The tax code is ever-evolving, and in light of the COVID-era relief and tax breaks changing again in 2021, there’s never been a better time to get a jump on your tax preparations. Get Organized Paperwork, whether physical or digital, is a necessary pain for any business. Your dealings with employees, freelancers, independent contractors, consultants, investments, property and real estate taxes, Social Security, Medicare, and Economic Impact statements all have to be reported in separate and precise processes. Accurate records and organized record keeping is the best way to ensure your taxes are filed on time and without error. One of the easiest ways to stay organized is e-filing. E-file360 can help you stay organized this tax season by handling your filing needs. Here’s how it works. Get Educated The COVID-19 pandemic has changed many tax rules and program qualifications, and it’s never too early to implement practices and do some research on the tax programs that will help you make the most of your business’s situations. We at eFile360 have complied a few different blog articles that can help you by identifying tax breaks for the tax year 2021 including everything from charitable contribution opportunities to QBI, state, and local tax deductions. We also shared some tips and tools for minimizing your taxes here. While your tax records may be less extensive when it comes to hiring freelancers and independent workers, it’s even more important to make sure that you are well-educated in the tax matters that will apply to the worker’s relationship to your business. When they are as well-versed as you, you will both be more likely to swap correct records and share the applicable forms and reports that will help everyone file their taxes smoothly. Classify Workers Properly From the Start In this new gig economy, where growth has been driven up exponentially due to the coronavirus pandemic, it’s increasingly important to classify workers properly in …
FAQs About 1098s
There are lots of different 1098s and we wanted to help you better understand them, so we’ve put together this guide of eFile360 resources and FAQs to help you grow your understanding. 1098s: The Basics 1098s are used when you are preparing your federal income taxes, and they describe the financial transactions you or your business made during a calendar year that could affect the filing of your tax return. There are seven different types of 1098 forms: 1098, 1098-E, 1098-T, 1098-C, 1098-F, 1098-MA, and 1098-Q. The most commonly used include the 1098, 1098-T, and 1098-C. For a complete list of these forms and a description of what each form is for, you can read our eFile360 blog article on that topic. To find out which forms efile360 can help you with, check out our supported forms page! How Do I Fill Out Form 1098? When you are filling out and filing your 1098s, you want to be sure you or the tax preparer you have chosen to assist you follows the IRS instructions, which you can find here. Will I Get Two 1098 Forms if I Refinance? Generally, you should expect to receive a single 1098 form per property per year. However, if you have refinanced any of your properties within the current tax year, you will receive two 1098s to reflect the changes instituted before and after the refinance. Filing Form 1098 allows you to report and deduct mortgage insurance premiums from your taxes every year. What Are Some Reasons I Would or Wouldn’t Receive a 1098-T? The 1098-T is issued by colleges and other educational institutions and is used to report how much a student (or their parents) paid in qualified tuition and expenses during the tax year. If you pay interest on student loans, you should get a 1098-T unless any of the following are true: A course you took did not offer academic credit You are a nonresident alien Your school waived your tuition or expenses, or they were fully covered by scholarships Or an employer or government agency …
What to Do If Your 1099s Have Errors
Changes to Form 1099-MISC and 1099-NEC in the tax year 2020 mean you should be extra vigilant in your filing of these forms to prevent errors. But what happens if your 1099s have errors? Let’s talk about it. Wrong Form One of the first major errors you can encounter is the use of the wrong form. With the updates regarding 1099-MISC and 1099-NEC, it’s very easy to flip-flop these forms and fill them out incorrectly. The Balance Small Business uses the example that you have to use the 1099-NEC for attorney fee payments, but you’ll report gross proceeds to attorneys from lawsuits using the 1099-MISC. If you use the wrong form, be sure to double-check the instructions and let your tax service know, or – if you are doing the filing yourself – prepare and file the red Copy A with the IRS. Filling in the Wrong Box Sometimes, it’s not the form that is wrong, it’s the box you used incorrectly. Some examples include rent, which is found on box 1 and which will be shown on a 1040 Schedule E, or “other income” (which in and of itself is tricky to understand) which can be found on a 1040 Schedule C or other 1040 form. The IRS treats different income types very differently, depending on what boxes you choose to use. For 1099-MISC and 1099-NEC, be sure you have thoroughly read the instructions from the IRS before you begin inputting your information on the final forms. Name and TIN Errors If you made a mistake regarding your name, taxpayer identification number (TIN), or both, you will not need to file a corrected 1099. Instead, you will need to write a letter to the IRS with the following information included: Name and address Type of error, Tax year TIN Transmitter Control Code Type of return Number of payees Filing method Whether federal income tax was held The letter must be mailed to: Internal Revenue Service Information Returns Branch 230 Murall Drive, Mail Stop 4360 Kearneysville, WV 25430 Filing Corrected 1099s If …
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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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Ultimate Guide to 1099s
There are lots of different 1099s and we wanted to help you better understand them, so we’ve put together this guide of eFile360 resources to help you grow your understanding. 1099s: The Basics First thing’s first – what is a 1099? It is, at its most basic form, a tax document that is used to report miscellaneous payments made to individuals who are not employed by your business. Any non-employee who receives more than $600 from you in any given tax year should receive a 1099 from you. There are more than a dozen different types of 1099 forms, the most popular include 1099-MISC (and now 1099-NEC), 1099-INT, 1099-DIV, 1099-K, 1099-B, 1099-G, and 1099-R. For a full list of 1099s and what each one is used for, check out this blog post. Typically, the deadline for filing 1099s with the IRS and also sending them to each independent contractor recipient is January 31. Here’s a quick resource on common 1099 questions. The New Kid: 1099-NEC In tax year 2020, the 1099-NEC was brought back to take the place of Box 7 on form 1099-MISC. The 1099-NEC did not replace the 1099-MISC, it was just reinstated to help streamline the process for filing non-employee compensation. Some examples of non-employee compensation include professional service fees to accountants, attorneys, architects, contractors, engineers, and more; payments for services like parts or materials used to complete the services, director’s fees, and other payments made to freelancers and independent contractors. For more about who fills out the 1099-NEC, click here. We also put together a great list of dos and don’ts as it pertains to the form 1099-NEC. You can read it here. 1099 FAQs The IRS has a ton of great insights into frequently asked questions about 1099s, including: What's the difference between a Form W-2 and a Form 1099-MISC or Form 1099-NEC? How do you determine if a worker is an employee or an independent contractor? I received a Form 1099-NEC instead of a Form W-2. …
Hiring Independent Contractors – What You Need to Know
Hiring an independent contractor is a great way to get a temporary or occasional job done when your staff doesn’t have the time or expertise to do a specific job. Here’s what you need to know about hiring independent contractors. Why Hire Independent Contractors Independent contractors are great when you need a specific, but often not permanent or daily, job to be done. Hiring independent contractors can save your company time and money by having skilled professionals on hand to analyze problems and find quick solutions. It also helps by keeping projects that are unrelated to your staff’s core duties off their proverbial desk. No need to pull a vital employee from their normal job to have them try and perform a task they are not familiar or comfortable with, or in some cases qualified for. This also allows you to pay an individual for their services without having to add the financial and resource burden of another employee. Pros and Cons of Hiring Independent Contractors Like with anything, there are pros and cons to hiring independent contractors for your business. Pros: You’ll likely save money: Though you’ll be paying more per hour with an independent contractor, you don’t have to pay a number of expenses associated with hiring an employee, like Social Security tax, Medicare tax, unemployment compensation, worker’s compensation, etc. It’s more flexible: Hiring and letting go of staff members is hard. With independent contractors, you can feasibly hire double (or half) the contractors on a day-to-day or job-to-job basis, without the attachment issues and repercussions. Cons: You have less control: Since an independent contractor is just that, independent, you don’t have as much say in how and when things get done. Your workers are more apt to come and go: You trade consistency for efficiency – you may not know which person will show up on a given day to work on a project. For more pros and cons of hiring an independent …
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