Accounting, Bookkeeping, and QuickBooks Tips for Small Businesses

Posts in category Year End Bookkeeping Tasks

Form 1099-Misc, What You Need to Know

Tax Time Blocks_Form 1099It’s January and that means 1099’s must be sent to your subcontractors and vendors by the end of the month. If you operate a business, chances are you owe at least a few people a 1099. If you’re a sole-proprietor, partnership, or LLC you will probably receive a few 1099’s from your customers as well. Read on to learn more about 1099’s.

What is a 1099
1099’s are informational returns required by the IRS. There are several different types of 1099’s that are used to report a variety of payments – interest, dividends, trade or business payments, credit card merchant reporting, etc. Today we are focusing on the 1099-MISC, which is used to report payments made in the course of your trade or business.

Who Prepares 1099’s
If you own a business, you will be responsible for sending a 1099-MISC to anyone you paid $600 or more in the course of your trade or business. Some examples include rent, services, payments to subcontractors, parts, materials, prizes and awards, medical and health care payments, service contracts, etc. These payments must have been made to an individual, a partnership, an estate, or to an LLC. In general, corporations are exempt (at least for payments made during 2010 – the 1099 laws are changing in 2011 & 2012).

If your business paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest; any fishing boat proceeds; and gross proceeds to an attorney are a few other times when your business is required to send a 1099-MISC.

Who Receives a 1099
In general, if you or your business provided $600 or more in goods or services to another company, you should receive a 1099-MISC from your customer. If you do not receive a 1099-MISC, no need to worry. You are still responsible and required to report that income on your tax return.

When to File Your 1099-MISC
Form 1099-MISC must be sent to the recipient(s) of the income (i.e. your subcontractors and vendors) by January 31st. For example, if your business paid $2,000 in rent during 2010, you owe your landlord a 1099-MISC by January 31, 2011.

You are also required to submit a copy of the 1099-MISC’s you generated to the IRS by February 28th. When submitting to the IRS, you need to include Form 1096, where you provide the total number of 1099’s you are submitting and the total amount being reported. If you are filing electronically through the FIRE System (Filing Information Returns Electronically System), the due date is March 31st.

Where to File Your 1099-MISC
Mail a copy of the 1099-misc to anyone you paid $600 or more in the course of your trade or business to the address they provided on the W-9 you collected earlier in the year. The W-9 is a form you send to any vendor requesting their TIN (taxpayer identification number), address, and legal name of their business. It’s a good idea to collect a W-9 from all new vendors and wait to send their first check until you receive the completed W-9. W-9’s are available at IRS.gov.

You are also required to file a copies of all the 1099’s you sent to vendors and subcontractors to the IRS. When filing with the IRS, you will need to include Form 1096. The IRS’ mailing address is included in the Form 1099-MISC Instructions provided by the IRS. Please visit IRS.gov for information about filing electronically using the FIRE System.

Why Do We have to File 1099’s
Since there are millions of sole proprietors and small businesses in the US, 1099’s help the IRS keep track of how much these individuals, subcontractors, and small businesses are actually making. The process helps keep individuals and businesses honest on their income tax filings.

How to Complete a 1099
1099-MISC forms are available for purchase at most office supply stores (i.e. Staples & Office Max). They can also be ordered for free from the IRS. Once you have the forms, you can print the information directly on the form using your accounting software (QuickBooks, Peachtree, etc). If you only have a few 1099’s or you do not use accounting software, you can fill them in by hand.

Important to Note
1099’s are for reporting payments made to your subcontractors and are not for reporting wages paid to your employees. Employees wages and tax withholdings are reported on a W-2.

Resources
Instructions for Form 1099-MISC (2010).

Form 1099-MISC (2010)

Instructions and Form 1096 (2010)

A Guide to Information Returns

Information about the FIRE System (electronic filing)

Form W-9

Who Can Help You File 1099’s
If you get stuck or have questions, contact the IRS, your lawyer, or your CPA.

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Michelle Edwards, CPA - QuickBooks Consultant Written by Michelle Edwards, CPA
Certified QuickBooks ProAdvisor

Michelle is the owner of Trailhead Accounting Solutions CPA, LLC, an Erie, CO based CPA firm focused on providing small and mid-sized businesses with day-to-day accounting, bookkeeping, and business solutions. Michelle is a CFO turned consultant who loves working with small businesses and entrepreneurs. When she’s not crunching numbers, she can be found hiking, remote camping, gardening, quilting, and hanging out with her family.


Year-End Bookkeeping Checklist

Box of ReceiptsWow, can you believe the end of the year is quickly approaching? To help get your books in order and ready to send to your tax preparer here is a year-end bookkeeping checklist to help keep you organized. Keep in mind that every business is different. This list is meant to provide you with a general idea of items to take care of before December 31, 2010. When in doubt or if you have questions, seek guidance from a professional who knows your specific business situation.

End of Year Bookkeeping Checklist:

  1. Get Organized: Find all of the receipts for any deduction you are claiming on your tax return. For me, this involves looking in my purse, on my desk, in my car, on the kitchen counter, etc. Keep in mind that no receipt equals no deduction. The best way to stay organized during the year is to enter your transactions into an accounting software, like QuickBooks.

    After collecting all receipts, look over your personal bank statements for any business charges you paid for out of your personal account. Do the same with your business bank statement, but this time look for any personal expenses paid out of your business account. Make a list of these transactions to give to your tax preparer.

  2. Reconcile Your Bank Account(s): Bank Reconciliations are a great tool to verify all transactions have been posted into your accounting software. This ensures your general ledger bank balance (the bank balance in QuickBooks) matches your bank statement. If not, fix any mistakes you discover in the process.
  3. Invoice: Have you invoiced all of your customers for work you’ve done and products you’ve delivered/shipped for the year? If not, get caught up on those invoices.
  4. Collections: Follow up with any customers who owe you money. Send them a past due statement and/or give them a call to remind them they owe you money. Now’s a great time to collect your receivables.

    Look through your accounts receivables. Are there any receivables that you are unable to collect that need to be written off your books or sent to a collection agency?

  5. Inventory: Verify your inventory balance is correctly reported on your balance sheet. The best way to do this is to have an accurate count as of December 31st. You’ll also want to verify that your inventory is valued correctly – determine if any inventory items cost more than they’re worth and need to be written down. Remember, your tax preparer is going to need the following in order to prepare your tax return: 1. Inventory balance at the beginning of the year (January 1st); 2. The cost of inventory purchased throughout the year; 3. The amount of inventory that was sold during the year; 4. The ending inventory balance as of December 31st.
  6. Fixed Assets: These are the larger purchases you made throughout the year (i.e. equipment, automobiles, furniture, computers, etc.). Do you still have all of the fixed assets that are reported on your balance sheet? If not, record the sale or disposal of these fixed assets. Don’t forget to verify the depreciation on your fixed assets as well (if you don’t know how to do this, contact your CPA. They will be able to generate a depreciation schedule for you). Make any necessary adjustments.
  7. Expenses and Accounts Payable: Verify all of your accounts payables have been recorded in your accounting software, such as QuickBooks. Now’s a great time to make your 401(k), SEP IRA, and Simple IRA contributions, if you have not done so already.

    If you are a sole proprietor or a small business, did you know your cell phone charges and internet usage for your business is deductible on your tax return? Collect your cell phone bills & internet bills for the year and determine what percentage of your cell phone calls were for business purposes and what percentage of your internet was used for business. Make a list to give to your tax preparer.

  8. Notes Payable: Verify your notes payable (i.e. loans) amounts on your balance sheet match the statements from your banks. Are you missing any notes payables? Do you have any notes payables that you paid off during the year or debts that were forgiven? Make any necessary adjustments. Not sure how to make the adjustments? No worries, make a list to give to your tax provider or contact a CPA to help you make the necessary adjustments.
  9. Mileage: Great news, you can deduct $0.50 per mile for business miles driven in 2010. That means any trips to clients or for meetings are deductible. I keep a mini notebook in car to track all of my business mileage throughout the year (date, purpose of the trip, starting odometer reading and ending odometer reading) to ensure I have the necessary documentation to claim the mileage deduction. There are also a few apps out there that can track your mileage for you. Please note that your daily commute does not qualify for the deduction.

    The IRS also gives businesses the option to calculate the actual costs of using your vehicle (i.e. gas, maintenance, repairs, etc) rather than using the standard mileage rate. If you decide to go this route, you will need to determine the percentage of time you use your car for business and use this percentage to calculate your deduction.

  10. Collect W-9’s: If you have not collected W-9’s from your vendors and/or contractors you paid $600 or more to throughout the calendar year, now’s a good time to collect those. Don’t forget your 1099’s are due on January 31st. Speaking of 1099’s now’s a good time to order your 1099’s. They can be purchased at most office supply stores (Staples & Office Max) or you can order them for free from the IRS (irs.gov).
  11. Payroll Taxes: Verify your payroll tax liabilities match your quarterly payroll returns.
  12. Double Check your Profit & Loss: After making all of the adjustments listed above, double check your P&L Statement (aka Income Statement). Do your income and expense numbers make sense? Compare your profit and loss statement against prior years and against your budget. Think long and hard to make sure there is no additional income you are missing (i.e. advertising income from your blog, any contract work you did, etc.) and no additional expense items you are missing (i.e. those missing receipts you’ll find at the bottom of your purse or in your junk drawer). Make any necessary adjustments. Remember, no receipt equals no deduction.
  13. Create a Budget for Next Year: See our previous blog entries about creating budgets:
  14. Back Up: Back up your Quickbooks file to protect you from loss of data.

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Michelle Edwards, CPA - QuickBooks Consultant Written by Michelle Edwards, CPA
Certified QuickBooks ProAdvisor

Michelle is the owner of Trailhead Accounting Solutions CPA, LLC, an Erie, CO based CPA firm focused on providing small and mid-sized businesses with day-to-day accounting, bookkeeping, and business solutions. Michelle is a CFO turned consultant who loves working with small businesses and entrepreneurs. When she’s not crunching numbers, she can be found hiking, remote camping, gardening, quilting, and hanging out with her family.


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