Your Video Guide to an IRS Audit
Reporting Independent Contractors Compensation: A Guide to the IRS 1099 Form
With the calendar year ending, it is time to start compiling the data for tax reporting. Small business owners need to understand their tax reporting responsibilities to avoid unnecessary fines or penalties. One form many small business owners need to submit is one of the IRS 1099 Forms. The IRS 1099 Form has become closely related to independent contractors, which many small business use.
What are 1099s?
1099s are not just one form, but a class of forms that provide the IRS with an information return. An information return is a tax document that businesses are required to file to report certain business transactions to the Internal Revenue Service. These transactions vary from real estate transactions, sales of securities, charitable gift annuities, and capital gains distributions, but the most common for small business owners are payments to independent contractors.
Who Should Get a 1099?
For small businesses, the most common 1099 would be the 1099-MSC. This form covers any payments to nonemployees, such as independent contractors. Nonemployee compensation of $600 or more including fees, commissions, prizes and awards for services performed should be filled out in Box 7 of 1099-MSC. It is important to remember that this form is used to report only nonemployee compensations – employee compensations are reported on their W-2s.
If you are unsure whether someone is an independent contractor or an employee, you should read this information from the IRS: Independent Contractor (Self-Employed) or Employee. If you are still unclear on how to classify someone, you can file a SS-8 Form. The IRS will then determine the worker’s status for employment and income tax purposes.
Do only Independent Contractors get 1099s?
The IRS uses 1099 forms for reasons other than nonemployee compensation. The IRS lists common types of payments and what form they need to be reported on. Business tax software or small business accountants will be able to help you with filing the proper 1099 tax forms.
How Do I Submit 1099s?
As a business, you are required to file 1099s to the IRS, but also must furnish statements to the recipients of the income. Keeping the proper accounting records will make this easy. You should have tax id numbers for your contractors that are compensated more than $600.
Filers who have 250 or more information returns must file these returns electronically. The IRS has a system called the Filing Information Returns Electronically (FIRE) System. This system does not provide a fill-in form option, so you must have software that will put all your 1099s in the proper format.
Healthcare.gov – Helping you Find the Right Plan for Your Small Business
Everyone from individuals to employers has questions about the Affordable Care Act of 2010 – whether it’s deciphering facts from myths or trying to understand what your options for healthcare coverage are now and in the future.
Likewise, in the shadow of the new law, whether you are an employer or self employed business owner, finding the right healthcare plan for you and your employees can be quite an undertaking. Plans and benefits vary by provider, by state, by medical history, and by your needs – and doing the research can be time consuming and confusing.
Cognizant of the need to provide consumers and business owners’ with more information about the healthcare marketplace, in July 2010 the government launched a new Web site – Healthcare.gov.
Operated by the Department of Health and Human Services, Healthcare.gov is an interactive, easy-to-use one-stop Web resource that intended to “…take some of the mystery out of shopping for health insurance”.
In addition to providing clarification about the Affordable Care Act (what it means in practice and the timeline of changes), the site also aims to make comparison shopping for health insurance a whole lot easier using basic personalization features that help you determine plan options (and, in some instances, pricing information) and potential eligibility.
So what does the site mean for small business owners and employers? Here’s a breakdown of some of the tools and features that you can find at Healthcare.gov.
Find Healthcare Insurance Options for Your Small Business
If you are shopping for self-employed or employee health insurance plans, Healthcare.gov is truly a “first-of-its-kind” site in that it brings together data for more than 1,000 insurance carriers and 5,561 open products (3,531 in the small employer health insurance market) to help you understand your options and make more informed decisions about healthcare coverage.
Through an easy-to-use Insurance Finder Web tool, it takes just two steps to find health insurance options that meet your needs and that you may be eligible for as a consumer or as an employer. While price estimates are now available for consumer plans, pricing will not be available for small employer plans until 2011.
The site has had some notable endorsements, including that of the Consumers Union, the nonprofit publisher of Consumer Reports magazine:
“For the first time, no matter where you live, you can go to one place and compare health plans available in your area. The site is nicely designed. It’s easy to find information. It tries to avoid the complicated language that you usually get when you’re shopping for a health plan.” Read more on The White House Blog.
Assess and Compare Quality of Care
As well as comparing healthcare plans, Healthcare.gov also lets you compare the quality of care provided by the institutions who administer healthcare prevention and treatment services using the “Hospital Compare” tool.
Understand more about what the Affordable Care Act Means for Small Employers
Politics and political agendas aside, small business owners need to know what the Act means to them now and in the future, Healthcare.gov endeavors to provide this information in a clear and concise manner.
Whether you already provide health insurance as a benefit to your employees, need to provide that benefit, or are self-employed with no other employees, Healthcare.gov offers information for small employers about the Affordable Health Act and what it means now and in the future.
From the “Top 5 Things to Know” as a small employer, to information about redeemable tax credits and other benefits scheduled by 2014 (including the opportunity for small businesses to shop for insurance in an Exchange that will give them similar purchasing power as large businesses). Take a look at what the Act means for small business here.
Learn About Prevention
A useful resource if you are a small business owner interested in offering a workplace wellness program, Healthcare.gov includes information on the preventative steps and measures that individuals can take at any age to stay fit and healthy. It also includes links to Healthfinder.gov which provides personalized prevention information based on your profile.
Gustavo A Viera CPA
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How a Simple Business Plan can Get you from A to Z, and Navigate all Things In-Between
It’s doubtful that no two words in an entrepreneur’s vocabulary are procrastinated over more than these two: “Business Planning”.
This simple phrase can conjure up visions of being hunkered down over a desk trying to justify, forecast, number-crunch and ultimately wrestle with the current state of your business compared with where you want it to be five or ten years down the line.
But the business planning process doesn’t have to start and end this way.
If you really want to succeed in business, as in life, planning should be part of everything you do, and, it never stops.
Just think about the simple act of hitting the road to attend a business meeting across state. You may not be conscious of this fact, but you have already undertaken a series of planning steps and adopted precautionary measures to ensure you arrive at your destination safely and on time.
Over time, this might mean you have invested in a number of available GPS navigation tools, roadside support options, and insurance policies, that will help you plan for each car journey and prepare for the obstacles that you may encounter on the way.
For many business owners, start-ups and entrepreneurs – the business planning process isn’t actually a whole lot different. And, while it’s unlikely that you would start a car journey with an encyclopedic-sized travel plan at your side, neither is it absolutely necessary to have a 100 page business plan to steer your business towards its long term goals.
Keep it Simple
Whether you are an independent contractor, a home-based business, or have your sights set on Main Street, you want to ensure you scale your plan to your business needs. This includes understanding your market, having a clear view of your capital needs, your budget and cash flow, and, just as you would when you get behind the wheel, list some basic assumptions about where your business is now and where you want it to go, and of course, what is it going to take to get you there.
For an independent contractor or home-based business, this might be as simple as having a goal to expand you client base from two to six by the end of the year, and having a plan to do so. The plan might include networking, building up a referral base, creating a professional web site and starting a blog. And as your business grows, your plans and benchmarks will grow accordingly.
Break Up Your Plan into Mini-Plans
While a strategic business plan is essential, you also need to break up the planning process across the different functions of your business. You need “mini plans” for all areas of you business, that you visit monthly, if not weekly.
All business owners need a marketing plan, which should be updated often. But some of you also need a technology plan, a financing plan or a staffing plan. How about a plan for expansion, be it across town or around the world? Do you eventually want to franchise your company? You need to start laying the groundwork now—and you need a plan to help you get there.
Gustavo A Viera CPA
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New Rules for Collecting Sales Tax Over the Internet
Several states that are now requiring sales tax collection for online businesses that use affiliate marketers. Whether you use affiliates, or are an affiliate marketer yourself, learn more about the changing regulations and how to find out the rules for your state.
Understanding “Physical Presence” Nexus Rules
In 1992, the Supreme Court ruled that states cannot require mail-order businesses including online retailers to collect sales tax in a state unless they have a physical presence there (Quill v. North Dakota, 504 U.S. 298, (1992). In legal terms, this physical presence is known as a “nexus.” Each state defines nexus differently, but all agree that if you have store or office of some sort, a nexus exists. Remember that each state defines what constitutes a physical presence differently. If you are uncertain whether or not your business qualifies as a physical presence, contact your state’s revenue agency.
Instead of collecting sales tax from remote retailers, many states required the consumer to pay a “use” tax on their online purchases. Unfortunately, many consumers were either unaware of this requirement or chose to ignore the use tax, and enforcement was cost-prohibitive for revenue agencies.
Role of Affiliates
Affiliate marketing is a commission-based referral partnership, typically between a website owner and an online retailer who wants to promote their product. In most affiliate agreements, a website owner puts links or ads on their site that promotes the retailer’s product to the visitors of the site, ideally potential customers for the retailer. In exchange for the promotion, the retailer agrees to share a percentage of the profit with the website owner (or affiliate), if the transaction generates a lead. Learn more about affiliate marketing.
Affiliate-advertiser relationships are at the center of the “physical presence” nexus debate. In an effort to collect previously un-reported sales tax, some states are using an advertiser’s affiliate network as a means of establishing physical presence in a state, and thus making the advertiser eligible to pay sales tax there.
States Begin to Revise Nexus Rules
Under-collected use taxes coupled with industry concerns have caused many states to recently re-evaluate the definition of physical presence as it applies to online sales. Proponents for reform call for a level tax-collection playing field between online retailers and traditional brick-and-mortar businesses; while those against reform argue that affiliates are essentially an advertising method – a non-taxable activity.
New York, Colorado, North Carolina, Rhode Island have enacted legislation that counts an online affiliate as a method of establishing physical presences in a state, although the content of the statutes include varied exemptions and income thresholds. Several other states have attempted to pass legislation aimed at collecting sales tax for online businesses that use affiliate marketers, including California, Connecticut, Hawaii, Illinois, Maryland, Minnesota, Mississippi, New Mexico, Tennessee, Vermont, and Virginia.
The Bottom Line for Affiliate Marketers
New taxes requirements don’t necessarily add additional burden to small affiliates (affiliates don’t pay sales tax because they are not “selling” anything – they essentially just receive a commission from the advertiser(seller), and the advertiser(seller) is the one ultimately responsible for paying the tax), however the changing tax laws do have other implications. In some cases, high-profile advertisers have dropped affiliates in certain states where they could be considered a tie to establishing a physical presence (Amazon.com LLC v. New York State Department of Taxation and Finance (N.Y Sup. Ct. No. 601247/08)). If you are an affiliate marketer, or are considering becoming one, it would be wise to stay up-to-date on your state’s laws through your state’s revenue agency.
The Bottom Line for Advertisers
If you are an advertiser that uses affiliates, it would be wise to stay abreast of changing tax requirements in the states where your affiliates are located. Recently, several states have banded together to develop the Streamlined Sales and Use Tax Agreement (SSUTA), which aims to standardize Internet sales taxation and encourages online retailers to collect taxes from customers in the states where the agreement is valid, and the Main Street Fairness Act is calling for Congress to enact the SSUTA.
Transactions and Collections – How to Get Paid and Paid on Time
It doesn’t matter what type of small business you operate, making sure you get paid on time and as seamlessly as possible (for both you and your client) is critical to your success and survival. But knowing how to get paid isn’t as easy as it sounds. The payment options that work for one business, may not work for another. Likewise, getting paid on time requires you put the right pre-emptive measures in place for collecting what you’re owed and managing past-due payments.
To help you make the right decisions for your business, here are some pointers about setting up customer payment options, tips for getting paid on time, and what to do if you don’t!
What Payment Options are Right for Your Business?
It doesn’t matter whether you operate a brick and mortar store, an e-commerce site, or a home-based business, cash has to flow from A to B. But what payment options are right for your business? Here are some quick insights and FAQs that may help you decide.
- Cash Only – Cash only businesses still exist in today’s economy but are they missing out?
- Credit and Debit Cards – Should your business accept debit and credit cards? What are the costs and benefits?
- Online Payment Services – The rise in popularity of alternative online payment services such as PayPal and Bill Me Later have begun to change how consumers shop online (some freelancers insist on being paid via PayPal). If you’ve never used one of these services, the idea may sound confusing but in reality is quite simple.
Another increasingly popular payment option are layaway plans. Layaway plans typically require customers to pay a deposit, generally a percentage of the total price for an item, and make additional payments until the total cost is covered. Retailers agree to hold the item for the customer until the payment plan is complete, at which point they can take home their purchase. There are several disclosure and truth in advertising laws that you need to be aware of if you choose to offers this option.
Getting Customers to Pay On Time
You’ve provided a service, invoiced your client, but payment is past due and there’s no indication of when you’re going to get paid! It’s frustrating but inevitable. Take immediate measures to pre-empt and deal with this troublesome issue.
Gustavo A Viera CPA
Three Big Mistakes Entrepreneurs Make When Starting Businesses
All too often they let naysayers discourage them, they fail to listen to market demands, and they don’t delegate enough.
“There’s no way any company will engage you rather than McKinsey,” the man scoffed. He looked at me with a mix of contempt and sympathy, the way people often look at beggars, and I would have been smart to heed his warning. After all, he was a senior executive at a big company, had an Ivy League pedigree and was part of the WASP-y country club set. He should know if my business idea was worthy. It could not be done, he concluded, and I should stop before I even started.
Fortunately for me, I’ve never been good at listening to detractors. I ignored his advice and the criticism of others who said I couldn’t open a Miami CPA Firm focused on small businesses in the middle of a recession with small businesses closing up shop by the thousands. Two years later I’m still here, and I’m having a ball every time a company picks us over one of the big firms. We do more than accounting, we’re consultants first. A value added service sorely lacking from most accountants business offerings.
A lot of people told me I couldn’t do what I was setting out to do when I was setting up my second company, the Miami SEO Consultants Inc. I can’t even count how many people looked at me like I was a naïve fool. But that didn’t stop me. I couldn’t let it. All entrepreneurs receive more criticism than kudos when starting out.
A key mistake many entrepreneurs make is letting detractors get them down and discourage them. Entrepreneurship is about disruption, changing the world order and doing things no one else thought possible.
Do you really think anyone told Steve Jobs at Apple that he could beat Microsoft? Or that anyone advised Bill Gates to drop out of Harvard to consign typewriters to the trash bin forever? I wonder how many people thought Howard Shultz could make people pay $4 for a cup of coffee at Starbucks when they could buy it for a buck at the corner store. Probably 9 out of 10 would have thought all those people were nuts. Now look who are the billionaires.
Never let the haters, bozos or naysayers stop you as an entrepreneur. You will run into a lot of them. I still do every day. Of course you can’t get so arrogant and pig-headed that you stop listening to others and heeding their advice, but you should never get so overwhelmed by doubters that you stop. If starting a company were easy, everyone would do it.