All Independent Workers Need to Know About 1099-Misc Forms

 

Tax season is typically a stressful time for many people. It’s important not to make any tax mistakes or miss out on extra cash through deductions. 

 

Most people complete their contracted jobs from the comfort of their own home. Because of this, many independent workers started their businesses or began working as freelancers during the pandemic. If you are new to this type of work, it may be more confusing to do your taxes this year. 

 

Get prepared for tax season. Here is what you need to know about 1099-Misc forms as an independent worker. 

 

Who Gets a 1099-Misc Form?

If you are an independent worker and get contracted to do a specific job, you will receive a 1099-Misc form during tax return season. Unlike a W-2 employee, independent contractors have to determine their own payroll taxes. These are paid every quarter. 

 

There are several other differences between being an employee of a company and an independent contractor. Employees receive benefits from their employers. Independent contractors pay for their own insurance policies and retirement plans. 

 

1099-Misc Form Requirements

You must answer “yes” to these questions to receive and file a 1099-Misc form during tax season.

 

  • The payment must be more than $600. 
  • 1099-Misc forms are used to report money paid for services. It is not used for physical products.
  • The services performed must be for business purposes. If the payments were for personal services, you do not need to file a 1099-Misc form. 

 

Independent Worker Deductions

If you are an independent contractor, deduct work-related expenses from your taxes. When filing your 1099-Misc forms, deduct these items:

 

  • Internet
  • Travel/gas
  • Home office 
  • Car/office maintenance
  • Phone bill
  • Computer/laptop
  • Conferences, classes, and training
  • Office supplies

 

There are so many more deductions that you may qualify for as an independent worker. Talk to a professional tax preparer or accountant to maximize the amount that you will receive back from the government.

 

1099

 

More Notes About 1099-Misc Forms

If you are not sure if you need to file a 1099-Misc form or not, you can still file it. There is not a penalty if you do. If you do not file one that is required to, you may be subject to penalties and fees.

 

Before any payments are made with a new vendor, always get a W-9 form from them. It is vital to do this if there may be a requirement for a 1099-Misc. This saves you during tax-time from vendors that are too busy or unorganized to get you the information.

 

Maintain Your Bookkeeping Records

Are you considered a freelancer, contractor, or independent worker? You must keep track of your bookkeeping records. Make sure you are getting payments from the vendors you are working with. Record where your money is going so you can save money for taxes, retirement, and insurance.

 

PL Consulting is your go-to resource for bookkeeping and accounting services. We will help you maintain good records.

 

Questions about 1099-Misc forms, taxes, or bookkeeping? Call us at 410.764.3731 or contact us on our website to schedule an appointment with one of our professionals.

 

Beginner’s Guide to Preparing a Cash Flow Statement

 

What is a Cash Flow Statement?

A cash flow statement is the total amount of money, both physical or virtual, transferred in and out of your business. It is a combination of information from your profit & loss statement and balance sheet. 

 

Having cash flow steadily into your business keeps your employees paid and the lights on. You must learn how to convert sales into cash consistently and quickly to build a safety net for your business’s future. 

 

Should I Use the Direct Method or the Indirect Method?

Before starting anything, you must decide which method you should use to prepare your statement. The direct method tallies up each instance of cash received or paid. The indirect method uses accounting line items such as net income and depreciation to arrive at cash flow. 

 

Choosing which method to use depends on each business. Small businesses use the direct method because they have fewer income sources and expenses. If you are a large corporation, your financial health is better represented with the indirect cash flow method.

 

What Does a Cash Flow Statement Show?

 

Your cash flow statement shows the following:

Compare cash from operating activities to your business’s net income to determine the quality of earnings. Your earnings are high quality if your cash from operating activities is higher than your net income.

 

Use your statement to show investors the cash flow coming in and going out. This shows them your overall performance.

 

If your business is losing money from operation expenses or financial investments, you will see that on your statement. 

 

cash flow

 

How to Increase Your Cash Flow

 

Reevaluate Pricing

Consider changing the price of your products. You might be under-selling or over-selling your merchandise. Find the perfect price-point through testing. If you are under-selling your items, consumers might not take you seriously. If your price-point is too expensive, then people will turn to your competition.

 

Sell or Lease Equipment

Computer and equipment upgrades happen often with technology advancements. The old equipment can quickly pile up in your office. Consider selling these items for a taxable gain. Keep in mind that you should sell nothing below the book value.

 

On the flip side, you may decide to lease items instead of purchasing them. Talk to your accountant or bookkeeper to weigh out your options.

 

Subscription Sales

Use a subscription service for products consumed consistently and repurchased throughout the year. A subscription service allows your clients and customers to prepay for their items. This means you receive cash upfront.

 

Cash Flow Statement Help

PL Consulting has served the Baltimore, Maryland area for many years. We customize our bookkeeping and accounting services to each client. Your ideas are unique to your business, and we understand that. 

 

Do you need help to prepare your statement? Contact PL Consulting to set up an appointment at 410.764.3731 or contact us on our website.

 

Startup Business Expenses to Consider in Your Budget

 

Starting your own business is exciting, but you must also focus on your numbers. This includes budgeting, accounting, and bookkeeping. 

 

Do you want to run a successful business? You must consider the startup business expenses below in your budget. 

 

Estimating an accurate startup cost will help you meet your business goals. Before starting your business, get the funding that you need.

 

 

business

Professional and Legal Costs

Registering your business is one of the first major steps. Obtaining an LLC is only around $100, but it depends on which state you live in. There are other ways to register your business. Some people choose to register as a corporation or limited partnership. Find out what to register your business as and add in those costs.

 

You must consider any copyrights and patents that will protect your business. This brings you to the cost of lawyers. These people are important when signing and creating contracts with clients and vendors.

 

Marketing

Get potential customers to know about your new startup business. You must invest in marketing. The first step in marketing is developing your branding and packaging. This gets people interested in your business, shows personality, and makes a memorable mark.

 

After you invest in branding, choose marketing that will reach your target market. Focus on online marketing. This includes website ads, social media ads, and social media accounts. You can also choose a non-digital form of marketing like newspapers and billboards.

 

Attend trade shows and local festivals to get your brand noticed. Offer freebies to potential customers. You need to add this cost to your budget.

 

Technology

It is non-negotiable to run a company without a website these days. Hosting a website costs money, and it depends on which host you want to use. If you aren’t tech-savvy, build your website with templates from Squarespace or Weebly. You can choose to outsource to a web designer to build your site, but this will cost you much more money. Research which option is best for your business and your budget. 

 

Other technologies like computers, printers, phones, and Wi-Fi are necessary to get your business up and running. For businesses that will have a brick and mortar location, having a register and credit card machine are important costs. 

 

Product and Material Costs

If you plan on selling tangible goods, you must consider the cost of the products or raw materials. The first few purchases from your business may even cost your business money. Add in the cost of your warehouse, shipping costs, and shipping insurance into the price of the materials. 

 

Administrative Costs

Take anything and everything into account when starting your business. This includes small items like paper, staples, and pens. You are also going to need furniture like desks and office chairs. Where is this furniture going to go? You must consider rent costs and utilities for the first year as well. 

 

Hire a Bookkeeper and Accountant

To maintain your business’s budget, hire a bookkeeper and accountant. By keeping room in your budget for these extra expenses, you will end up saving money in the long run. 

A bookkeeper creates invoices, tracks billing, runs payroll, and creates general ledgers to document all transactions. They ensure that all financial data is correct and coded to the right accounts so that the information is both accurate and easy to access.

 

An accountant also deals with the ongoing finances of a business, but the main difference is that they handle finances that are already finalized and closed out. Accountants interpret financial data that the bookkeeper documents. They compile the information into financial reports. These reports give your business an idea of your financial progress. This helps to analyze the growth of your business and gauge any changes that you may need to make. Accountants also provide tax planning and advice.

 

Accountants and bookkeepers complement one another. They are both equally important to the success of your company. Although starting a new company is overwhelming, remember that there are people here to help you. Get a mentor and outsource work to other business professionals when possible. 

Do you need help with budgeting, accounting, and bookkeeping for your startup? Contact PL Consulting to help with your startup expenses at 410.764.3731 or contact us on our website.

 

 

Fraud Alert: Avoid This Small Business Owner Unemployment Scam

 

COVID-19 has brought upon many scams involving unemployment and coronavirus relief funds. Americans have lost $36 billion in fraudulent unemployment payments from scammers. 

 

employment scam

 

Small business owners—be aware of this recent unemployment scam going on! Fraudsters have been filing for unemployment with business owner’s names. Since they know that small business owners are many times too busy to open their email, the file for unemployment usually goes through. 

 

Four of our clients have reported this happening to them. We are warning you to avoid these fraudsters. Don’t become a victim of this scam.

 

Why are Fraudsters Targeting Small Business Owners?

Small business owners are the main target for this unemployment scam because of the extra coronavirus relief benefits. The added unemployment benefits are enticing to the scammers. Business owners are especially busy, and often don’t realize that an email went through their inbox. This is how the fraudster will successfully claim their unemployment benefits.

 

How are Fraudsters Claiming My Unemployment Benefits?

These people can obtain all your information. This includes your name, birthdate, Social Security number, and more. They use all this information to apply for unemployment. 

 

Remember that the government will never call to ask for your personal information like Social Security, bank account, or credit card numbers. If you get a phone call asking for this information—hang up and block the number.

 

How Can I Avoid Unemployment Scams?

There are many steps that small business owners can take to avoid this unemployment scam. Be sure to practice the following and look out for red flags. 

 

Check Email Sources

If an email isn’t from a government source, or you think it looks a little off, do not respond. Check for grammatical errors. Send that email to your spam box and ignore it. If you reply or click a link in fraudulent emails, you might give access to your personal information. 

 

Be Cautious of Website Credibility

When paying for something online, check the website’s credibility. Websites should never ask for your Social Security number when purchasing something. This an easy way for scammers to get ahold of your personal information. 

 

Install Cybersecurity

Your phone, laptop, and desktop should all have security software installed. Keep your technology and software up-to-date to avoid any security breaches. 

 

 

What Should I Do If a Scammer Claims My Unemployment Benefits?

If you suspect a scam, contact local and federal authorities. You can report fraud over the phone and some states let you report it online. Maryland business owners affected by scams can find reporting information here

 

Maintain Your Bookkeeping Records

Is your small business growing? Do you find it hard to keep up with daily tasks like checking emails? Consider sending work to an outside contractor. This gives you time to focus on what is more important in your business. 

 

PL Consulting is your business’s go-to resource for bookkeeping and accounting services. We will help you maintain good records. If we suspect fraudulent activity on your account, we will contact you immediately.

 

The past year has brought hardship to small business owners. Start 2021 by avoiding this unemployment scam. Call us at 410.764.3731 or contact us on our website to schedule an appointment for our bookkeeping and accounting services.