Category: General Info

For Tax Year 2020 (i.e. for tax forms you’ll file in 2021) what used to be on one form, the Form 1099-MISC, is now split between a slimmed down 1099-MISC and a “new” 1099-NEC. I say “new” because it last existed in 1982, so it is new to most of us.

Before getting into what you must report on each, let us first go over what DOESN’T get reported on either of the two forms:

• Payments to a corporation (C or S) or an LLC treated as a corporation (there’s an important exception regarding lawyers);
• Payments for merchandise, telegrams, telephone, freight, storage, and similar items,
• Rents paid to an agent or property manager (the agent or manager must report on 1099-MISC payments to the property owner);
• Employee wages;
• Group term-life insurance costs;
• Military differential wage payments;
• Business travel allowances;
• Payments made through a third-party network transaction (credit cards and other payment processors);
• And a few specialty cases.

What is this Form 1099-NEC?

Way back in 2015, Congress passed an act they called the Protecting Americans from Tax Hikes (PATH) Act which resurrected the Form 1099-NEC for reporting Non-Employee Compensation (see, “NEC”). If you run a trade or business (nonprofits and some special cases are included as well), what you reported on Line 7 of the 1099-MISC last year now has its own full form. Your deadline for the 1099-NEC is February 1, 2021.

In general, you will report on Form 1099-NEC any amounts in excess of $600 for: services performed by someone not your employee, payments to an attorney, or (yes, I’m serious here) cash purchases for fish from a fishmonger.

The most common items to report on your Form 1099-NEC include:

• Service fees and payments to independent contractors (examples include consultants, plumbers, bookkeepers, graphic designers, etc. who are not your employees);
• Fee-splitting or referral fees;
• Non-employee commissions;
• Payments to entertainers;
• Exchanges of services (yes, “barter” arrangements for services are captured here).

A very special case is that Attorney’s Fees paid in cash over $600 are reportable on your 1099-NEC even if paid to a corporate entity.

What about the old 1099-MISC?

Now, your old friend the 1099-MISC is still around with a fresh new slimmed-down look. You will need to file that by March 1, 2021, if you are filing on paper or March 31, 2021, if filing electronically.

The most common items you will report on your Form 1099-MISC include:

• Royalty payment in excess of $10;
• Rents paid to a property owner;
• Prizes and awards;
• Amounts of federal income tax under backup withholding rules (even if the person in question is not an employee);
• And some special cases, including deceased employee wages, payments made on behalf of another person, state or local sales taxes imposed on the seller of services but paid by you, fishing boat proceeds, payments in lieu of dividends or interest, crop insurance proceeds, and nonqualified deferred compensation.
• There is a “check the box” requirement if you made sales of $5,000 or more to a person on a buy-sell/deposit-commission/or other commission basis anywhere outside an established store (network marketers: take note).

And of course, payments to an attorney make an appearance for special treatment here: gross proceeds in excess of $600; that are paid in connection with legal services but not FOR the attorney’s services (for example an amount paid to a law firm as part of a settlement agreement); and are otherwise not reportable on the 1099 NEC are reportable on the 1099-MISC.

Another special case are payments of $600 or more to a physician or other provider of medical/healthcare services in the course of your trade or business, including corporations. But note the key words and ask yourself: Was this “in the course of my business” and not incidental?

Some questions to ask when determining if you need to file either of the 1099s:

First, ask yourself:  Is this payment to a living employee? If yes, then more likely than not, you’ll not report it on these forms. If you work through the W-2s you’ve filed and find there’s some payment to an individual that doesn’t belong there, then you might need to revisit the 1099s.

Second:  Did you pay by credit card? Then you can move on.

Third:  Was this payment in the course of operation of my trade or business? Personal payments are not reported here.

Fourth:  Did you pay a lot of cash out in any way related to purchasing fish or hiring attorneys?

Fifth:  Anything else a bit weird?

Those five questions will likely sort out most of your concerns and lead you to the right form. But as always, consult your tax preparer or tax attorney for specific questions or issues.

2020 has given us a spectacular amount of unexpected events.

But there’s one thing that we knew would happen:

TAXES

Yes, we got a delayed filing deadline (yay!).

But we still had to file them (*sigh*).

And for many business owners, because you’re so busy running a business, the annual gathering of the paperwork/receipts/statements/information/all things financial ends up happening waaaaay too close to that filing deadline.

Which means stress, and hurrying, and a higher chance of deductions getting missed or mistakes being made.

So … how about we make 2021 a little different?

Join me on Facebook for a FREE Five-Day Prepping for Tax Prep Challenge!

We’ll meet for five days online, where we’ll guide you on how to locate the relevant information for the different sections of the Schedule C and Form 1065.

The best parts?

1.  No calculator or bookkeeping knowledge required.  We’ll be showing you where to find the information needed to file the taxes, NOT filling out any of the forms.

2. The challenge starts on January 11, 2021, so there’s no work to do until after the holidays!  (But definitely feel free to introduce yourself and check out the activity there before we get started.)

So, if you want a tax filing season that’s less stressful than usual, click on over to the Facebook group and join us!

 

It’s a big hassle to get a business bank account without a lot of fees and minimum balance.  I just want to keep things simple and run my business through my personal checking account. 

 

*cue a loooong sigh and the loosening of shoulders before typing*

 

The number one recommendation I make to all business owners, regardless of industry, age of business, income levels, profit margins, and legal structure is this:

 

Always.  Have.  A.  Dedicated.  Business.  Bank.  Account. 

 

It is impossible to stress this point enough.  Seriously, I’d be willing to send everyone a text every day reminding them to open a dedicated account for the business if I thought it would work.

 

Here are a few reasons why having a dedicated business bank account is crucial:

 

1. As I mentioned in an earlier post, mixing personal and business funds can create issues with bookkeeping and taxes. Having a separate bank account dedicated to your business helps prevent these issues from happening.
2. Certain business structures require you to have a separate business account. The Internal Revenue Service requires that LLCs, partnerships and corporations must be taxed separately from the business owners so the accounts must be kept separate as well.
3. Even if your business structure doesn’t require it, you’ll feel a stronger sense of professionalism if you maintain a separate bank account for your business.
4. You’ll be able to build credibility for your business, which will help other businesses take you more seriously. A check from “Business Name” is more professional than a check from “Jane Doe”.
5. Banks often require a business account to apply for financing or loans.

 

By the way, it’s not just the checking account that should be separate from your personal accounts.  Your business should have its own credit cards and direct payment processors (such as Stripe or PayPal).

 

While it may be more convenient to have only one bank account to track, your business needs … no, it deserves its own dedicated bank account to grow and thrive.

 

Questions or comments?  Let us know below!

This is not a comfortable post topic, because I’m writing about the worst-case scenarios for my own profession.

 

Most bookkeepers are honest, knowledgeable, and hard-working.  But as in any industry, there are always the few proverbial “bad apples” out there.

 

If you decide to work with a bookkeeper, whether you hire an employee for bookkeeping or work with an outsourced bookkeeping firm, here are two statements that serve as glaring warning signs:

 

“I’ll need your login and passwords for the financial accounts.”

 

You should NEVER (and yes, that word requires all caps in bold and italics) share your personal access information for any financial or business accounts with anyone, including a bookkeeper.

 

You can authorize a separate user access for the bank accounts if the bookkeeper is responsible for paying bills.  If more than one person uses the same login and password, it will be difficult to determine responsibility if there’s any suspicious activity during a login session.

 

If the bookkeeper’s duties do not require access to business funds, then don’t provide it.  Instead, you can authorize the bank to set up a read-only access for the bookkeeper.  Read-only access allows the bookkeeper to view the online information and run specific reports without allowing access to the funds.

 

“You don’t need to access the accounting software – I’ll send you what you need when you ask for it.”

 

This is YOUR business, and you have a right to the financial information at any time.

 

You can avoid this problem by purchasing the accounting software or subscription and designating yourself as the master administrator, then creating a separate user account for the bookkeeper.  If you hire with an outsourced firm, you can provide the firm with an “Accountant Access” login.

 

However, if the outsourced firm pays for and manages the accounting software or subscription, you should require the firm to provide you with a full-access user account.

 

In short, prospective bookkeepers who utter either of these two statements should be avoided.  Run, don’t walk, away!

 

Questions or comments?  Let us know!

We have some very exciting news:  Sunstone Bookkeeping now sells PDFs of business finance forms!

 

We know that it can be stressful for a business owner to know how to start to get the finances organized.  That’s why we offer business forms to take small steps to getting a handle on how the money flows in and out of company.  We currently offer two sets of forms:

 

• Daily Sales Forms
• Daily Sales Forms WITH TIPS

 

Both sets include a Daily Sales Receipt, Drawer Expense Form, and Deposit Record.  The Daily Sales Forms WITH TIPS set includes a section to record the tips from customers each day so you know how much you owe your employees.

 

Let us know what you think and if you have any questions!

 

One of the founders of Sunstone Bookkeeping spent over two decades negotiating debt restructurings for medium-and large-sized companies.  Over time, it became clear that regardless of industry or location, the same factors tended to lead to the companies’ financial woes.

1. The company ownership had incurred debt that it didn’t need for a venture that detracted from the core business, and
2. The company ownership had depleted cash reserves on extravagances (the second corporate jet or vanity offices, for example).

Then, when the company faced a crisis, it was too vulnerable as a result of the poor financial decisions made by company ownership, and they had to seek outside help to avoid bankruptcy.

How does this relate to you and your family?  Think of your life as your “core business”.  Without a clear vision on what is important to your life, these same two factors can lead to your own financial woes:

1. Going into unnecessary debt by spending on things that detract from your life’s vision, and
2. Depleting your cash reserves on extravagances (expensive cars or lavish vacations, for example).

So how can you avoid these problems?  Take some time to create a clear vision for your core business, then create a plan to use your finances to bring that vision into reality.  Focusing on that vision will help you to avoid spending on things that don’t meet your true needs and desires.  And yes, it’s important to include little splurges in your plans – as long as you keep your focus on your vision.

Want to learn more about how we can guide you in creating the best vision and plans for your “core business”?  Contact us today!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“How do I keep from being hacked?!”

OK, as much as I am in huge favor of cloud-based bookkeeping and storage, nothing is perfect.  If you process financial transactions and send documents and data via the internet, there is always the risk of theft and ransomware and other cyber-badness.  (Hackers gonna hack, y’all.)

There are certainly steps to take to keep your data as secure as possible. Please, PLEASE, establish business practices that include protocols to change passwords regularly, install encryption software, not open attachments in emails from people you don’t know, and learn how to recognize a phishing email so you don’t give any sensitive information to a hacker.

Even if you take the right steps, though, sometimes those hackers will still get through and create massive problems.  Those problems include losing all of your business data, having your business data held hostage by hackers until you pay a ransom, or even having your business data (including your client’s data) sold on the dark web.

That’s it’s so important to have cyber liability coverage in the digital age.  You have insurance to handle problems with your business assets (buildings, equipment, inventory), and your digital information needs protection as well.

As every business’s needs are unique, and I am not an insurance broker, I will not make any recommendations on what kind of or how much cyber liability coverage you would need.  I will, however, encourage you to get in touch with an insurance expert to find out what your business’s vulnerabilities and options are.  Better to be safe than sorry.

 

 

We recently announced a new service offering at Sunstone Bookkeeping:  financial coaching.  But most folks are probably wondering what it’s about?  This week, we’ll go over what it does and doesn’t involve.

• It’s NOT a “quick fix”. Financial coaching isn’t a way to improve your financial life in an hour, a day, or even a week.

• • It IS a 90-day program to help you learn about your own financial history and make a plan for your financial future that works best for you and your family.
• It’s NOT a debt consolidation program. Financial coaching doesn’t involve contacting your credit card companies to negotiate your balances to lower payments.  In fact, it doesn’t involve contacting any finance professionals on your behalf; we don’t even need to know what banks you use if that’s your preference.
• • It IS a program that shows you how to discover why you got into the debt in the first place, and how you can chart a course out of debt and into a healthier relationship with your finances.

• It’s NOT a financial investment program. We are not licensed financial advisors, nor do we sell or recommend any financial products.

• • It IS a program to teach you steps to create financial success, so you have more options for investments and financial plans, if you choose to pursue them.

• It’s NOT only about your finances, contrary to the name.

• • It IS about how your finances fit into your life holistically, and how to use your finances to allow you to create your ideal life, present and future.
• It’s NOT a set of instructions to blindly follow to the letter.

• • It IS a program where you work with a financial coach who will guide you through the process of adjusting your financial life. While your financial coach will be there for regular weekly calls and email assistance during the 90 days to help you navigate the process, YOU will be making the decisions … because this program is about YOU.

Financial coaching is a guided program designed to help you:

• Form a vision for your life based on your dreams and values for you and your family
• Determine your current financial reality
• Formulate a plan to guide you from your current financial reality towards your vision
• Create a legacy of success for your financial future

So, now that you know what financial coaching is and isn’t, why don’t you get in touch with us to find out even more?

Sunstone Bookkeeping LLC is thrilled to announce a new service:  Financial Coaching.

 

 

• Do you look at your finances and wonder, “How did I get to this point? I should have more!”
• Do you feel overwhelmed by your financial past and can’t picture a stable financial future?
• Do you want to have more control and less anxiety over the money in your life?

 

If you answered, “Yes!” to any of these questions, then we’d love to work with you!

 

We’ll be providing details via the website on this exciting new service shortly, but feel free to contact us if you have questions or you’d like to more information.

I am inundated with all of these papers – receipts, statements, notes, forms, invoices, bills.  ARGH!  Do I really need keep all of them?!

 

Variety/sketch comedy shows were popular when I was growing up in the 1970s (uh oh, just admitted my age!).  One sketch I clearly remember was the harried husband constantly getting interrupted when trying to complete his tax form, surrounded by piles of documents, receipts and forms.  The audience would laugh as he frantically searched for just the right piece of paper to be able to justify a deduction while his wife would pepper him with random questions, hammer a nail into the wall to hang a picture, or noisily eat a bag of potato chips.

 

Of course, the audience laughed:  It was hilarious!  Mainly because it’s true.  Particularly the part about all the financial papers piled up on whichever surfaces are nearby.

 

But those piles of paper are the proof of your business’s financial income and expenses and are important for tax filing and business reporting.  Believe it or not, as a bookkeeper, I’m actually happier when I have a pile of papers to sift through than when I don’t.  These papers are the essential elements of your business finances, so it’s important to hold to on every paper that has information on a financial transaction so there’s a record on hand in case you need evidence for the expense or revenue.

 

Does that mean we’re doomed to be constantly surrounded by piles of papers?  Thankfully, no.  You can scan them and store them electronically.  Even better, most accounting software applications have an attachment function so you can save a copy of the file directly to the transaction for easy reference if needed.  You can even use your phone to quickly take a photo of a receipt, and if you’re using a cloud file storage application, you can put the photo in the right folder in a matter of seconds.

 

So if you find yourself with a shoe box, or a packing box, or even a steamer trunk full of receipts and records, just remember that overflowing box allows your bookkeeper do the job of managing your finance transactions to help you run your business efficiently.  It may be slightly chaotic (and potentially hilarious), but it’s better than an empty box!