Category Archives: Accounting tips

Accounting advice from EJK Accounting & Tax

04.01 2021

New Exclusion of Unemployment Compensation

On March 11, 2021, the American Rescue Plan announced that up to $10,200 of unemployment compensation paid in 2020 can be excluded from your 2020 tax return if your modified adjusted gross income (AGI) is less than $150,000. That means you won’t have to pay tax on unemployment compensation of up to that threshold.

Additionally, if you are married, the $10,200 exclusion can be applied separately for each spouse.  Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

The exclusion should be reported separately from your unemployment compensation. Visit the IRS website for more information.

 

Payroll and Payroll Taxes

All businesses should know about their obligations for filing with local, state, and federal tax systems. Businesses with employees are required to withhold payroll taxes from employees’ paychecks. Calculating payroll taxes can be complicated. Here are some basic payroll tax components that businesses and owners should know:

 

  • Federal Income Tax Withholding

Federal income tax withholding is withholding taxes from employee pay for federal income taxes owed by the employees. By completing Form W-4, the amount of federal income tax is determined. Employees can change this form anytime to update their information.

  • Social Security and Medicare

These are also called FICA taxes (Federal Insurance Contributions Act), which is shared between employers and employees. The employer deducts the employee’s share, which is one-half the total due, from employee wages/salaries, and the employer pays the other half.

  • Additional Medicare Tax

In 2013 as part of the Affordable Care Act, employers withhold 0.9% additional Medicare Tax on employees’ earnings that exceed a threshold. This medicare tax has no employer match.

  • Federal Unemployment (FUTA) Tax: 

FUTA is paid separately from the other taxes by the employer and isn’t withheld from employee pay.

  • Self-Employment Tax

This is basically social security and medicare taxes for self-employed individuals.

 

Washington State does not impose a personal State income tax on employees. However, they do require State Unemployment and Paid Family Medical Leave to be paid to the Employment Security Department, and disability insurance to be paid through the Department of Labor and Industry.

Here are what employers in Washington State need to know:

Register as Employer

As an employer in Washington, you need to register with the Secretary of the State, and then file a new business license application through the Washington State Department of Revenue (DOR). After submission of application, Washington Department of Labor and Industries (for worker’s compensation) and Washington Employment Security Department (for Unemployment insurance) will notify and provide you the information you need to run your payroll, such as tax rates.

Payroll Tax Filing Requirements

Completed by Employee 

Form W-4 (IRS) Employee information for the determination of federal income tax withholding
Form I-9 (USCIS) Proof of an employee’s eligibility to work in the United State
Completed by Employer

New Hire Report (form to DSHS or Online report to Secure Access WA) Report all newly and rehired employees within 20 days of hire
Electronic Federal Income Tax Payment System System allows employer to set up schedule payment for taxes through online
Form 941 (Quarterly ) to IRS Report Employee earnings, employer and employee Social Security and Medicare taxes, and Employee federal income taxes
Worker’s Compensation-L&I (Quarterly) Workers’ compensation insurance for medical costs and wage replacement if injured on the j
WA State Unemployment Tax Report Unemployment benefits for employees who lose their job
Paid Family and Medical Leave Paid leave for employee to care for themselves or their family.
Form 940 (Annually) Pays for administration of the federal unemployment insurance program
Form W-2 and W-3 (Annually) Security Administration need for recordkeeping. IRS needs for reconciliation with Forms 940 & 941

Quarterly report schedules:
1st Quarter – April 30
2nd Quarter – July 31
3rd Quarter – October 31
4th Quarter – January 31 the following year

03.13 2021

Why Bookkeeping is important?

Bookkeeping is important for helping maintain accurate financial records and the overall health of your business. Yet, many businesses fail to implement this integral process.

 

Whether you’re doing your own bookkeeping or having outsiders handle it for you, here are several benefits of prioritizing up-to date bookkeeping.


1. Budget
It‘s challenging for businesses to forecast for future expenses and income without any prior year data. Bookkeeping can help organize incomes and expenses properly as well as it makes it easier to review financial health and resources for future planning.

2. Tax preparation
Tax preparation is another complex task that businesses must get done every year. In most cases, its frustrating to find or gather all necessary support documents for filing a tax return. A great bookkeeping function can help businesses be more efficient for tax filing process by simply recording information and being ready for tax time.

3. Financial and Business analysis
By keeping accurate records, business owners get a snapshot of their company health and standing from financial statements. Financial statements, or reports, allow business owners to know exactly where outgoing money is being spent. They can also help find an opportunity or trend to grow their business.

4. Organization
Achieving financial organization is the most helpful and beneficial outcome of bookkeeping for business owners. Thanks to technological development, businesses can increase accessibility to data, conveniently and securely store and share financials and other data, and easily communicate with clients and accountants. A shift from traditional accounting to accounting software encourages businesses to organize and manage their financial information in an efficient manner.

5. Better cash flow
Bookkeeping improves cash flow. Implementing the routine recording of business transactions will allow business to track when their customer and vendor invoices are paid. For business owners, ensuring payment and being paid on time are essential for maintaining profitability. Avoiding outstanding balances in Accounts Payable and Accounts Receivable also helps keep financial reports clean.

Now you know why bookkeeping is important. There are more benefit businesses will gain from bookkeeping. In general, it can save businesses time, money, and stress! If businesses need to implement this integral process, consider hiring a professional or contact us. We are here to help train business owners to encourage business growth together.

12.29 2020

Form 1099-MISC

What is Form 1099-MISC?

Form 1099-MISC is to report payments made in course of a trade or business to non-employee. Although the 1099MISC is still in use, contractor payments made in 2020 and beyond will be reported on the new form 1099-NEC.

Form 1099-Misc and Instructions

 

 

 

  • Rents (Box 1)

Enter amounts of $600 or more for all types of rents

 

  • Other Income (Box 3)

Enter other income of $600 or more required to be reported on Form 1099-MISC that is not reportable in one of the other boxes on the for

 

  • Gross Proceeds Paid to an Attorney (Box 10)

Enter gross proceeds of $600 or more paid to an attorney in connection with legal services (regardless of whether the services are performed for the payer)

 

  • Fishing Boat Proceeds (Box 5)

Enter the individual’s share of all proceeds from the sale of a catch or the FMV of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew members. A fishing boat has normally fewer than 10 crew members if the average size of the operating crew was fewer than 10

 

  • Medical Payments (Box 6)

Enter payments of $600 or more made in the course of your trade or business to each physician or other vendor or provider of medical or health care services. Include payments made by medical and health care insurers under health, accident, and sickness insurance programs. If payment is made to a corporation, list the corporation as the recipient rather than the individual providing the services. Payments to persons providing health care services often include charges for injections, drugs, dentures, and similar items. In these cases, the entire payment is subject to information reporting. You are not required to report payments to pharmacies for prescription drugs

 

  • Direct Sales (Box 7)

Enter an “X” in the checkbox for sales by you of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale (by the buyer or any other person) anywhere other than in a permanent retail establishment. Do not enter a dollar amount in this box. The report you must give to the recipient for these direct sales need not be made on the official form. It may be in the form of a letter showing this information along with commissions, prizes, awards, etc.

 

  • Substitute Payments in lieu of dividends or interest (Box 8)

Enter aggregate payments of at least $10 of substitute payments received by a broker for a customer in lieu of dividends or tax-exempt interest as a result of a loan of a customer’s securities. Substitute payment means a payment in lieu of (a) a dividend, or (b) tax-exempt interest to the extent that interest (including original issue discount) has accrued while the securities were on loan. For this purpose, a customer includes an individual, trust, estate, partnership, association, company, or corporation.

 

  • Crop Insurance Proceeds (Box 9)

Enter crop insurance proceeds of $600 or more paid to farmers by insurance companies unless the farmer has informed the insurance company that expenses have been capitalized under section 278, 263A, or 447 of Instructions for Forms 1099-MISC and 1099-NEC.

 

  • Excess Golden Parachute (Box 13)

Enter any excess golden parachute payments. An excess parachute payment is the amount over the base amount (the average annual compensation for services includible in the individual’s gross income over the most recent 5 tax years). Find additional detail on page 11 of the Instructions for Forms 1099-MISC and 1099-NEC.

 

  • Federal tax withheld (Box 4)

Enter backup withholding. For example, persons who have not furnished their TINs to you are subject to withholding on payments required to be reported in box 1. For more information on backup withholding, including the rate, see Instructions for Forms 1099-MISC and 1099-NEC

 

Reminder – Form W-2s and 1099s Are Due in January

 

When you running a small business, it is important to know which form is used when the tax season come. The most common forms in business are Form W-2s and 1099s.

 

  

What is Form W-2?

Let’s start with a quick refresher: Form W-2 is the document that employers use to report each employee’s wages and earnings to the IRS as well as the employees.

How to file Form W-2?

Most businesses use accounting and payroll software, which will complete fillings of Form W-2 for employers, even automatically mailing the employee copies to them. You can file from e-file or paper and send it to IRS.

This is a Form W-2

 

Understanding payment categories for the Form 1099s

What is new for tax year 2020?

From 2020, the IRS has introduced the new Form 1099-NEC just for reporting independent contractor income. Because of this, you are no longer using Form 1099-MISC for reporting non-employee compensation. Let’s check out new arrangement and box numbers for reporting certain income.

 

What is Form 1099-NEC?

Form 1099- NEC is a new document specifically used to report the amounts for non-employee who worked for you during 2020 and earned more than $600. Non-employee who is not on payroll on a contract basis. If you do not have contractor’s information, ask them to fill out Form W-9 for the preparation of Form 1099-NEC.

 

New:  If you filed Form 1099-MISC with only Box 7 in the past, you should more likely to choose Box 1 (Nonemployee compensation) on the Form 1099-NEC.

 

What is Form 1099-MISC?

Form 1099-MISC is to report payments made in course of a trade or business to non-employee.

Lean more about Form 1099-Misc Boxes

 

Ready to file your 1099s, see What is a 1099 and do I need to file one?

Deadline: January 31, 2021

 

 

What if missing the filing deadline?

If you missed the deadline of January 31, 2021, you will need to pay a penalty depending on how late the filing is.

  • $50 if you file within 30 days
  • $100 if you file more than 30 days late, but before August 1
  • $260 if you file on or after August 1