I have gathered all important IRS tax documents for Small Business. This can be used for any self-employed and LLC business organizations.
Small Business and 1099’s Forms
If you’re a small business and you hire no-employees to perform jobs, you most likely need to send out 1099 to those workers.
- What is a 1099 tax form?
- Who do I give a 1099 form?
- What is a 1096 Form?
- Who can help in submitting and filling the forms?
What is a 1099 tax form
A 1099 is an “information filing form”, used to report non-salary income to the IRS for federal tax purposes. 1099’s come in a variety of ways, but most individuals are aware of the 1099-MISC, which is the one we will be covering.
You will need to complete a 1099-MISC if you paid a independent contractor more than $600 in the calendar year.
Other 1099 forms cover income from dividends, prize winnings, credit card forgiveness, and/or multitude of other scenarios. They all have there own 1099 form, which will not be discussed here. Let’s go back and focus on the 1099-MISC form now.
1099-Misc Form: Who do I give a 1099 Form to:
File Form 1099-MISC for each person to whom you have paid during the year:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in:
- 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.
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
- Payments to an attorney.
- Any fishing boat proceeds.
In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
1096 Form
The 1096 Form is the Annual Summary and Transmittal of U.S. Information Returns. It is ONLY used if you are mailing the 1099 forms. If you electronically file, this form is not submitted.
Filing forms
The forms are process by a bookkeeper/accountant or you can log on to the IRS and log the information yourself as well.
Liability Vs Expense
What Is the Difference Between an Expense and a Liability?
Now you know what a liability and a expense is. A liability is something a business owes. A expense is something a business paid.
Can you tell the difference between a business expenses and a business liability?
A business expense is the cost of operations that a business incurs to generate revenue. Expenses are related to revenue, and both are listed on a business income statement. In short, expenses are used to calculate Net Income.
REVENUE – EXPENSES = NET INCOME
For example, if a company has more expenses than revenues for the past three years, it may signal weak financial stability because it has been losing money for those years.
A business liability is what the business owes over a period of time and incurred to keep the business open. Liabilities are related to assets, and both are listed on a business balance sheet. In short, liabilities are used to calculate Equity.
ASSETS = LIABILITIES + EQUITY
Expenses and liabilities should not be confused with each other. One is listed on a company’s balance sheet, and the other is listed on the company’s income statement. Expenses are the costs of a company’s operation (paid now), while liabilities are the debts a business owes (not paid but needs to pay at some point).
The 5 Main Account Types: Liabilities
The second main category to grasp is the liability account.
What is a Liabilities?
A liability is, tangible or intangible, that a business owes and must pay to someone else (the IRS counts as someone else).
Think of a liability as everything your business owes that will have to be paid for with cash or services. For example, your business most likely owes taxes, business loan, wages, mortgages, deferred revenue, and accounts payable (think accounts to pay).
What Business Financial Report Shows Liabilities?
Balance Sheet
Types of Business Liabilities
- Current Liabilities
- Non-Current Liabilities
- Long Term Liabilities
Current Liabilities
Current liabilities are all liabilities of a business that are due within 1 year.
The most common current liability include accounts payable, taxes, and payroll wages.
Non-Current Liabilities (AKA Long Term Liability)
Non-Current Liabilities, often called Long Term Liability is a liability a business that will be due over 1 year.
The most common long term liability are business loans, mortgage loans, and vehicle loans.
Liabilities on the Business Balance Sheet
Liabilities are important to a businesses because it tells the owner what is owed to debtors.
Bring it Home: Liabilities and Assets
Assets are the things a business owns or is owed (need to be received)
Liabilities are the things a business owes or needs to pay.
If a business subtracts its liabilities from its assets, the difference is the business equity.
Come on back soon to read next 5 main account types: Equity.
The 5 Main Account Types: Assets
The first main category to grasp is the asset account.
What is an Asset?
An asset is an item, tangible or intangible, that a business owns and has value.
Think of an asset as everything your business owns that can be sold and converted to cash. For example, your business most likely owns furniture, a computer, a printer, some tools, and cash itself is an asset.
What Business Financial Report Shows Assets?
Balance Sheet
Types of Business Assets
- Current Assets
- Non-Current Assets
- Fixed Assets
Current Assets
Current assets are all assets of a business that can be used or sold within 1 year.
The most common current assets include cash, inventory, and pre-paid liabilities (think insurance premiums).
Non-Current Assets (AKA Fixed Assets)
Non-Current Assets, often called fixed assets are all assets of a business that will be used or sold over 1 year.
The most common fixed assets are vehicles (company truck), office equipment/furniture, and buildings. Fixed assets have depreciation (we will cover that in a different post).
Assets on the Business Balance Sheet
Assets are important to a businesses because it tells the owner what can be used to fund the business and pay off debtors. Current assets can be used to fund the business or pay operating expenses. Fixed assets show what a business owns that it does not plan to sell and plans to use for the live of the asset. Fixed assets can be used to pay debtors in case the business decides to close.
Come on back soon to read next 5 main account types: Liabilities.
The 5 Main Account Types
You started your business. Now it’s time to categorize. Wait. What! I need to categorize! Yes you do. But luckily accounting has made it easy (or tried to make it easy) and created 5 main account types. Okay, maybe not that lucky, the accounts can be a little confusing. It’s okay, we are going to break them down to help all business owners learn the basics.
The 5 main accounts are:
- Assets
- Liabilities
- Equity
- Revenue (AKA Income)
- Expenses
Remember the 5 main categories as they are the basis to reading financial reports. Each transaction performed by a business must be reported in one of the 5 main categories.
Small Business Tip: Create an Invoice for Sales or Services
Weather it’s your first year or tenth year in business, always use a professional invoice. This single step is crucial in getting paid for the work you performed and keeping track of what is owed.
Every Invoice Should Include
- Your Business Name
- Contact Information
- Client’s Name
- Invoice Number
- Issue Date
- Due Date
- Line item description with amount
- Accepted forms of payment
Saving Time: Get Your Business Organized Part 2
For many, figuring out how to organize your small business activities can be overwhelming. Papers pile up, sticky notes multiply, vendors or clients need immediate attention, and emails compound flooding your inbox faster than you can sort through them. If you are like most of us, we focus on ONE thing before attacking the next item on our list (you have created checklist, right).
This is part 2 of getting your small business organized. Check out part 1 to learn about setting goals.
2. Organize Business Projects
Create a List
Create a basic list and remember to keep it simple and add as needed. Start with your top 3 projects you want to accomplish. We are looking for a list to help you succeed and not to overwhelm you, less is more. 😁
Check back later as I am still trying to figure out how to add templates for you to use. My goal as you can tell it’s not on my top 3, otherwise I wouldn’t have to tell you to check back later.
Prioritize as Needed
Be flexible with your projects timeline. It’s okay to reprioritize. Keep the most important projects current and upfront. By keeping them upfront, you maintain them current and focused on the task that matter most right now.
Create Checkpoints
Having a road map without checkpoints can get you lost on he road. Same with your business. Checkpoints help you monitor if you are still on the right track and align you back to getting to your end goal. From a short term goal (less than one year) to long term goals (longer than a year) always have a roadmap. Not it down and visualize how you want to arrive at the end of the day.
Come back later to read part 3 of getting your business organized.
Saving Time: Get Your Business Organized Part 1
For many, figuring out how to organiz your small business activities can be overwhelming. Papers pile up, sticky notes multiply, vendors or clients need immediate attention, and emails compound flooding your inbox faster than you can sort through them. If you are like most of us, we focus on ONE thing before attacking the next item on our list (you have created checklist, right).
Follow some of these tips and watch your efficiency increase.
1. Organize Your Time
Set Goals & Prioritize
First identify your goals. Goals keep us on track and focused on the finish line. Write down all your goals on aoiece of paper. Great, now let’s prioritize your goals. Which goal is the most important? Let’s move and think what task you need to complete in order to accomplish the most important goal.
Set Time Limits
We are all guilty of loosing track of time. Set yourself a time limit per project or task. This assures that you make time for the other equally important goals on your list. Ceate a schedule for each day. Allocate time for every task you need to complete. This creates deadlines and puts time limits to tasks, making it an automatic time organizer.
back later to read part 2 of getting your business organized.
Save Money for your Small Business: Eliminate Expenses
Looking to cut expenses in your business increase the business profit. Grab your books and let’s take a look.
What expense can you eliminate?
Let’s first check if you have any Club memberships or services with monthly fees. Believe it or not, these small monthly fees can add up over a twelve month period.
Now, let’s move on and check your other large expenses. Evaluate the expense account you believe has an abnormal amount and see if everything in that account is correct. Check and see if those private dining with customers, postage meter rental, online credit alert service, merchant services account, or any other expense you thought was smaller but just found out it was a lot larger than expected.
Third, don’t be afraid to haggle and renegotiate. Sometimes a private memberships club will allow you to park your membership for a reduced fee or a merchant might be willing to lower your fees if you have been a long time customer.