Need to File Form 1099-MISC?

Here’s what you need to know about the 1099-Misc form.

 
Today’s workplace has exploded with new norms. One of the rising trends in work roles that has warranted much attention from its growth in the past 10 years is freelancing. According to Score, freelancers now make up 36% of the U.S. workforce. Much of a freelancer’s work is done for and with small businesses. We applaud both the tenacity of the freelancers and the flexibility of the business owners to approach a different working model. 
However, it’s still important to take heed when handling the taxes for this type of working relationship. As a small business owner, you may have decided to hire out to freelancers because it decreases your tax liability and peripheral expenses. This is true. But that doesn’t mean you have no responsibility. 
The IRS requires you send a form 1099-MISC to all freelancers or subcontractors to whom you have paid money for most any type of services. 
Here are a few important facts to know about the 1099-MISC form that must be prepared by the company that has hired the freelancer or subcontractor. 
 

When is the Form 1099-MISC due?

You must have the form 1099-MISC properly filled out and delivered to the recipient by January 31, 2020. 
 

Who should receive a Form 1099-MISC?

While more explanation and exceptions exist, the short of it is any person or business to whom you paid $600 or more for services during 2019 should receive a Form 1099-MISC from you. But it’s important to note, this is only for non-employee compensation. Employee payroll is handled differently. 
According to the IRS, you must send a 1099-MISC form to non-employees to whom you have paid at least $600 or more for:

• Rents
• Services performed by someone who is not your employee
• Prizes and awards
• Other income payments
• Medical and health care payments
• Crop insurance proceeds
• Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
• Payments to an attorney
• Any fishing boat proceeds
• Generally, the cash paid from a notional principal contract to an individual
• Payments of royalties of $10 (notice, this is not $600) or more during the year

 

Where to get the 1099-MISC forms

You cannot simply download and print the 1099-MISC forms off the internet. The red ink used for Copy A is special and cannot be duplicated on your printer. You can get the forms from some office supply stores, the IRS, your accountant or most business tax software programs. 
 

How to prepare a form 1099-MISC 

The most important thing you must note for your 1099-MISC form preparation is that you must have a valid tax ID for that individual or business. This means you will need to get a W-9 form from each payee. This form will contain their name, address, and taxpayer ID. Amounts paid then must be filled in the corresponding box according to the type of service or sales they provided. 
 

How 1099-MISC forms are distributed

The 1099-MISC forms have multiple parts, and it’s important to know which one goes where.

• Copy A is sent to the IRS.
• Copy 1 is sent to the state tax department.
• Copy B is for the payee.
• Copy 2 is for the recipient to file with his/her state income tax return.
• Copies B and 2 must be received by the payee no later than January 31.  

 

Notes about 1099-MISC forms

Make sure you have the correct 1099-MISC form that says 2019. In 2020, the form will be changing; for pay to independent contractors, you will use 1099-NEC form. But again, that will be for year 2020. 
As with all tax matters, it can be complicated. This article provides only a small snapshot of information for filling out your 1099-MISC forms. Always talk to a tax professional for your tax questions. 

At Perry & Associates, we can quickly and efficiently handle your form 1099-MISC filing. Give us a call today to set up your initial consultation to handle this and any other tax services you may need. 

(740) 373-0056

What Is A Pass-Through Entity?

As a business owner, you work hard for your money. It only goes to reason that you would work just as hard to keep it. 
Many small businesses come to us looking for ways to decrease taxes (legally!) and keep more of the spoils of their labor. 
While there are a variety of strategies that we can use to help business owners and investors decrease their tax liability, one of the foundational elements is the actual way that their business is taxed based upon the business structure.
Different entity structures are taxed in different ways. As your tax advisors, it’s our job to make sure you are utilizing the most beneficial structure for your business that gives you the best (and lowest) tax outcome. 
This is why a pass-through entity is one of the most common entity structures for small businesses. They tend to provide tax benefits that equate to less taxes. But despite their commonality, many business owners still have numerous questions about them. Here we’ll explore a few. 
 
So, what is a pass-through entity?
A pass-through entity is formed for the purpose of avoiding double-taxation. It is a special business structure by which you file your business with the IRS that later determines the way your business income is taxed. 
 
What are the benefits of a pass-through entity?
Pass-through entities don’t pay income taxes at the corporate level. The net income from the corporation or business is allocated among the entity’s owners, and then taxed based upon the individual owners’ level of taxation. 
 
Are there different types of pass-through entities?
The following business structures are all taxed as pass-through entities:
 
Sole Proprietorship: It is like it sounds…you are it. You are the only owner and the only one responsible for all profit, losses and responsibilities. All risks associated with the business debts and liabilities are attached directly to you as the individual, not the business.
 
Partnership: A partnership is any business owned by two or more people. There are both Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs). While these are unique in structure from each other, remember that they are both taxed as pass-through entities.  
 
Limited Partnerships have one general partner that assumes all the risks of the business, including any liabilities, while the other partners have protection from business liabilities. Limited Liability Partnerships protect all partners from the business’s liabilities as well as from each other.
 Limited Liability Company (LLC): LLCs also provide limited liability to the members but are not a tax entity themselves, so they must be taxed either as a sole proprietor, partnership or as a corporation. Members of an LLC are considered self-employed and, as such, must pay self-employment taxes. 
 
S Corporation: S Corporations are still considered corporations, but do not suffer from the double taxation that C Corporations have. S Corporations allow business profit to pass directly through to the owners where that income will be taxed based upon the individual’s tax rate. 
 
At what rates do pass-through entities get taxed?
That’s one of the beauties of a pass-through entity. It avoids the corporate tax rate (and double taxation) and is taxed at the individual income tax rate.
IRS – Individual Income Tax Rates 2020:
37% for incomes over $518,400 ($622,050 for married couples filing jointly)
35% for incomes over $207,350 ($414,700 for married couples filing jointly)
32% for incomes over $163,300 ($326,600 for married couples filing jointly)
24% for incomes over $85,525 ($171,050 for married couples filing jointly)
22% for incomes over $40,125 ($80,250 for married couples filing jointly)
12% for incomes over $9,875 ($19,750 for married couples filing jointly)
 
Are there other taxes for a pass-through entity?
Remember that you may still have to pay state and local taxes, depending on the state in which you live. This would include state income tax, property tax and sales tax. 
 
How do I know if I should have a pass-through entity?
If you are making this decision on your own, we would advise you to do hours of thorough research, ensuring you fully understand all the legalities and conditions associated with each entity. 
 
However, it’s always best to discuss these decisions with a certified tax professional as they will understand much more about your tax situation than you will. In the end, they will save you money, not cost it. 
 

Call Perry & Associates today to start on your road to tax savings and more business opportunities.

740.373.0056

Help! I Need to Find Reliable Accounting Firms Near Me!

Whether you’re in need of complicated financial services, or just reliable accounting advice, finding a firm you can work with and trust is a must. Professional accounting firms can help give you peace of mind for your small business or even for your personal accounting. Finding the best accounting firm near you will be helpful for meeting all of your accounting and tax needs.

How do I find the best accounting firm near me?

If you’re wondering, “How do I find a reputable accounting firm near me?” there are several specific options to consider:

1. Ask for referrals from your professional network.
2. Consult the American Institute of Certified Public Accountants directory.
3. Consider how much experience they have in your particular industry, as well as how much experience they have in the areas that you will need assistance, such as taxes, small business loans, etc.
4. Find out how the accountant bills for services, and find out upfront what types of fees will be included. Don’t forget to ask about things that you may not even expect, such as dealing with an IRS audit, so that you won’t be surprised if the time comes.
5. Discuss the availability of your accountant, and how they prefer to communicate.

 

How Will I Know if I Should Find An Accounting Firm Near Me To Assist?

You might wonder if you even need an accountant. After all, there are a variety of resources and apps available that might be cheaper. But will these resources be available for reliable advice and consulting? And will these apps give you all of the information that you need, exactly when you need it? 
Working one-on-one with an accounting firm you trust will help you avoid mistakes and position your business and/or finances for success from the start. Here are just a few of the situations that might indicate the need for an accountant:
Starting a Small Business: As a new entrepreneur, an accountant can work with you as you create your business plan, give you pointers for managing your business’s finances, and give you a solid start to your financial roadmap.
Creating Your Legal Structure: A good accountant can give you perspective on the financial aspects of structuring your entity in different ways. Should you incorporate, become a Limited Liability Company (LLC), a sole proprietorship, partnership, etc.?
Audits: If you or your business are facing an audit with the IRS, having an accountant is almost imperative. They can help you walk through the auditing process, organize your affairs, ensure all legalities are followed and give you suggestions on best practices moving forward. 
Rapid Business Growth: Having a business accountant on hand will be extremely beneficial if you find that your small business has become very successful and money is flowing well. Keeping track of your vendors, employees, payroll, and accounts receivable and payable can become a chaotic venture without proper management. Your accounting firm can help you keep more of the revenue that you’re earning by helping you better track your expenses.
Small Business Loans: Accounting firms can help you prepare the right detailed financial information that your potential lender will want to see. They’ll help answer your lender’s questions about your financials and revenue projections. They’ll advise on interest rates and loan terms & conditions. And their presence in your business plan shows the lender that you’re serious about your business.
Buying or Selling a Business: Interested in buying a business? Be sure to have an accountant scrutinize the business’s financials to determine if the projected revenue is accurate. An account will be able to tell you the current value of the company and its assets, as well as any potential outstanding debt that may become yours. 
On the flip side…when it comes to selling your business, accountants help ensure that your financial records are on track and up to date, showing your business’s true value to potential buyers.   
Tax Services: If you need assistance with taxes, personal or business, professional accountants are well versed and up-to-date in the ever-changing tax laws and regulations, keeping you from making costly mistakes. A good accountant will also look for any available tax credits and/or deductions that you may be missing, helping you put money back in your pocket. Ask yourself “Is this accounting firm near me going to be proactive at saving me money?”
 

In the end, it’s always better to have an expert on your side. If in doubt…at least take the step to talk to a CPA to determine how and if they can benefit you. 

For more information on our various accounting services, give Perry & Associates a call at 740-373-0056.

Nonprofit Tax Returns? But I’m Tax Exempt!

Meet Mary. Mary does a lot of good for the community. In fact, Mary started a nonprofit organization recently helping single moms build marketable career skills, navigate parenthood and balance the demands of work and family life. Mary dutifully filed for her nonprofit tax-exempt (501(c)(3)) status two years ago and has been pouring all her energy into her charity since then. 
But what Mary doesn’t realize is that her nonprofit status is now in danger because she hasn’t filed an annual tax return for the organization in the past two years. But Mary thought that no taxes meant no tax returns. Unfortunately, that’s not the case! 
Most nonprofit organizations, though tax-exempt, are still required to file annual nonprofit tax returns. Not filing, or filing late, can result in penalties for your organization. Failing to file for more than three years in a row can result in the organization’s nonprofit status being revoked.
While these nonprofit tax returns don’t require any taxes to be administered, it is necessary that the organization’s financial affairs be visible to the public.

990 Nonprofit Tax Returns

Nonprofit tax returns, known as the 990, are public documents, and as such, care should be taken to prepare them timely and accurately. Nonprofit taxes can be fairly simple, or quite complex, depending on the size of the organization, nature of the business it conducts, and how much revenue it receives.
The 990 forms serve to allow the IRS and the general public to evaluate the entire mission and operations of the organization; it includes information on the programs, mission, and finances of the organization. Donors, particularly foundations and other grantmaking organizations, use the 990 to help make decisions on whether they should contribute funding to an organization based on the information in the nonprofit’s tax returns.

Does my organization have to file a 990? 

If you’re new to the nonprofit world, or your organization hasn’t filed before, nonprofit tax returns can be daunting. Tax professionals who are experienced with nonprofit organizations can help you figure out if and how you need to file. 
While the type of 990 forms may differ from one organization to another, these types of organizations must file:

• Private foundations
• Most tax-exempt organizations with gross receipts over $200,000 or with assets over $500,000
• Organizations with gross receipts over $50,000 may file a 990 or 990 EZ
• Organizations with gross receipts that are less than $50,000 MUST file a 990-N
• Tax-exempt organizations that fall under 501©, 527, or 4947 (a)(1), or that are not exempt from filing

Tax-exempt organizations that do not have to file nonprofit tax returns:

• Churches and most faith-based organizations (religious schools, missionary organizations)
• Subsidiaries of other nonprofits, if there is a group return filed
• State institutions
• Government corporations

If you are unsure if your nonprofit needs to file, or if you are unsure of how to file a 990 or 990EZ, you should consult a professional tax preparer for help. 

Accountants for Nonprofits

Hiring a firm with a team of experienced tax experts can also help a nonprofit organization with other tax challenges:

• Filing for tax-exempt status
• Unrelated Business Income Tax
• Multi-entity planning
• State and local tax filing
• Reviewing internet fundraising activities
• Maintaining state charitable fundraising status
• Reviews of sponsorship, affinity, and royalty contracts
• IRS private ruling requests
• Donations of property
• Donations of vehicles
• Donations of intellectual property
• Donations of stock

If your nonprofit organization needs assistance with filing nonprofit tax returns or any other tax challenges, give us a call today at 740.373.0056.

Should I Hire a Professional for Tax Services?

Leaves are turning; your favorite football team is on; Halloween decor is out; fall is finally making itself known. Which means tax services are probably the farthest thing from your mind. But this is exactly the time to start planning. 
Why should you think about taxes now? After all, you won’t see your W-2’s for months. But if you wait until January, (or later!) it may cause you delays that you can’t afford. Starting the planning process now will ensure a smoother ride as you enter a bustling tax preparation season. Finding the right tax professional now can lessen the possibility of any surprises down the road. 
Do you need help making decisions about end of year finances? Have a new business that needs a payroll system put into place? Or do you simply need experienced tax preparers to help maximize your returns? Even if you’re unsure about what information you need, turning to a firm with experience in a wide variety of tax services will help you understand your needs.
You should ask plenty of questions to ensure that your tax professional has the proper experience, doesn’t charge unexpected fees, and can navigate through any applicable tax laws and regulations. Professional tax preparers are well versed at keeping up with the ever-changing tax code. 

6 Questions to Ask Before Hiring a Tax Services Professional

Here are some questions you can ask to make sure you’re finding the right tax professional for you:
 

• Make sure they have a PTIN (IRS Preparer Tax Identification Number). This is required by the IRS to file taxes that they have prepared. However, this does not prove that they are certified, or experienced. 

• Ask about their credentials and experience. Credentials may vary depending on your state, but ideally, a reputable agent will be certified and/or licensed. You might also be interested in knowing whether they are involved in continuing education or belong to professional organizations. 

• Ask about fees and the return process upfront. You should avoid agents who tie your costs to your total refund because there is a lack of transparency about the cost until after you’ve already filed. Along the same lines, make sure your return will come to your bank account and not the preparer. 

• Understand how they’re going to file your taxes. While they’ll be doing the legwork, you should be familiar with the process so that you can spot anything out of the ordinary. They should e-file your returns; this is the most efficient process and those who file 10 or more returns are required to do so. They should also ask for w-2’s and other documentation; it’s a red flag if they file only using your last pay stub. They should not ask you to sign a blank tax form, fail to sign it themselves or only use their PTIN, or refuse to give you a copy.

• Inquire if they provide audit assistance. If not, you may have to pay extra to hire a professional to accompany you to an auditor to speak to the IRS on your behalf.

• Make sure you can contact them after you file, including after the filing deadline.

 
 
If you’re looking for professional tax services in the Mid-Ohio Valley or Northern West Virginia, we’ll be happy to answer these questions for you! We can serve you in several locations in West Virginia and Southeast Ohio. 
 

Call us today at (740) 373-0056.

How is Virtual Currency Taxed?

 
For some years, a good bit of ambiguity has surrounded the world of virtual currency. Bitcoin, the most common type of this currency, was used by many in the beginning stages to avoid tax obligations. And even rule-abiding citizens have long wondered if the virtual currency is considered reportable.
Whether you like it or not…yes, indeed it is. The IRS has now issued guidance on the tax treatment of transactions using virtual currencies. It is considered convertible virtual currency, meaning it has an equivalent value in real currency. This, by default, places certain tax implications on any transaction with bitcoin or other virtual currency. 
However, to be clear, the IRS considers bitcoin property not currency for tax purposes. This allows the IRS to decide whether and when individuals owe taxes on the possession, mining, usage or sale of bitcoin. Tax consequences are incurred when there is a “realization event” according to the IRS. This generally falls into two actions – mining bitcoin or transferring (using or disposing of) bitcoin. 

Understanding Virtual Currency

Let’s look at a few tangible examples to help us understand.
Tax liabilities for mining bitcoin – By mining, we mean “acquiring” through the complex computer programs as they solve computational math problems. The concept is very similar to actual mining. When a bitcoin miner “strikes gold” – or solves a math computation resulting in a bitcoin – an asset is created. That asset (just as gold would be an asset) must be taxed appropriately. Acquiring a bitcoin through mining makes that value taxable immediately.
Tax liabilities for transferring bitcoin – Here, we’re actually referring to either the use or disposal of bitcoin, whether by exchanging it or paying for goods or services. If the actual value of the bitcoin at the time of use is greater than the value of the bitcoin when you first acquired it, you will owe taxes on the gain you experienced – in other words, capital gains tax. 
Since virtual currency is considered “property” you can think of it in terms of actual property. If you were to buy a house and sell it later for more than you purchased it (aside from the Section 121 exclusion), you would owe taxes on the capital gains you incurred from the sale. 
 

Other Important Facts about Taxes on Virtual Currency:

• You can deduct capital losses on bitcoin just as you would deduct losses on stocks or bonds. 
• Impeccable records are a must when dealing in cryptocurrency. Make sure you carefully track every transaction with your virtual currency, including the value when mined or bought and the value when sold or used.
• If you’ve received bitcoin from your employer for wages, that currency is taxed as income and subject to all normal withholding taxes.
• Remember that mining a bitcoin must be included in gross earnings for tax purposes.

 
As always, if you need help reviewing your current tax situation, including your virtual currency holdings, reach out to our experienced accountants. We look forward to helping you navigate the complex tax issues that virtual currency delivers while looking to decrease your tax liability as much as legally possible. 
 

Call us today to set up your free consultation – 740.373.0056.