1099 Season

It’s that time of year again, when questions about 1099’s fly through the air like sparks before an electrical storm. Who sends them? Who receives them? Why? When? How? Here’s a few basics, just to get started with, dealing ONLY with the 1099-MISC:

1099’s are issued by your business to anyone who provides services to you for $600 or more during a calendar year. Unless the provider of services is incorporated. Then you can skip the 1099.

How do you know if they’re incorporated? Prior to paying anyone for services, you should hand them a W-9, or mail it, or email it. The provider of services completes the W-9, and on it they can indicate if they’re a corporation and therefore not subject to receiving a 1099. The W-9 also gives you the all-important tax ID number, without which you cannot file a 1099. This is why we ask for a completed W-9 prior to payment, and, hopefully, prior to receiving services, to avoid the sort of skirmishes wherein one party asks for the information in order to comply with the IRS regulations and the second party refuses to provide it, and they’ve already received their payment. (See below for what to do in that case.)

There are exceptions, of course, this being a federal tax law sort of thing. Lawyers are to receive a 1099 if you pay them anything at all. You can often find their tax ID on their letterhead, in which case, no need for a W-9.

What if materials are included in what you paid to the service provider? You can break those out, by completing the 1099 for only what the service was. However, you’re not required to – if you have all costs posted to the same account in your accounting software and aren’t sure which are materials and which are services, send a 1099 for the entire amount. It’s the provider’s responsibility to deal with that on their own tax return, and it’s rather easily done.

Cash or accrual? CASH. You 1099 someone for the amount you physically paid them during the year. If they billed you another 100 grand but at year end it’s still on your books as a payable, it doesn’t count. That’ll be for next year.

Rents? If you’re paying rents, you’re also required to include rents paid on a 1099. There’s a separate block for rent paid.

When: 1099’s are due out by January 31^st, so the sooner the better. The filing for the feds comes later, but you must have the 1099’s out to the recipients by January 31^st.

How: There are so many options for how that I’m not sure we can cover them all at once. You can print them from your accounting software. You can order free forms from the IRS, and print them on those, though if you haven’t ordered your free forms by now, you won’t have time. You can buy forms at the office supply store. You can file online with various providers who will mail the forms for you and efile with the feds. This is my favorite, especially if a company only has 1 or 2 1099’s. I use filetaxes.com, but there are other options.

Red forms or not? IRS regs require that the 1099 and the 1096, which is the summary that goes to the IRS with their copies, be printed on their red forms. This is why the forms purchased at the office supply store come with red copies. However, I know people who’ve been printing them on plain paper with black ink straight out of their software for years, with no problems and no complaints from the IRS. Yet another reason why online filing is so great – there’s no need to worry about it.

Why? It’s the IRS. You want I should have an answer for what they do? But the short version is, the IRS wants to be able to check to see if someone’s reported all their income, and one way they do that is by checking 1099’s against the person’s tax return. So in completing 1099’s, you’re helping the government collect on taxes! That should give you a warm fuzzy feeling about doing it. There IS a penalty for not doing them by the way, should they happen to find out you didn’t do it.

Another warning on 1099’s: This year I’ve seen an increase in the number of business owners who refer to service providers as “1099 employees.” There is no such thing. You either have employees, or you have subcontractors. Do not confuse the two. Just saying someone’s a subcontractor so you don’t have to pay payroll taxes doesn’t work either. There are guidelines to follow, and if the IRS finds out you’ve misclassified an employee as a subcontractor, the penalties will be steep – not to mention the back payroll taxes. Not to mention your state – if they catch wind of it, back payroll taxes and penalties will mount up quickly. All it takes is one dissatisfied “1099 employee” to bring up the issue, so please don’t do it.

There’s so much more to 1099’s than I can cover here, so if you have questions about 1099’s, ask one of us who knows. We’re awash in 1099’s and W-2’s right now, and we’re not unfamiliar with the process!

New Mileage Rates, and More!

In keeping with the IRS mission to confuse as many taxpayers as possible at any given time (sure, they don't tell you this is what it is, but we know the truth), here's a few changes for 2010 you may want to know about:

* Mileage rates. Effective January 1, 2010, the standard mileage rate for business driving is 50 cents a mile, down from the 2009 rate of 55 cents a mile. Taxpayers who drive for medical services or in a job-related move may use a mileage rate of 16.5 cents a mile. That's down from the 2009 rate of 24 cents a mile. The mileage rate for charitable driving is not adjusted annually and remains at 14 cents a mile.

* Health savings accounts. The 2010 limit for deductible contributions to a health savings account (HSA) is set at $3,050 for individuals and $6,150 for family coverage. Individuals who are 55 or older may contribute an additional $1,000.

* The interest rates on tax overpayments and underpayments for the first quarter of 2010 remain the same as they were for the fourth quarter of 2009. The rates are 4% for overpayments and underpayments by individuals. Corporations will pay 4% on underpayments and receive 3% on overpayments. On large corporate underpayments, the interest rate is 6%; the rate paid on large corporate overpayments is 1.5%.

More updates will follow. It's an always changing world out there.

Happy 2010!

What Happens When You’re Gone?

Succession planning has typically been the bastion of the big guys, the corporations who ensure that key positions are filled in so the company can keep moving forward, no matter what happens.

That’s all good and well for them, but for those of us who don’t have the wherewithal to have legions of replacements standing at the ready, what do we do? Obviously we intend to have nothing happen to us, but get this: things happen. Unplanned, unprovoked, unwarranted, and unwanted things. You could be run over by a truck, just when you thought life was going along swimmingly well. You could be kidnapped and held for ransom by robber barons who care little what happens to your company in your absence. You could step into a shower one day, slip and hit your head, and be dead within the week. (This happened to someone I knew. Not something one can plan for, is it?)

I don’t mean to be morbid, but here’s the thing: things can happen that we never expected. It’s what makes life so interesting, the possibility that every day wondrous things can happen, but so can horrible things, things that we never anticipated. These things can remove us permanently from our business, or they can remove us only temporarily, or they can fall into the great unknown category: will we return to work? Only time will tell.

And what happens to your business then? Perhaps you don’t care. After all, you won’t be around, so what does it matter? How do your customers and clients feel about that? One of the reasons people go to big companies is to ensure they’re taken care of, even if something should happen to the person handling their account. How can you give your customers the same level of comfort?

If you work with others in your business, either partners or employees, is there enough information so the loss of one of you doesn’t mean the customers will be neglected? Are procedures in writing and does everyone know where they are? If it’s just you running your business, what will happen if you disappear one day?

It’s one thing to plan what will happen to your business if something happens to you. If you’re a sole prop, you are your business, so the business will come to an end. But what about your customers and clients? How will they feel about it? Oh sure, they’ll be sad, of course, but what about THEM? They’re going to wonder what’s going to happen to them, which is a natural response. And what will happen to them? These are the things you should be thinking about now, and the beginning of a new year is a good time to do it.

Some of my colleagues who have their own businesses have reciprocal arrangements. If something happens to me, my husband knows who to contact to take over my client work. I have information on all my clients in a file, or will, as soon as I finish updating it. Here’s the thing: this is not a one-time all-done-never-have-to-think-about-it-again sort of thing. It’s an ongoing process, keeping in mind how you’d like your vendors to take care of you, should anything happen to THEM. Do no less for your own customers, and you’ll rest a lot easier in that hospital bed, which will mean you’ll be able to return to work faster and get back to living your life. If you’ve planned to take care of your customers when you can’t do it yourself, they’ll still be there, waiting for you.

QuickBooks 2010 has been released!

QuickBooks 2010 is on its way, and previews promise some exciting new changes. I'm looking forward to receiving my copy any day now, and the anticipation is overwhelming! (Some of us are more easily amused than others.)

New Features in 2010
One that I'm looking forward to is the Client Data Review, which will allow me to easily identify errors and make mass corrections. This is only in the Accountant's version, but it will also allow me to fix and send back files from QB Pro and Premier 2009 to clients easily. This is huge, since I'll be able to fix things from 2009 and send it back to you using the Accountant's Copy. No upgrading necessary from 2009!

A totally new feature in 2010 for Pro, Premier, and Enterprise is the Document Management system which will store documents in the Internet cloud. Know how you collect all those pesky receipts and documents that have to be filed? With 2010, we can scan the documents directly into QB, and attach them to transactions, accounts, vendors, employees, and customers. This keeps your documents as well as your QB file backed up, and will simplify collecting and matching documents to specific transactions.

A TWAIN compliant scanner is required for this, so if you're thinking of getting a new scanner, you'll want to make sure it's TWAIN.

Also in Pro, Premier, and Enterprise will be the ability to copy and paste lists from Excel directly into QB lists. And instead of editing each list entry individually, we'll be able to copy the changes to many.

Do You Need to Upgrade?

I'm often asked if upgrading is necessary, and the answer is certainly not. Depending on the features you use, upgrading is entirely optional. QuickBooks does support only the previous three versions, so this year 2006 was sunsetted, which means payroll subscriptions no longer work, as well as online banking. If, however, you're not using those and want to continue with an older version, go right ahead. I would advise that you make regular backups after every use and keep them in a secure location because if there is a problem, there's nothing Intuit support can do to help you. Next year 2007 will be sunsetted, so if you have a payroll subscription or use online banking, you'll want to upgrade.

However, there are always good deals to be found on the current software, especially if you don't have to run out and buy it on a moment's notice. If you'd like to be notified of these sales, let me know and I'll add you to my email list that I send out when I become aware of them. Sometimes they only last a day.

Communicating by Technology

This is not a post about accounting, or bookkeeping, or even QuickBooks, one of my most favorite subjects of all (she said facetiously). It’s about communication. It doesn’t matter what line of work we’re in, we need to communicate effectively. As I worked through my day today I witnessed several instances of miscommunication, all from the comfort of my desk in my office in my home, where there are no people, except for my husband who occasionally wanders in, and then out again. We don’t even need to be around people to have communication problems, thanks to the telephone, email, Facebook, Twitter, instant messaging, etc. I chatted with four people online this afternoon, and once found myself typing a response to one person in the message box of another.

This is not what I mean when I say we have problems communicating. Sure, it confuses the person receiving the message, but that’s the least of my worries. (The largest of my worries is the way my dogs insist on sleeping at my feet when there’s only room for one of them, but that’s another story.)

When we talk to people we don’t know, and it happens far more than we might think, we’re apt to forget that they aren’t operating with the same sets of assumptions that we are. They don’t even know us, and while we may be funny and entertaining to our friends, people who don’t know us may not react the same way. It’s easy to think we can write to people who don’t know us well as if we were writing to anyone else, but it’s more productive to realize that first we should find out their method of communication, and respond to them appropriately.

Are they formal in email, casual in conversation? Do they hate email so much that they’d rather talk in person? (Yes, there are people like that. I am not one of them.) Do they fear the telephone so much that they’d be happier emailing or IM’ing? When they do email, do they like to stick to just the facts, and leave out the extraneous chit chat? Should you forget about the technology altogether and meet them for coffee? Obviously, this only works if they’re close by. Otherwise, you’re going to have to make do.

Do the words you use mean the same thing to them that they mean to you? Words are more than a few letters strung together. The emotions they evoke are unpredictable, and the intonation when they’re spoken says as much as the words themselves. In email we don’t have intonation or facial expression or anything of that sort, and no, emoticons aren’t quite the same thing. In fact, emoticons might annoy your reader, if they’re of the anti-emoticon camp. (The Anti-Emoticons have a strong following, so be careful.)

We have only the words and the sentence structure to guide us, so it’s helpful if we use them judiciously. Short sentences are good, politeness is good, and remembering that your contact may not have any idea what you’re talking about is also good.

Providing enough information is also helpful. Today I searched extravagantly for a phone number because the sender hadn’t included one on his original email. “Call me,” doesn’t have much relevance if I can’t find the phone number.

I’m guilty, in my emails, of being overly familiar. I’m likely to start off with, “Hey, how’s it going?” I’m likely to make jokes without even knowing if the receiver likes jokes. Maybe they don’t want to hear my sad excuses for jokes. Of course, it’s awkward to send out a questionnaire on communication styles before you begin communicating with someone, so all we can really do is remember that people communicate differently, not only by different methods, but with different preconceptions and with a wide variety of styles. Make it easier for them. Pay attention to what they’re most comfortable with, and adapt your style so you’re getting your message across.

Time Travel in QuickBooks

Here’s some news: QuickBooks does not have a time travel feature. Several questions this week have illustrated the need to point this out. While it’s easy enough to fix most anything that is entered incorrectly in QB, it’s still important to be careful when entering transactions. One end user wanted to go back a week in time, exclaiming, “If I can just erase the past week, before it all went bad, I could start over from there.” Another asked, “Can I go back two hours? I deleted transactions that I want back.”

Other than restoring from a backup, there’s no way to go back in time. This has been true for as long as I can remember, and if it changes I hope someone lets me know. In the meantime, we’re stuck with the current reality, which is that once transactions are entered, they’re there, and once transactions are deleted, they’re deleted, which harkens back to several other questions this week along the lines of, “I deleted some transactions by mistake, can I undelete them?”

It would be so convenient if life came with an undelete button, like Microsoft Word, but in accounting software, undo is not really an option. If a transaction is deleted and you want it back, you must go back in and recreate it. I could make an analogy to life, but that would mean straying from the topic of this post, which has little to do with life philosophy and more to do with QuickBooks.

So what do we do, if we can’t go back in time, and we can’t undo?

We back up frequently, just in case. There are ways to set your software to automatically back up, and systems to ensure you always have a current backup. It’s one of those things that people tend not to think about, until they’re wishing they had a backup. It may not make it possible to travel back in time, but it does make it possible to erase what happened in that period of time and start over again. Of course, like life, then you have to hurry to catch up, but that’s okay, it keeps us on our toes.

Don’t delete transactions until you know why you’re deleting them. This isn’t nearly as obvious as you might think, based on the questions I’ve seen from QB users. If you’re not sure, void the transactions instead. Then you have a better record of what was there, especially if you make notes in the transaction about why it was voided. I recommend my clients always void instead of delete. Deletion is so . . . permanent.
Close your period when you’re done with it so nothing can be done to change it without a password. It’s so easy to set that up, but even easier to change a transaction in a prior period that can cause problems.

Check your audit trail. Under Reports, Accountant and Taxes, we find the Audit Trail. This is to find the transactions that have been deleted, changed, added, etc. It’s there for a reason. If you have multiple users, it will tell you who did what. Don’t let everyone use Admin – no way of telling who did what then.

Taking a few simple steps can make your usage of QB safer, keep your data intact, and keep you from wondering what to do next, at least regarding QuickBooks. It’s a start.

Do You Keep Copies of Your Payroll Forms?

This week I have seen more than a few QuickBooks questions about how to “retrieve” payroll forms from last year and the prior year, as in, “How do I retrieve my 2007 W-2’s?” and “Where can I get a copy of a 941 from last year?”

The simple answer is this: Wherever you keep your copies, that’s where you get one. Don’t count on your software to do it for you.

Keep copies of all payroll reports. QuickBooks updates its forms each year, so you can’t go back in and print something from last year, at least not correctly. It’s the responsibility of the business to keep copies of forms for their files. This can be as simple as making a PDF of the forms and filing them on your computer (making sure to keep backups of course) if you’re a paperless office, but there’s really no getting around the necessity of keeping copies for yourself.

It is not uncommon for issues to arise with past filings. I’ve had the feds come back and ask for copies of previous year’s W-2’s and 941’s, claiming they weren’t received (which is another issue entirely), and it’s my responsibility to keep those forms on hand when that happens. Don’t assume that once you’ve sent a form, it’s done and over with. This is the federal government we’re talking about here.

Also, the IRS site is pretty easy to navigate. It’s at www.irs.gov, and they have a search engine. When looking for forms and information, sometimes the fastest and most reliable method is to go there and search for what you want.