1099s: Understanding the Basics

As a small business owner, it's important to understand the tax implications of hiring independent contractors. One of the most important forms to be aware of is the 1099-NEC. In this blog post, we'll cover the basics of 1099s and how they affect your business.

First, it's important to understand that a 1099-NEC is a tax form that is used to report income received by an independent contractor. In other words, if you hire someone who is not an employee (such as a freelancer or consultant), you'll need to issue a 1099-NEC to that person and the IRS.

The deadline for issuing 1099s to independent contractors is January 31st of the year following the year the payments were made. So, for example, if you made payments to an independent contractor in 2022, you'll need to issue a 1099-NEC by January 31, 2023.

It's also important to note that there are certain thresholds that determine whether or not you need to issue a 1099-NEC. For example, if you paid an independent contractor $600 or more in a calendar year, you'll need to issue a 1099-NEC.

When it comes to preparing and issuing 1099s, there are a few options. Some businesses prefer to do it manually, which involves filling out the form by hand and mailing it to the independent contractor and the IRS. However, this can be time-consuming and error-prone.

An alternative option is to use an online service like QuickBooks Online, which can automate the process and make it more efficient. With QuickBooks Online, you can easily generate 1099s for all of your independent contractors and then e-file them to the IRS. This can save you a lot of time and hassle, and also help you avoid errors.

It's also important to note that if you fail to issue a 1099-NEC when required, you may be subject to penalties. The IRS can impose fines for failing to file, so it's important to make sure you're in compliance with the rules.

In conclusion, 1099s are an important aspect of hiring independent contractors and should be taken seriously. By understanding the basics of 1099s and how they affect your business, you can ensure compliance and avoid any penalties. Utilizing software such as QuickBooks Online can also make the process more efficient and streamlined.

Year End Tasks You Should Be Doing Now in QuickBooks

As 2020 comes to a close, thankfully, now is the time to get a head start on organizing your books and closing out the year in QuickBooks.

Apply for PPP Loan Forgiveness

While it is still fuzzy as to the deductibility of expenses used in forgiveness of a PPP loan, borrowers who took PPP loans of $50,000 or less to pay for qualified expenses, such as payroll, mortgage interest payments, rent, and other eligible costs, can apply for total loan forgiveness now. The application is simpler and can be completed quickly.

Reconcile All Accounts in QuickBooks

Frequently put off, it is important that all accounts, not just bank and credit card accounts, are reconciled through at least the 3rd quarter. This includes loan and other long term liability accounts. Void any uncleared transactions. Contact vendors of any uncleared checks. Verify sales tax and payroll liability account balances are correct, as applicable. Reconciliations confirm that what is in QuickBooks matches what has happened dollar for dollar in real life.

Check Financial Statements

Create a Profit and Loss statement on an accrual basis. Even if you file on a cash basis, this will ensure that you aren’t missing any transactions that may have been miscategorized or duplicated. Also create a Balance Sheet and check for accounts that don’t have normal balances, such as negative expenses, liabilities, or assets. If you use subaccounts, make sure that there are no balances in the parent account. In QuickBooks desktop, this will appear as Account - Other.

Run Other Reports

Create a Custom Transaction Detail Report (desktop) or Transaction List by Date (QBO) and group by Name (Payee) and filter for expense type transactions. If all expenses have a payee or vendor name (recommended), then verify the split or category is consistent for each name, as applicable. In QuickBooks Online, navigate to Expenses and make sure all transactions have attachments (recommended). I use Receipt Bank to streamline this process.

Write Off Bad Debt

Run an A/R Aging Summary report. Attempt to collect on any balances over 90 days past due. If uncollectible, create credit memos to a Bad Debt item posting to a bad debt expense account and apply to overdue invoices.

Evaluate Business Performance and Processes

Run the Business or Company Snapshot. Compare previous year to current year income and expenses. Determine if switching to a better payroll service would benefit the company. Investigate apps to eliminate duplicate entry or to improve efficiency. Hire a ProAdvisor if you can’t do all this yourself and need help.

Turbo Tax Online vs. Download / CD

Choose the right product to file taxes.

This was my first year filing taxes using the Online product. For many years, I would buy the CD or in recent years, download the software and complete both business and personal returns. What attracted me to try the online version this time was the pricing which was 20-30% lower than the CD/Download product. And via my preferred airline's shopping portal, I would also get 400 miles. I figured I had nothing to lose by going through the wizard as nothing would be charged until I was ready to file. The deal was sealed when TurboTax recognized my Intuit ID so that I was able to log in and I even had the ability to upload last year's personal return done on my computer via the downloaded product. I did not use TurboTax for my business return, as the cost is so much higher for this version, only available as a download, versus the ones for personal returns and I find it pretty easy to just manually fill out the 1120S form from the IRS. But I did use the Premier online edition so that I could bring in investment data from Fidelity. TurboTax made it very simple to suggest this upgrade based on my choices going through the wizard.

I was surprised at how fast the navigation was from section to section in the wizard, very similar to the downloaded product but it just seemed to be a whole lot faster. I was able to switch from section to section very easily and every time, TurboTax was really smart about double-checking with me to make sure that I wasn't missing any possible deductions when completing a section. The only "glitch" and I think this had more to do with Fidelity than with TurboTax, was that the imported stock information was bucketed to the wrong boxes in TurboTax. So, I still had to refer to the paper tax statement from Fidelity to add/change information. E-filing for both federal and state was breeze and worth the money since it didn't take long and I received confirmation from both agencies that my return was accepted (no errors). I think this was the fastest it ever took me to do my taxes and a lot of it had to do with the nice comparison in each section of what amounts I had for last year versus the previous year. Don't get me wrong, the online version is very similar to the downloaded product in many ways; it just seemed a lot faster since I didn't have to download, install program and get updates. 

Now if only TurboTax Business had an online version that would import my data from QuickBooks Online and it was priced lower, I would be golden.