independent contractors and employees are treated very differently when it comes to tax prep. Independent contractors are their own small businesses, even if they don’t have an incorporated or otherwise legally recognized business or brand. Let’s discuss what it takes to file taxes as an independent contractor. First, You Need a W-9 The beginning of the tax-filing process for independent contractors always starts with a W-9. Before you even start working on a contracting project, you need to be sure you’ve sent a W-9 with your name, address, and TIN (taxpayer identification number) to the company that is hiring you. It’s important to know who you are partnering with. W-9s must be sent to each company that wants to pay you for your contracting work, and they contain important and sensitive information about your business. Contractors Need Contracts No matter who you work with, whether it’s the President, a reputable local company, or your childhood best friend, it’s always best practice to get things in writing. Not only does a contract outline the expectations of the project for both parties, but it is also a great way to legally document the income you are expecting to make (be it hourly wages, cost of materials, or labor and equipment expenses). Nothing messes up your tax preparation and expectations more than a missing or incorrect payment. Contracts and legal agreements can be as itemized or as broad as you like, but you always want to make sure you protect yourself and your business. If you get paid by the company that hires you (which should happen 100% of the time, but it doesn’t always work that way), you will need to report that income. And if you don’t get paid by the company that hires you – whether it be for legal or illegal reasons – you’ll want to make sure you document the time and materials that you should have been compensated for on your taxes. Form 1040 or 1040SR Working as an independent contractor has tons of perks, but one …

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5 Tax Hacks for Small Businesses

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Running a small business is an Olympian feat, so why not take the easy road on some of those complicated tax items? Here are some great tax hacks for small businesses. Pay Attention to the Tax Calendar One of the easiest ways to save money on your taxes as a small business is to make sure you don’t miss any tax deadlines throughout the year. Often, missing a deadline results in penalties and extra fees, which take money out of your business or your pockets. Mark important dates on a physical or electronic calendar, and set up automatic payments if you can. Start Planning For Retirement Have you set your retirement goals? If you haven’t you should. If you invest more into your retirement today, you can often end up with larger tax benefits. Make the most of your expenses by looking into the benefits of upping your retirement savings this year. If You Can, Go for the Home Office Deduction The home office deduction is a tricky one. But that doesn’t mean it isn’t worth looking into. If you have a home office, whether it looks like a professional office or it’s a modified closet, you can take this deduction if you use that space solely for your business. That means the kitchen table, family laptop setup will not be eligible. But if you have electronics or office furniture that you use for the sole purpose of doing work for your business, it is included in the deduction. There is a new, easier caveat to the home office deduction: rather than figuring out a percentage of your expenses to deduct based on the home space you use for your business, you can simply multiply the square footage of your office (up to 350 feet) by $5, and just deduct that dollar amount. Do Some Good Research on Deductions and Tax Credits There are always ways to optimize your business to secure refunds, or at least to avoid owing taxes after filing. Whether you want to take a deep dive into the IRS tax code or you want to invite your favorite tax professional to lunch, …

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5 Legal Tips for Starting & Protecting a Small Business

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It has never been easier to start your own business. There are thousands of websites, services, and resources available online for you. But it’s important to protect your business as you grow. Here are 5 small business legal tips for starting and protecting your new business. Protect Your Personal Assets It’s extremely important to separate your business assets from your personal ones. 45% of businesses fold within the first five years of opening, and 65% in the first 10 years. This isn’t meant to discourage you, only to underscore the importance of making sure your personal assets are protected and separated from your business assets in the event of a closure. There are a few different ways to protect your personal assets. The first is to create an LLC or other legally-recognized business class. This limits the degree to which you, as the business owner, are liable for damages incurred by customers. This is the best way to protect your business in the event that a customer tries to sue you after a bad experience with your product or services. Another way to protect personal assets is to set up a separate bank account for your business finances. Even if you just have a small craft shop, or you only do business locally, it’s important to keep your personal finances and your business accounts separate in the event of theft, fraud, or a failing business. Check Trademarks & Copyrights Before you get too stuck on a business name, you should check to make sure the name doesn’t violate an existing business trademark. Business cards, websites, social media pages – all of these things need a legally legitimate name to be able to operate your business. Here’s how to find out if a business name is taken. It’s also important to apply for trademarks and copyrights to protect the integrity of your business. You don’t want another person or business with the same name creating confusion when potential customers are looking for your products or services. Use …

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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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Tax Season and Cybersecurity – Small Business Tips

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Cybersecurity is important year-round, but threats increase during Tax Season. Learning cyber awareness, securing your data, and combatting identity theft can save you and your sensitive data in the future. Secure your data Your small business likely stores a lot of sensitive data on multiple devices – about your business and its finances, about yourself and your employees, and about your customers. Cybersecurity is all about securing this sensitive data.  Purchase software Increasing your cybersecurity efforts often starts with purchasing new software for your devices, including: Anti-virus software Firewall software VPN Businesses typically have these pieces in place for their work in the office, but with more businesses working remotely, it’s critical that every device you use has this software – including your cell phones.  Many software companies offer all three solutions in one package, often called a suite, at reasonable prices. Purchasing this software is critical for your business’s cybersecurity throughout the entire year.  Use multi-factor authentication  To secure your online accounts, it’s best to use multi-factor authentication (MFA). MFA can be used on devices, bank accounts, email accounts, file hosting accounts, social media accounts, and more.  The IRS said, “In 2021, all online tax preparation products for tax professionals will include an option for using multi-factor authentication.” This means your tax-related accounts will likely require MFA soon. Combat identity theft The easiest way you can combat identity theft is to be vigilant when it comes to identifying phishing attacks and suspicious activity. According to the IRS:  The IRS doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts. If you …

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Help! It’s Tax Season and I Need An Accountant

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If you’re a small business that doesn’t have an accountant lined up for tax season, you have a few options. In this article, we’ll discuss how different finance professionals can help you during tax season as well as your options for filing your own business taxes. Option 1: Find a certified tax professional ASAP. There are two primary types of tax professionals you can seek out to complete your business taxes: Enrolled agents – These tax pros are certified by the IRS Certified Public Accountants (CPAs) – These tax pros are licensed by state boards of accountancy When it comes to choosing a tax professional between these two options, it depends on your other needs. If you just need a tax professional during tax season or if you are facing advanced tax issues, you will want to find an enrolled agent. If you want someone to provide guidance on financial matters throughout the year, you will want to hire a CPA.  If you received aid from the CARES Act, then your taxes will be more complicated for the next couple of years, including this year. To work through additional tax compliance details, it’s best to hire a certified tax professional.  Option 2: Hire an accountant or bookkeeper ASAP. If you cannot find a certified tax professional, you have a few more options: Accountants Bookkeepers Unenrolled preparers While not certified tax professionals, accountants and bookkeepers can help you manage your finances and may be able to provide you with guidance for filing your taxes. While searching for someone to help you with your taxes, you may also come across tax preparers who are not enrolled agents. These unenrolled preparers may have legitimate businesses, be very knowledgeable, and may have worked as tax preparers for many years. However, it’s best to proceed with caution if you choose to use an unenrolled preparer because they can prepare your taxes, but they cannot represent you before the IRS if you face tax …

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