Tax Form Filling

Want to Declare Business Expenses? Get Your W9s Up Front

If you pay contractors to do lawn work for your home, you may or may not be interested in submitting 1099s for them at tax time.  Yes you are supposed to if you pay someone more than $600 throughout the year.  However, many people don’t even know this, many forget, and some simply just don’t know the rules or have them completely wrong.  C’est la vie.

If you own a business, on the other hand, it’s stupid not to 1099 your contractors.  After all, it’s a business expense, dummy!  The more expenses you have, the less profit, meaning the less taxes your business pays.  The key to everything is IRS Form W-9…if you don’t get your contractors to fill out the W9 then it’s kinda hard to report to the IRS a business expense with no Tax Identification Number.

The way to make sure you get to declare all the business expenses you deserve is to get your contractors to fill out the W-9 Form before they start work for you.  That way, it’s rather like saying…

you can’t work for me unless you fill out IRS Form W-9 first…

Then, when it comes time to issue 1099s, you’ve already go their tax ID number and you’re good to go.  Otherwise, you’ll be trying to fill out tax forms and you’ll have to stop everything and try and find those contractors, and say “hey I’m a lame business owner and i never got your tax id…can I have it now so you can pay more taxes and i can get one more business expense on my tax return?”

No way is that going to be easy or fast.  Good luck finding that random phone number of the guy you hired eight months ago to paint your office.  Then have a good time waiting a week for him to get back to you.  Then enjoy yourself more when you try and email the W9 form to him and he never responds.  And if he does respond, your tax deadline has long since come and gone!

So that’s why please please please have your contractors for your business fill out the IRS Form W-9 as a condition for working for you.  Here’s where you can find a copy of the form…on the IRS website, the only place you should ever get tax forms.

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contractors

Write that Check, Pay that Guy…But Don’t Forget to tell the IRS!

If you paid someone over $600 this year for any service, then you have to issue an IRS Form 1099 or the IRS will be angry with you.  No, just kidding about the angry part.  But you are actually supposed to report to the IRS any contract work you paid for in excess of $600 over the course of the tax year.  And if you’re a business then you really should report it so you can claim it as a business expense.

IRS Form 1099 is used to report to the IRS any contract work you had done, to whom, and how much for the year.  So let’s say that you hired the same guy eight times from February to November to fix your toilets in your store.   Each time it was $100.  The total amount is $800, which is well over the threshold amount for having to report contract work ($600).  You would issue one IRS Form 1099 in the amount of $800 rather than eight separate 1099s for $100 each.  Seems kinda silly to have to spell that out with the IRS and taxes it’s nice to be absolutely sure you’re understanding everything, right?

Now, it’s not going to change anything for you except that you will get to claim $800 more in business expenses.  That’s a good thing because it means you’ll be paying less taxes.  So, it behooves you to issue 1099s.  It doesn’t benefit the other guy at all.  In fact, he’ll probably want to avoid getting that 1099 because he’ll have to pay income taxes on that money he received from you.  After all, it was straight profit for him…you didn’t take any money out of his pay to send to the IRS to cover Social Security and Medicare taxes, did you?  No, I think not!  So nobody gets to make pure income without the tax man getting involved.  IRS Form 1099 is how the IRS ensures that contractors pay their fair share.

Your tax prep software will be able to issue electronic 1099 forms for you, for submission to the IRS.  You can then print paper copies for the service provider or contractor, so he or she can prepare his or her own taxes.  The IRS will not accept paper copes of 1099 forms from your printer.  They must be ordered from the IRS or submitted electronically.

Here’s more info on the 1099-MISC, the most common type used for paying contractors and other service providers for whom you did not issue a W2.

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Lady

Why I Love Paying FUTA

Don’t get me wrong- I hate paying taxes.   But when it comes to paying federal unemployment tax (FUTA), I’m just giddy.  There are actually three reasons for my tax joy:

  1. The form for filing FUTA (IRS Form 940) is wonderfully simple.
  2. FUTA tax rates are pretty low.
  3. When I’m figuring and filing IRS Form 940, it means I’m almost done with tax returns for the year.

You see, once I’m at the state where I’m ready to fill out IRS Form 940, I’ve done all the hard work already.  Line 3 asks for the

Total Payments to all employees…

Well if I know that, I’ve already done my huge income tax for for the two corporations I manage… that’s filling out two entire 1102S forms for the S Corporations I take care of.  Now that’s a hateful form!  But the 940?  Piece of cake!  Maybe now you get why I love paying FUTA.

IRS Form 940 is SIMPLE to Understand

It’s easy as pie, since we’re talking sweets here.  It’s easy, especially if your business doesn’t pay any fringe benefits or get involved in dependent care, health insurance, or group life insurance.  If all you do is pay people a straight wage, then IRS Form 940 will take you all of five minutes to complete.

The one thing that can make the 940 a little hard to understand is if you live in what the IRS cryptically calls a credit-reduction state.  This is basically a state that owes the Feds money.  The feds get their money back by taking it from taxpayers in that state.  More specifically, employers in credit reduction states will pay the IRS higher FUTA than normal.  It’s in the form of a smaller credit, rather than an added tax.    This is actually quite simple to enter on your IRS Form 940, not hard at all.  If you want to know more about credit reduction states, here’s the IRS page on their website that explains in detail how it works.

Take a look: IRS Form 940 is a simple joy to fill out and submit.  Download it from only one source: the IRS website.  Happy FUTA!

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Real Estate

IRS Form 1041: Your Estate (or Trust) Has to Pay Taxes Too

The whole point of an estate or a trust is that it becomes  a separate identity when it’s created.  The IRS treats is like it treats a business or an individual taxpayer.  And you know what taxpayers have to do…!  They have to file and pay income tax returns.  So, as your money lives on after you depart this earth and takes on a life of its own as an estate, it will have to pay taxes.  IRS Form 1041 is used to file the tax return for an Estate.  The same form is used to file and pay federal income taxes for trusts.

Who Files IRS Form 1041?

Well usually there is an executor of a will, and that person is the one who takes care of making sure IRS Form 1041 is submitted each year for the estate.  There is almost always a lawyer involved, too, and usually it’s the lawyer who files the form.  Lawyers who specialize in estates are proficient in filing income tax returns for estates.  It’s part of their job.  If the executor is no longer around then there is usually a successor designated in the will, also.  Essentially, it’s the lawyer who sticks around the longest, accompanying the estate form beginning to end.  However, if there’s money involved, you can get the heirs won’t forget about that estate.  But if that happens, there are no heirs and the lawyer goes out of business, then the estate just gets turned over to the State.

Some FAQ’s on IRS Form 1041

  • If the estate has gross income of less than $600 for the tax year, then IRS Form 1041 is not required.
  • One can get an extension of time to file IRS Form 1041.  Fill out and submit Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns
  • The extension of time to file IRS Form 1041 is six months
  • IRS Form 1041 is due April 15, unless the estate operates on a Fiscal Year calendar. Then it’s due the fifteenth day of the fourth month following the close of the fiscal year.

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Employee

IRS Form 2553: Become an S Corp

Incorporating has its benefits- but one of the downsides to a corporation comes when the business is successful.  When a corporation is successful, the shareholders will be expecting dividends.  The pressure is even greater when the corporation is a publicly traded stock…shareholders will get rid of your stock if you never pay a dividend.

As you know, a corporation is treated as a separate tax identity from the shareholders.  The corporation can enter into a contract just as real person can.  The corporation must also pay income taxes…and not just every year but every quarter!  Yes that’s right a C-corporation pays quarterly income taxes.   Also, taxable income is computed before any business expense deductions are made!  As you know, Business Deductions are a great thing that help reduce taxable income if you are any type of business but a C-Corporation.  Plus, it pays income tax on the revenue, then when that extra revenue is passed on to shareholders, it gets taxed again.  That’s called double taxation.

Why Become an S-Corporation?

To avoid double taxation some corporations elect to become what’s called an S-Corporation.  To do this, IRS Form 2553 is submitted to make the election.  The name of the form is Election by a Small Business Corporation.  By becoming a S-Corporation a business can now participate in what’s called pass through taxation.  That means the profits can be passed through to the shareholders, and the S-corp is not taxed on that money as income.  Great!

Filling out IRS Form 2553 to become an S-Corp also means your business files a tax return once a year rather than four times a year.

If You Fill Out IRS Form 2553, Do it Now!

There are strict timing issues around filing IRS Form 2553.  Your business must file the form withing 75 days of incorporation or the IRS will disregard and consider your business a C Corporation.  The alternative is to file within 75 days of the new year.  For a look at IRS Form 2553 go here to the IRS website.  It’s a short and simple form that can be filled out quickly and mailed in easily to the IRS.  It’s not a form that you should pay someone to fill out and submit for you.

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