Category Archive: Uncategorized

1. 1099s: What You Need To Know

   2023… is officially here, and with it comes tax season.  For small business owners, preparing and sending 1099s is an annual tax season activity.

   • Do you need to send 1099s?
   • Who do you send them to and when do you send them?
   • Which 1099 do you send?

   Who Receives It

   An IRS 1099 form, referred to as an “Informational Return”, reports monies received that is not reported from an employer on a W-2 form.  Examples include independent contractor income or stock dividends.

   Several variations of the 1099 form exist for a variety of circumstances, but the two most common forms are the 1099-NEC and the 1099-MISC.

   Form 1099-NEC

   If your business pays more than $600 to a vendor or independent contractor, you must send Form 1099-NEC to document what it paid the Individual, Partnership, Limited Liability Company, Limited Partnership, or estate throughout the year. Basically, anyone who worked for the company — other than its payrolled employees and owners — will need a 1099-NEC from your business.

   Examples of people to whom you may have to send a 1099-NEC include:

   • Freelance creatives (writers, graphic designers, photographers, etc.)
   • Professional service providers (consultants, lawyers, accountants, tax advisors, etc.)
   • Vendors operating as sole proprietors (caterers, computer repair technicians, business remodeling contractors, etc.)

    

   Form 1099-MISC

   Prior to 2020, businesses issued IRS Form 1099-MISC to each vendor or independent contractor they paid $600 or more in services, prizes and awards, rents, or other income payments.  That changed in 2020.  Now the 1099-MISC is used for documenting items such as the following:

   $10 or more paid for:

   • Royalties
   • Broker payments instead of tax-exempt interest or dividends

   $600 or more paid for:

   • Fishing boat proceeds
   • Crop insurance proceeds
   • Rents
   • Prizes and awards
   • Medical and healthcare payments
   • Attorney services (not fees)

    

   Exceptions

   There are exceptions to who receives the 1099-NEC or 1099-MISC form.  These types of vendors do not get 1099-MISC or 1099-NEC forms:

   • Those businesses with S Corporation or C Corporation entity structures
   • Limited Liability Companies (LLCs) that are taxed as C Corporations or S Corporations
   • Companies that sell merchandise, storage, freight, or other similar things

    

   Deadlines
   For the 2022 tax year the deadlines are as follows:

   1099-NEC

   File to recipients by Jan. 31, 2023
   File to IRS by Jan. 31, 2023

   1099-MISC
   File to recipients by Jan. 31, 2023
   File to IRS by Feb. 28, 2023

   Paper Copies

   If sending paper copies of 1099 forms by mail to the IRS, your business must also submit Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) with the filing.

   It’s also important to review the state’s tax filing rules, as some states require copies of a business’s 1099s.

   Software Can Help

   Business owners can request 1099-MISC and 1099-NEC forms via the IRS website to receive them by mail. But there are several software solutions out there that can file electronically for you, including copies to the vendors.  A few programs include:

   • Track 1099
   • W2 Mate
   • CheckMark 1099

   Be Prepared
   To help prepare for 1099 season be sure and obtain a completed W-9 from all your vendors when you first engage with them.  The W-9 provides the necessary information needed to report on the 1099.  It contains the vendor’s mailing information, Tax ID number, and business structure.

   Penalties

   Sending the required 1099-MISC or 1099-NEC forms late (or not at all) can cost you.  The penalties currently vary from $50 to $290 in 2023, depending on how far past the deadline the filing is. If a business gets caught intentionally not providing a payee with a correct statement for the tax year, the “intentional disregard” penalty is $580.

   Understanding the who, what and when of 1099s is important for you as a small business owner. Make sure you are keeping up on the forms, requirements, and the deadlines.   Start 2023 with a calendar of due dates for your small business to help stay on track.  Still have questions? Reach out to Barbee Business Services, sign up for our newsletters or request a consultation. 

2. 5 Bookkeeping Tips To Start Today

   This popular quote says, “The people with the best advice are usually the ones who have been through the most.”  For me, I like to say, “Learn from the mistakes I have made”.  Both mean the same thing- learn from the experience of others who have made mistakes and figured out better ways to accomplish things in their business.  So, if you are a small business owner or entrepreneur, and don’t know where to start on bookkeeping, here are five basic bookkeeping tips that you can start today.      

   1.  Separate Your Business From Your Personal
      This is really an essential task and why I have put this as the number one tip on my list.  Separate your business finances from your personal finances; do this today.  You should have a business bank account (and if possible, business credit cards).  In addition, a separate business account can really help you keep track of your business income, as well as ensure that you are spending appropriately.  Make sure that you only use money from your business accounts to take care of business- related activities.  Doing this can help ensure you are ready when it’s time to file your taxes.  Be scrupulous in keeping your business transactions separate from your personal transactions so that your accountant and the IRS can see the difference.

   2.  Think Through Your Chart Of Accounts
   You need to put some thought into your business’ chart of accounts, this is the infrastructure of your business; all the recording of assets, liabilities, revenues, and expenses depend on this chart.  But think about the level of detail you will want on your reports, and base your chart of accounts on that.      
   
   For example: Do you really need to break out liability insurance, general insurance, professional insurance, etc.  or could everything just fall under insurance?  Do you need to separate out lights, heat, and phone expenses, or could they all be grouped as utilities?  The answer to these questions depends on how you wish to review and analyze your expenses.  Giving some thought to this upfront will help streamline your Chart of Accounts and avoid unnecessary clutter. 

   Similarly, if you pay rent for a building or piece of equipment, you might set up a “rent expense” account with sub-accounts for “building rent” and “equipment rent.” Spend the time before you begin to think through this process to save time later and to provide reports that make more sense to your business.
   
   3. Keep Good Records, Stay Organized

   Everyone in business must keep records. What can good record keeping do for you?

   • Good record keeping can show whether your business is improving, which items are selling and what changes are needed. Good record keeping can be the difference between failure and success.
     
     
   • Identify source of receipts: You will receive money or services from many sources. Your records can identify the source of your receipts. You need this information to separate business from non-business receipts and taxable from nontaxable income.
     
     
   • You may forget expenses when you prepare your tax return unless you record them when they occur. Believe me you will need all the deductible expenses you can find.
     
     
   • Records must support the income, expenses and credits you report on your tax returns. Generally, these are the same records you use to monitor your business and prepare your financial statements. You must keep your business records available at all times for inspection by the IRS and/or your State Department of Revenue. If the IRS or State Department of Revenue examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination and make the experience feel that much less painful.

   
   4.  Complete Monthly & Quarterly Reviews

   As you begin to grow, you also learn to become more strategic in how you run and manage your business. If you won’t, your business won’t survive. As much as I am passionate about my work, passion without strategy won’t pay the bills.  The reality is you have to strategize and make informed choices.

   What you begin to look at in your monthly and quarterly reviews may depend on what stage you are in in your business. At the very least, you should always be looking at how much you are earning versus how much you are spending. Simply put, you need to have a positive cash flow in order to have a profitable business that allows you to pay yourself.

   Here are some suggestions of what to look at during your quarterly review:

   • How much revenue did your business make?
   • How much of that revenue went back into the business?
   • What did you spend money on?
   • How much did you pay in taxes? What’s the rate?
   • Review project goals. Did you launch anything this quarter? For example, a podcast?
   • Social media strategy
   • How can you increase revenue?
   • Where can improvements be made?

   I could go on and on depending on the business, but you’re starting to catch my drift. Simply put, these reviews are a good way to crunch some numbers, make sure you’re headed in the right direction, determine the next steps and make adjustments where need be. If you don’t have this information, then it’s easy to feel like you’re a chicken running around with your head cut off.

   5. Don’t Be Afraid To Pull In An Expert  
   Bookkeeping is an essential role that every business owner should be able to handle, and he/she should enlist the help of someone who can take care of this task if necessary.  You don’t necessarily have to hire an accountant or in-house bookkeeper to do this for you. Many business owners outsource their bookkeeping needs instead. For many businesses, this is just a few hours a week, rather than a full-time commitment.
   
   Here’s a look at some of the benefits of and considerations involved with hiring an external bookkeeping service for your business.

   • You’ll Get an Unbiased Financial Opinion

   An external bookkeeping service has nothing to do with your business. Its goal is to give you a clear insight into your business’s financial position, not to pat you on the back and tell you everything is going to be OK even when it’s not. A bookkeeping service need only do the accounting work required to keep your business up and running and show you its financial strengths and weaknesses.

   • You’ll Avoid Conflict of Interest
     It can be risky for some businesses like partnerships to entrust the accounting to one of the owners. Accusations of misconduct could potentially ruin the business relationship, even when an error in record keeping is unintentional. An owner might find himself in the unfortunate position of having to make a choice between what is best for himself and what is best for the company. Using an independent bookkeeping service avoids this pitfall and can boost confidence among the owners that all accounting statements are true, accurate and without bias. 

   • You’ll Lower Costs

   One of the key components of running any business is keeping a firm grasp on the overall costs incurred. A business owner’s goal is to reduce the total costs of his operation, and one way to do this is to control the wages and salaries of workers — usually by employing fewer people. 

   The salary and benefits paid to an in-house bookkeeper can be significant. A business can run without a bookkeeper on staff if the business owner — or one of the business owners — collects invoices, payments, credit sales, and other pertinent financial information. He can then hand the necessary documentation over to the external bookkeeper for accounting purposes. The cost of outsourcing your accounting is typically significantly less than employing a full-time bookkeeper. 

   So start making positive changes to your bookkeeping today: even one of these basic tips can put you and your business on the right track to success.