<p>As a small business owner, you’ve got a lot of responsibilities. You’re busy running your business, ensuring happy customers, and managing employees. The more you expand, the more you’ll have to do, primarily if you use contractors. We break down the complexities of tax forms, IRS forms and information returns, specifically the 1099-MISC and the 1099-NEC, and all filing requirements for small business owners to issue to independent contractors and freelancers.</p>



<p>Unlike salaried W-2 employees, contractors require a <a class="link" href="https://1800accountant.com/blog/how-to-file-taxes-independent-contractor">1099 form to do their taxes</a>, which you must provide. It might seem intimidating if you’ve never issued a 1099, but there’s no need to worry. We will explain what 1099s are and what you should do with them so you and your contractors are covered!</p>



<h2 class="wp-block-heading">What is a 1099 form?</h2>



<p>A 1099 form is provided to your non-W-2 employees.</p>



<h3 class="wp-block-heading">What is the difference between 1099-MISC and 1099-NEC?</h3>



<p>1099-MISC and 1099-NEC are the most common types of 1099s and the forms you will likely use for your non-salaried workers. 1099-MISC is for miscellaneous income payments, while 1099-NEC would be utilized for non-employee compensation.&nbsp;</p>



<h2 class="wp-block-heading">How to Generate a 1099 Form as a Small Business</h2>



<p>As a small business owner, there are several ways to generate the respective 1099 form that you need to issue to contractors who work for your company. As you can see below, there are more traditional paper approaches, online options, and working in-person or online with a virtual tax accountant.&nbsp;</p>



<ul>
<li>PDF 1099 downloads</li>



<li>Paper 1099s</li>



<li>Payroll software</li>



<li>For 1099 tools</li>



<li>Accounting software</li>



<li>Accountants</li>
</ul>



<h2 class="wp-block-heading">Steps for Issuing a Form 1099</h2>



<p>Now that we have detailed what a 1099 form is, how to generate it, the difference between a 1099-MISC and 1099-NEC, we break down the steps for small business owners to issue a 1099 form for their contractor employees.&nbsp;</p>



<h3 class="wp-block-heading">Collect personal information from vendors/contractors</h3>



<p>First, small business owners must gather contractors' information to issue the form 1099, which includes the following.&nbsp;</p>



<ul>
<li>Home address</li>



<li>Legal name</li>



<li>Tax ID number</li>



<li>Reconciled income payments</li>
</ul>



<h3 class="wp-block-heading">Complete the Copy A form for each vendor/contractor and file it with IRS</h3>



<p>Next, small business owners must complete the Copy A of Form 1099-NEC, which must&nbsp; be submitted to the IRS by January 31, regardless of whether you file electronically or by mail.&nbsp;</p>



<p>When you file a physical Form 1099-NEC, you must obtain a physical Form 1099-NEC, fill out Copy A, and mail it to the IRS for it to be filed successfully.&nbsp;</p>



<h3 class="wp-block-heading">Provide Copy B to vendor/contractor</h3>



<p>After completing Copy A form and filing it with the IRS, the next step is to send Copy B to your independent contractors by January 31. To do this, you can download and print Copy B from the IRS website and send it to each of your independent contractors.&nbsp;</p>



<h3 class="wp-block-heading">Save a Copy for your Records</h3>



<p>Finally, ensure compliance and organization for your small business and your financial records by saving a copy of all of the 1099 forms.</p>



<h2 class="wp-block-heading">Who should receive a 1099-MISC or a 1099-NEC Form?</h2>



<p>The IRS has created several versions of the 1099 form. While you will likely use a 1099-MISC or a 1099-NEC, your workers may require a different variant. Some of the other 1099 forms include the following:&nbsp;</p>



<ul>
<li>1099-INT for reporting income from interest</li>



<li>1099-DIV for reporting cash paid for dividends</li>



<li>1099-R for worker pensions and payouts</li>



<li>1099-S for reporting payments for real estate transactions</li>



<li>1099-G for reporting tax refunds and unemployment benefits</li>
</ul>



<h2 class="wp-block-heading">Steps needed to take before issuing 1099’s</h2>



<p>To generate a 1099, you will need your contractor’s details. These details include:&nbsp;</p>



<ul>
<li>Home address</li>



<li>Taxpayer identification number</li>



<li>Reconciled income payments</li>
</ul>



<p>You can find this information via a contractor’s W-9, which you should request from every non-salaried worker.&nbsp;</p>



<p>With the vital information the W-9 captures, you can provide a 1099 to your contractor. We recommend issuing a W-9 to all contractors as they begin providing their services to your small business. That way, you will always have their information on file.&nbsp;</p>



<h2 class="wp-block-heading">What’s the Deadline to Issue 1099 Forms as a Small Business?</h2>



<p>The deadline for filing 1099 forms for your contractors is January 31, 2023.&nbsp;</p>



<h2 class="wp-block-heading">1099 FAQs</h2>



<h3 class="wp-block-heading">What’s the minimum amount of money required to issue a 1099? Who qualifies for a 1099?</h3>



<p>If you’ve paid a contractor over $600 within a calendar year, you should issue a 1099 form to them. If you paid them less than $600, you do not need to provide a 1099 form to that worker.</p>



<h3 class="wp-block-heading">Is a 1099 required for someone you paid in cash?</h3>



<p>Many small business 1099 requirements exist, but payment type does not matter. If your 1099 worker was paid $600 or more within a calendar year, they should receive a 1099 form. Whether the payments were made in cash, check, or via credit card, payment does not matter.</p>



<h3 class="wp-block-heading">What’s the penalty for not issuing a 1099?</h3>



<p>The penalty for failing to issue a 1099 is $250 per violation.</p>



<h3 class="wp-block-heading">Do I have to issue a 1099?</h3>



<p>You must issue them if your contract workers qualify for a 1099 form. The deadline in 2023 is January 31, and you will be penalized $250 per worker.&nbsp;</p>



<h3 class="wp-block-heading">When do I have to issue a 1099 form?</h3>



<p>The deadline for issuing 1099 forms is January 31st of each year. A copy of the form must also be filed with the IRS by that date. If you fail to issue a required 1099, you may be subject to penalties from the IRS.</p>



<h3 class="wp-block-heading">What’s the difference between 1099-NEC and 1099-MISC?</h3>



<p>The IRS uses the 1099-MISC and 1099-NEC to report non-employee taxable payments. The 1099-MISC is used to report payments not subject to self-employment tax. Form 1099-NEC is for reporting non-employee compensation, usually subject to self-employment tax.</p>



<h3 class="wp-block-heading">Does an employer have to provide 1099?</h3>



<p>The 1099 form reports non-employment income to the Internal Revenue Service (IRS). Businesses must issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year.</p>



<h3 class="wp-block-heading">What’s the minimum amount of money required to issue a 1099? Who qualifies for a 1099?</h3>



<p>Businesses must issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year.</p>



<h3 class="wp-block-heading">When do I have to issue a 1099 form?</h3>



<p>Beginning in tax year 2020, businesses will complete a 1099-NEC, or Nonemployee Compensation, to report nonemployee payments of $600 or more. The 1099-NEC form has replaced what used to be recorded on Form 1099-MISC, Box 7.</p>



<p>You must complete and send a 1099-NEC form to any independent contractors or businesses to whom you paid $600 or more in fees, commissions, prizes, awards, or other forms of compensation for services performed for your business.</p>



<h2 class="wp-block-heading">Work with accountants who specialize in 1099 forms fpr Small Businesses</h2>



<p>1-800Accountant offers a robust suite of financial services perfect for small businesses with 1099 employees. Our services include <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes and advisory</a>, <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation</a>, <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping</a>, and <a class="link" href="https://1800accountant.com/services/payroll">payroll</a>, which allows you to focus your time and energy on growing your business. At the same time, we handle your 1099s and the rest. We also regularly <a class="link" href="https://1800accountant.com/blog/bookkeeping-for-independent-contractors-6-tips-to-keep-in-mind">produce content</a> designed to <a class="link" href="https://1800accountant.com/blog/proscons-entity-formation-independent-contractors">help and guide</a> your 1099 workers. Our dedicated virtual accounting and tax specialists offer guidance on tax returns, tax due dates, federal income tax, and all tax filing requirements.</p>

<p>As a small business owner, you’ve got a lot of responsibilities. You’re busy running your business, ensuring happy customers, and managing employees. The more you expand, the more you’ll have to do, primarily if you use contractors. We break down the complexities of tax forms, IRS forms and information returns, specifically the 1099-MISC and the […]</p>

Smartphone displaying a guide on "how to issue a 1099 form" laid on top of a 1099 tax form on a wooden table.

How-to-Issue-1099-Form

How to Issue a 1099 Form as a Small Business

<p>It’s true what they say: everything is bigger in Texas. That also applies to your tax burden if you don’t understand how to navigate the Lone Star State’s unique tax laws and regulations. While Texas business taxes can seem daunting, having an expert tax professional in your corner can provide tips to survive the upcoming tax season.&nbsp;</p><p>If you own a Texas business or want to learn how to start a business in Texas, use this blog as your ultimate guide to small business taxes in Texas. We break down sales tax rates, tax deadlines, franchise tax, and other integral components of tax season that you need to know to file for your small business in Texas. Following this guide will ensure you’re on top of things to keep your business running smoothly and have everything you need to file correctly, on time, and comply.&nbsp;</p><h2 class="wp-block-heading">What to Know About Small Business Taxes in Texas</h2><p>Texas small business taxes differ from most states and impact various entities in various ways. Understanding the strengths and weaknesses of each will give you a better understanding of what you will be facing as you operate your small business in Texas. We’ll cover tax rate, income tax, deduction limit, thresholds, and more to help prepare your business for the upcoming tax season.&nbsp;&nbsp;&nbsp;</p><h2 class="wp-block-heading">Texas Franchise Tax</h2><p>Texas charges small business taxes as franchise taxes. This tax is unique because it differs from a corporate income tax. Small businesses below a certain amount of income pay no franchise taxes, which is $1,230,000 for 2022-2023.</p><h2 class="wp-block-heading">Franchise Tax Maximum&nbsp;</h2><p>Another unique aspect of the franchise tax rate is a maximum amount of 1% for all business entities in the state. The tax rate can decrease depending on the amount a small business earns.&nbsp;&nbsp;</p><h2 class="wp-block-heading">Texas Nexus</h2><p>Nexus is essential in determining if a small business in Texas must pay a franchise tax. Businesses have a <a class="link" href="https://www.investopedia.com/terms/s/salestax.asp">nexus</a> if there’s a physical presence within the state. The state of Texas imposes the nexus the earliest of:</p><ul><li>January 1, 2019, if the entity obtained a use tax permit before that date</li><li>The date the entity has a physical presence</li><li>The date the entity obtains a Texas tax permit if obtained on or after January 1, 2019</li><li>On the first day of the federal income tax accounting period, the taxable entity had gross receipts from business in Texas of $500,000 or more.</li></ul><p>If your small business has nexus in the state of Texas, you’ll need to file two reports:&nbsp;</p><ul><li>Franchise Tax Report: EZ Computation, Long Form, or No Tax Due form</li><li>Information Report: Ownership Information Report or Public Information Report</li></ul><p>Finally, business entities, owners, and shareholders won’t worry about Texas’s state income tax. Texas is one of seven states that doesn’t charge <a class="link" href="https://www.thebalance.com/state-income-tax-rates-3193320#:~:text=Overall%2C%20state%20tax%20rates%20range%20from%200%25%20to,same%20percentage%20regardless%20of%20how%20much%20they%20earn.">state income tax</a>.</p><h2 class="wp-block-heading">Texas Sales Tax</h2><p>There’s a 6.25% Texas state sales and use tax on all retail sales, leases, and rentals of most goods, as well as specific services that are taxable. Local jurisdictions can add up to a 2% sales and use tax for a maximum combined rate of 8.25%.<br /><br />If you run a Texas business, sell or lease tangible personal property, or sell taxable services, you must apply for a tax registration permit. Successful applicants receive their permits in 2-3 weeks. You may use it via <a class="link" href="https://security.app.cpa.state.tx.us/">Texas’s eSystem</a>.<br /><br />You must also collect and report your earnings, which are determined by the amount of taxes you paid in the preceding state fiscal year (Sept. 1 – Aug. 31). There are four tiers:&nbsp;</p><ul><li>Less than $10,000</li><li>$10,000 – $49,999</li><li>$50,000 – $499,999</li><li>$500,000 or more</li></ul><p>Use <a class="link" href="https://comptroller.texas.gov/taxes/sales/filing-requirements.php">this page</a> to find the reporting and payment methods to use.<br /><br />You will be notified by letter after your application for a sales tax permit has been approved whether you will file monthly or quarterly taxes. If a due date falls on a Saturday, Sunday, or legal holiday, the next working day is the due date.</p><h2 class="wp-block-heading">Texas Business Taxes</h2><p>From sales tax to payroll taxes, income tax, tax rates, deadlines, and more, businesses must understand what forms they are responsible for submitting, how they affect the business, and what deadlines are imperative to meeting. Below, you will find a breakdown of the different business taxes in Texas, including sales tax, payroll tax, C corp, S corp, LLC, partnership, and sole proprietorship.&nbsp;</p><h3 class="wp-block-heading">Texas Sales Tax</h3><p>Sales tax varies state by state, all within different parameters. Texas imposes a 6.25 percent state sales and use tax on all retail sales, leases, and rentals of taxable services and most goods. Local taxing jurisdictions can also impose up to 2 percent sales and use tax for a maximum combined rate of 8.25 percent.&nbsp;</p><h3 class="wp-block-heading">Texas Payroll Taxes</h3><p>Texas has no income tax, but there are other payroll taxes you are responsible for, such as the quarterly state unemployment insurance tax. Small businesses can transmit this reporting online.&nbsp;</p><h3 class="wp-block-heading">C Corp Taxes in Texas&nbsp;</h3><p>If your business operates as a <a class="link" href="https://1800accountant.com/blog/form-c-corp">C corp,</a> there are a few things to remember. C corps will pay the franchise tax, and their shareholders will also <a class="link" href="https://www.investopedia.com/terms/c/c-corporation.asp#:~:text=A%20C%20corporation%20%28or%20C-corp%29%20is%20a%20legal,corporations%2C%20are%20also%20subject%20to%20corporate%20income%20taxation.">pay federal taxes</a> on their individual income.</p><p>The EZ Computation Rate and No Tax Due Threshold rates apply to C corps and all business entities.&nbsp;</p><h3 class="wp-block-heading">S Corp Taxes in Texas</h3><p>If you want to know <a class="link" href="https://1800accountant.com/blog/7-steps-to-start-an-s-corp-in-texas">how to set up an S-Corp in Texas</a>, you should understand the taxes they must pay. In Texas,<a class="link" href="https://1800accountant.com/blog/business-entity-s-corp"> S corps</a> are subject to the franchise tax. An S corporation is a pass-through entity, meaning shareholders won’t pay franchise taxes individually, and they don’t pay state taxes for their share of the corporation’s income.</p><p>As long as the revenue from S corps remains within the No Tax Due threshold, an S corporation won’t pay taxes in Texas.</p><h3 class="wp-block-heading">LLC Taxes in Texas</h3><p>To know <a class="link" href="https://1800accountant.com/blog/start-llc-texas">how to make an LLC in Texas</a>, you must pay the necessary taxes. An <a class="link" href="https://1800accountant.com/blog/business-entity-llc" target="_self">LLC</a> in Texas must pay a franchise tax, even though LLCs are pass-through entities. Members and owners of LLCs won’t pay state income tax for their personal income.</p><p>If you operate a single-member LLC, you must also file and pay a franchise tax.</p><h3 class="wp-block-heading">Partnership Taxes in Texas</h3><p>If you operate your small business as a <a class="link" href="https://1800accountant.com/blog/business-entity-partnership">partnership</a> in Texas, the state requires you to pay a franchise tax. This includes partnerships that are limited partnerships or limited liability partnerships.&nbsp;</p><h3 class="wp-block-heading">Sole Proprietorship Taxes in Texas</h3><p>There’s no requirement for <a class="link" href="https://1800accountant.com/blog/business-entity-sole-proprietorship">sole proprietorships</a> to file or pay franchise tax in Texas. Instead, sole proprietors will pay their individual federal income tax.</p><p>The structure of partnerships and sole proprietorships may need clarification with taxes in Texas—businesses owned by individuals that direct business income to the same individuals won’t pay the franchise tax.&nbsp;</p><h2 class="wp-block-heading">Tax Rates, Deduction Limits, and Tax Thresholds in Texas</h2><p>Franchise tax rates, deduction limits, and tax thresholds vary by report year. Here is a breakdown for 2022 and 2023.&nbsp;</p><ul><li>No Tax Due Threshold - $1,230,000</li><li>Tax Rate - (retail or wholesale) 0.375%</li><li>Tax Rate - (other than retail or wholesale) 0.75%</li><li>Compensation Deduction Limit - $400,000</li></ul><h2 class="wp-block-heading">Tax Due Dates in Texas</h2><p>One of the most vital things business owners need to know to prepare for tax season is the relevant due dates for essential reports, especially the franchise reports shown below. The Annual Franchise Tax Report and Final Franchise Report are due May 15th. If May 15 falls on a weekend or holiday, the due date will be the next business day.</p><ul><li>Annual Franchise Tax Report - Final Franchise Tax Reports - May 15th</li></ul><h2 class="wp-block-heading">Work with Texas Tax Experts for Business Tax Solutions</h2><p>Texas small business taxes can be intimidating. It can also be challenging to hit tax deadlines and remain compliant, which is why so many small businesses in Texas work with 1-800Accountant, America’s leading virtual accounting firm.</p><p>An expert tax specialist can help small business owners navigate their unique challenges when filing taxes while providing insight into income tax, franchise tax, deadlines, and other frequently asked questions.&nbsp;Whether it’s <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation</a>, <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes</a>, or any of our professional business services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.</p>

It’s true what they say: everything is bigger in Texas. That also applies to your tax burden if you don’t understand how to navigate the Lone Star State’s unique tax laws and regulations. While Texas business taxes can seem daunting, having an expert tax professional in your corner can provide tips to survive the upcoming [&hellip;]

Banner over blurred street scene reading "navigating small business taxes in texas" with directional arrow symbol.

navigating-small-business-taxes-in-texas

Navigating Small Business Taxes in Texas

<p>Operating a small business often involves navigating a critical, yet time-consuming element – payroll, especially if you have employees who expect to receive their paychecks on time. Payroll essentially determines how you and your staff get paid. There are strategies available to improve running payroll, such as using payroll software to eliminate manual processes, that can simplify your overall payroll process.</p>



<p>Here are five helpful tips to enhance efficiency in your payroll system.</p>



<h2 class="wp-block-heading">Tips To Make Payroll Management More Efficient for Small Business Owners</h2>



<p>As a small business owner, you can <a class="link" href="https://www.netsuite.com/portal/resource/articles/accounting/payroll-tips.shtml" target="_blank" rel="noreferrer noopener">streamline your payroll</a> system to make it more efficient. You can do so in the following ways:</p>



<ul>
<li>Accurately classify your workers as an employee or independent contractors in your payroll system.</li>



<li>Automate taxes using payroll software or by outsourcing your payroll management.&nbsp;</li>



<li>Decide whether your pay for employees will be hourly or as a salary.</li>



<li>Double-check your data entries to avoid payroll errors and misclassification.</li>



<li>Streamline similar processes with payroll.</li>
</ul>



<h2 class="wp-block-heading">1. Use Direct Deposit When Possible</h2>



<p>The first tip to make payroll more efficient is to <a class="link" href="https://www.thebalance.com/how-to-set-up-direct-deposit-315294" target="_blank" rel="noreferrer noopener">use direct deposit</a>. Direct deposit allows small businesses to send electronic payments from one bank account to another. </p>



<p>Banks use the Automated Clearing House (ACH) network, which lets one financial institution send payments to another. There are several reasons to consider using direct deposit:</p>



<ul>
<li>Direct deposits offer more convenience.</li>



<li>Direct deposits are more secure and take less time to process than checks.</li>



<li>You won’t need to print checks or pay to mail checks.&nbsp;&nbsp;</li>
</ul>



<h2 class="wp-block-heading">2. Establish a Payroll Calendar And Stick To It</h2>



<p>The second tip to make processing payroll more efficient is to establish <a class="link" href="https://www.nerdwallet.com/article/small-business/what-is-a-payroll-schedule-how-to-choose-one" target="_blank" rel="noreferrer noopener">a payroll calendar</a>. This calendar will determine how often your employees will receive payment, and it’s usually one of the first things you’ll figure out as a small business owner. </p>



<p>There are three reasons ‌you should establish a payroll calendar:&nbsp;</p>



<ul>
<li>A payroll calendar will help your small business meet labor market expectations.&nbsp;</li>



<li>Establishing a payroll calendar will also help your small business determine its cash flow.&nbsp;</li>



<li>Payroll calendars ensure your employees or workers receive payment for the required minimum of times per month.&nbsp;</li>
</ul>



<p>There are four payment schedules you should base your payroll calendar on. Depending on how you plan your workers to work, one or more payment schedules may work for you:</p>



<ul>
<li>Weekly&nbsp;</li>



<li>Biweekly&nbsp;</li>



<li>Semimonthly</li>



<li>Monthly</li>
</ul>



<p>The first payroll calendar format can occur weekly. This will result in 52 payments to employees on the same day of each week throughout the year.&nbsp;</p>



<p>You may choose a weekly payroll schedule if your small business relies on manual labor, a retail store, or a restaurant. You may also choose a weekly payroll schedule if most of your employees are hourly workers.&nbsp;</p>



<p>The second payroll calendar format you can choose from is biweekly. This will result in employees receiving payment every two weeks. As with the weekly pay period, employees will receive payment on the same day for each payment.</p>



<p>You may choose a biweekly payroll schedule if your small business has both hourly and salaried employees. This option can also work if employees need to take time off throughout the year.&nbsp;</p>



<p>The third payroll calendar format can occur semimonthly. With this payment option, employees will receive payment twice per month or 24 times per year. Employees will receive payment either on the first and 15th of each month or the 15th and the end of the month.</p>



<p>Semimonthly payroll payments can work for employers who would like stable payroll throughout the year. This payroll option also works best for some employees who can use a semimonthly payroll structure to plan their expenses.&nbsp;</p>



<p>The fourth payroll calendar format you can choose from is monthly. This is a rare payment structure, and it may not work for some states requiring workers to receive more than one payment monthly.</p>



<p>A monthly payroll structure works best if you’re the only employee of a business. This option can also work for employees who receive payment as a commission.</p>



<h2 class="wp-block-heading">3. Provide E-Pay Stubs</h2>



<p>Another way to make the payroll process more efficient is to <a class="link" href="https://moneyminiblog.com/business/electronic-pay-stubs/" target="_blank" rel="noreferrer noopener">provide e-pay stubs</a>. E-pay stubs list salary and tax information, like paper stubs. It will also list federal and state taxes paid throughout the year and at the time of payment.</p>



<p>Employees and workers can access their e-pay stubs in their employee accounts. As a small business owner, you can create e-pay stubs and enter the data. Another option small business owners have with e-pay stubs is to outsource payroll for similar results.&nbsp;</p>



<h2 class="wp-block-heading">4. Make the Payroll Process More Efficient by Outsourcing It</h2>



<p>Consider <a class="link" href="https://1800accountant.com/services/payroll">outsourcing your payroll</a>. Outsourcing payroll can be beneficial for almost any small business owner.&nbsp;</p>



<p>A payroll expert can help you and your small business with upfront pricing, which can save you both money and time. Outsourcing payroll will also ensure you’ll have all of your payroll needs taken care of no matter how you structure your payroll. This can also ensure you avoid making any <a class="link" href="https://1800accountant.com/blog/common-payroll-mistakes">costly payroll mistakes</a>.</p>



<h2 class="wp-block-heading">5. Keep Policies Clear And Simple</h2>



<p>The last tip to make payroll more efficient is to keep policies clear and simple. Payroll has intricacies beyond payment for your employees and workers. Businesses may have attendance, benefits, and paid vacation to work through in the middle of paying other employees.&nbsp;</p>



<p>To avoid any issues with your payroll, you’ll want to establish clear guidelines and policies. You can do this by creating a payroll policy document and updating it as needed, so your employees can access it whenever they need to.&nbsp;</p>



<h2 class="wp-block-heading">Work With Us for Your Payroll Needs</h2>



<p>"With tens of thousands of tax jurisdictions and 16,000+ tax rules that impact withholding (and can change year-to-year!), payroll compliance can quickly get very complex for a small business owner. 1-800Accountant has combined the expertise and scale of Gusto as an established payroll and HR provider with the knowledgeable advice only dedicated advisors can provide. Together that creates a powerful solution offering payroll peace of mind," said Yi Liu, General Manager, Embedded Payroll, Gusto.<br><br>The payroll process is one of the most vital needs of any business. For businesses of all sizes, outsourcing payroll can be beneficial. Work with the professionals at <a class="link" href="https://1800accountant.com/">1-800Accountant</a> for help with your small business payroll needs.<br><br>Check out this comprehensive guide to learn <a class="link" href="https://1800accountant.com/blog/payroll-tax-return">everything you need to know about payroll taxes</a>.</p>

Operating a small business often involves navigating a critical, yet time-consuming element – payroll, especially if you have employees who expect to receive their paychecks on time. Payroll essentially determines how you and your staff get paid. There are strategies available to improve running payroll, such as using payroll software to eliminate manual processes, that [&hellip;]

make-payroll-more-efficient_blog-header

5 Tips to Make Payroll More Efficient

<p>As a business owner, you know first-hand that running and growing your company is a daily challenge. The same thing can be said about your tax situation.</p>



<p>This article gives a brief overview of the primary types of business taxes you’ll likely encounter as a business owner: Income taxes, self-employment taxes, payroll taxes, and excise &amp; sales taxes.</p>



<h2 class="wp-block-heading">Why Understanding Business Taxes is Important</h2>



<p>All businesses need cash to survive. If you fall behind paying your business’s taxes, you’ll need to divert a lot of this cash to get current on your tax obligation. And much of this cash was supposed to be used to sustain the business’s day-to-day operations.</p>



<p>This is why understanding business taxes and <a class="link" href="https://1800accountant.com/blog/calculate-small-business-taxes">how to calculate them</a> is so important - failing to pay business taxes can potentially cause your company to go <a class="link" href="https://1800accountant.com/blog/what-happens-if-you-dont-file-taxes"><em>out of business</em></a>!</p>



<p>With that said, let’s take a look at the primary types of business taxes.</p>



<h2 class="wp-block-heading">Business Tax #1: Income Taxes</h2>



<p><strong><em>Definition:</em></strong> Taxes paid on your business’s profit after all business expenses are paid and qualifying individual income tax deductions are applied.</p>



<p><strong><em>Filing your income taxes:</em></strong> Sole proprietors, shareholders of S corporations, partners of a partnership, and members of limited liability companies report their business’s taxable income on their <a class="link" href="https://1800accountant.com/services/income-taxes">individual tax return (Form 1040)</a>. Shareholders of C corporations only pay income taxes on wages or dividends they receive, not their business’s entire taxable income.</p>



<p>In addition to federal income taxes, don’t forget about state and local income taxes if applicable.</p>



<p><strong><em>Tax rate:</em></strong> Federal income tax rates can be as high as 37%. Higher incomes may also be subject to a 0.9% surtax.</p>



<p><strong><em>Tax planning tip:</em></strong> To minimize income taxes, you’ll want to reduce your business’s net profit. To lower your business’s taxable income, consider purchasing a major piece of equipment or asking a customer to postpone an end-of-the-year payment to the following year. Certain individual deductions can also reduce your business’s net profit, such as qualified contributions to a retirement account, the standard deduction, or itemized deductions.</p>



<h2 class="wp-block-heading">Business Tax #2: Self-Employment Taxes</h2>



<p><strong><em>Definition:</em></strong> Taxes paid on your business’s profit after all business expenses are paid <a class="link" href="https://www.ssa.gov/pubs/EN-05-10022.pdf" target="_blank" rel="noreferrer noopener">is  self-employment tax</a>. Government revenue generated from self-employment taxes goes to fund Social Security and Medicare. Unlike income taxes, you can’t use the standard or itemized deductions to reduce your taxable income subject to self-employment taxes.</p>



<p><strong><em>Filing your self-employment taxes:</em></strong> Fill out Form SE and attach it to your individual tax return (Form 1040).</p>



<p><strong><em>Tax rate:</em></strong> 12.4% for Social Security taxes is due on your first $160,200 of taxable income, and 2.9% for Medicare taxes on all your taxable income, for a total of 15.3%.</p>



<p><strong><em>Tax planning tip:</em></strong> Consider becoming an S corporation. As an S corp shareholder, you’ll only pay self-employment taxes on the wages you pay yourself from the business. The remaining profits from the S corporation are not subject to self-employment taxes.</p>



<h2 class="wp-block-heading">Business Tax #3: Capital Gains Taxes</h2>



<p><strong><em>Definition:</em></strong> When you sell an asset for more than what you originally paid for that asset, you have to pay capital gains taxes.</p>



<p><strong><em>Filing your capital gains taxes:</em></strong> When you sell a business asset such as a vehicle, equipment, or a building, you must report this transaction on Form 4797 and attach it to your Form 1040.</p>



<p><strong><em>Tax rate:</em></strong> If you owned the recently sold business asset for more than 12 months, the maximum tax rate you’ll pay is 20%. If you owned the asset for less than 12 months, the tax rate can be as high as 37%.</p>



<p><strong><em>Tax planning tip:</em></strong> Consider having the party who bought your asset pay in installments. Instead of receiving one large lump sum of money all at once, spreading payments across several years can also help spread out the taxes you owe over the same number of years.</p>



<h2 class="wp-block-heading">Business Tax #4: Payroll Taxes</h2>



<p><strong><em>Definition:</em></strong> Payroll taxes are taxes paid on the wages and salaries of employees. Similar to self-employment taxes, <a class="link" href="https://www.cbpp.org/research/federal-tax/federal-payroll-taxes" target="_blank" rel="noreferrer noopener">payroll taxes are used to fund Social Security and Medicare</a>. A state’s unemployment tax, which covers that state’s unemployment compensation fund, is also considered a payroll tax and is paid by the employer. However, several states require some contribution from employees. The federal unemployment tax is paid only by the employer.</p>



<p><strong><em>Filing your payroll taxes:</em></strong> Here’s a quick look at the various forms used to file payroll taxes:</p>



<ul>
<li><em>Form 940 -</em> Federal unemployment tax return, filed annually (there’s also a corresponding state unemployment tax return)</li>



<li><em>Form 941 -</em> Tax return to report income, Social Security, and Medicare taxes withheld from employees’ paychecks and filed quarterly.</li>



<li><em>Form W-2 -</em> The information report provided to employees that shows total wages earned for a particular year</li>



<li><em>Form W-3 -</em> Information report filed with the Social Security Administration summarizes all W-2s issued by an employer. Copies of all W-2s are also included with the W-3.</li>
</ul>



<p><strong><em>Tax rate:</em></strong> Similar to the self-employment tax, 12.4% of employees’ wages are taxed to fund Social Security, while 2.9% of wages are taxed to fund Medicare, for a total tax rate of 15.3%. The employer pays half of these taxes (7.65%), while the employee pays the other half (7.65%).</p>



<p><strong><em>Tax planning tip:</em></strong> Many employers take the 7.65% payroll taxes they are responsible for paying and bake it into an employee’s overall compensation package. So, while technically responsible for paying its 7.65% of payroll taxes, the employer passed this cost to the employee.</p>



<h2 class="wp-block-heading">Business Tax #5: Excise &amp; Sales Taxes</h2>



<p><strong><em>Definition:</em></strong> Sales taxes are normally collected as a percentage of the overall selling price of goods or services, such as an 8% sales tax on all clothing, while excise taxes are imposed on very specific goods and services, such as a $2 excise tax on a 20-pack of cigarettes.</p>



<p><strong><em>Filing your excise and sales taxes:</em></strong> <a class="link" href="https://www.taxpolicycenter.org/briefing-book/what-are-major-federal-excise-taxes-and-how-much-money-do-they-raise" target="_blank" rel="noreferrer noopener">Federal excise taxes</a> are filed quarterly using Form 720. State filing requirements for sales taxes can vary depending on the amount of tax you owe. Businesses that collect a high amount of sales tax must usually file a return once a month; a business that collects a small amount of sales tax may only need to file an annual return.</p>



<p><strong><em>Tax rate:</em></strong> Check with your state or local tax authority <a class="link" href="https://taxfoundation.org/data/all/state/2023-sales-tax-rates-midyear/" target="_blank" rel="noreferrer noopener">to determine your sales tax rate</a>. Federal excise rates also vary depending on the product being taxed.</p>



<p><strong><em>Tax planning tip:</em></strong> While businesses are responsible for paying sales and excise taxes, many pass this cost to their customers.</p>



<h2 class="wp-block-heading">Partner With a Tax Expert to Ensure Business Success</h2>



<p>As you can see, you need to understand many types of business taxes if you want to comply with all of your tax obligations.</p>



<p>The good news is that while many of these taxes can be extremely complicated, help is only a phone call or email away.</p>



<p>Partner with a 1-800Accountant <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business tax expert</a> to stay compliant while minimizing the total amount of taxes you owe.</p>

As a business owner, you know first-hand that running and growing your company is a daily challenge. The same thing can be said about your tax situation. This article gives a brief overview of the primary types of business taxes you’ll likely encounter as a business owner: Income taxes, self-employment taxes, payroll taxes, and excise [&hellip;]

types-of-taxes-for-small-businesses_blog-header

The Primary Types of Business Taxes

<p>The legal entity type you select will have significant tax implications for you and your small business. That's why it's so important to understand the strengths and weaknesses of each entity before making a selection.<br><br>In this blog, we'll tell you everything you need to know about C corporations, including what it is, the steps you would take to form a C corp, the benefits of that entity type for your small business, potential downsides, and more.&nbsp;</p>



<h2 class="wp-block-heading">What is a C Corporation?</h2>



<p>You may have heard of partnerships or a limited liability company and their tax advantages, but a C corp is a different type of corporation.<br><br>A C corporation is a type of corporate structure taxed separately from its owners and shareholders. While other entities, such as S corporation, share similarities, there are some key differences between the two entities.<br><br>S corporation or C corporation business structure? Here are the differences, including the taxation of a C corporation, that you should know about when evaluating a <a class="link" href="https://1800accountant.com/blog/s-corp-vs-c-corp">C corp vs. S corp</a>:&nbsp;</p>



<ul>
<li>C corp taxes are applied at both the corporate income tax and personal income tax levels, called double taxation, while S corporations pay taxes at an individual level.</li>



<li>C corporations must issue stock and can have an infinite number of shareholders. S corporations are limited to 100 stockholders.</li>



<li>C corporations are required to make quarterly estimated income tax payments, while S corporations only do it once a year.</li>



<li>Unlike S corporations, owners and shareholders of C corporations do not have to be U.S. citizens or residents. Other businesses rather than individuals can own C corporations.</li>



<li>As a C corporation, there’s no deduction for corporate losses, so shareholders cannot deduct losses on their personal tax returns.</li>
</ul>



<h2 class="wp-block-heading">How to Form a C Corporation&nbsp;</h2>



<p>The steps you'll take for forming your business as a C corporation are reasonably straightforward and similar to the formation process for other entities.</p>



<ol>
<li><strong>Select a business name.</strong> The name you select must be unique. You’ll want to check with your state and local business authorities to ensure no other company uses a similar or identical name.<br></li>



<li><strong>Articles of incorporation. </strong>You’ll need to develop your business's articles of incorporation and submit them to your Secretary of State to form your business legally. It's essential to include your unique business name, address, registered agent information, and details about the type of stock you'll be issuing.<br></li>



<li><strong>Stock.</strong> The stock highlighted in your articles of incorporation is distributed to shareholders who comprise the ownership of your business.<br></li>



<li><a class="link" href="https://1800accountant.com/blog/ein"><strong>Employer Identification Number (EIN)</strong></a><strong>.</strong> An EIN, also known as a Federal Tax ID, is like a Social Security number for your business, which the IRS uses to identify you for tax purposes. If you intend to hire employees, open a business bank account, or file business taxes, you must obtain an EIN.<br></li>



<li><strong>Board of Directors.</strong> You must establish a board of directors who will oversee your C corporation's operations.&nbsp;</li>
</ol>



<h2 class="wp-block-heading">C Corporation Taxes</h2>



<p>C corporations are subject to double taxation at the corporate and individual levels. The current <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">corporate tax rate</a> is 28%. Here's what to know about the taxation of a C corporation.</p>



<p>To prepare your C corporation taxes, you must use <a class="link" href="https://1800accountant.com/blog/1120-tax-form">Form 1120</a> to report your business’s financial information, including taxable income, gains, losses, deductions, and credits. If your assets surpass $10 million and you file over 250 returns annually, you must file this form online.</p>



<p>C corporations must also pay employment taxes, which include FICA (Social Security and Medicare) and unemployment taxes. You must use Forms 940 and 941 to report these taxes.</p>



<p>Sections you'll need to complete in Form 1120:</p>



<ul>
<li>Basic Information About Your C corporation: This consists of your business’s legal name, address, EIN, date of incorporation, and total assets.</li>



<li>Corporate Income: This is your gross receipts or sales, returns and allowances, cost of goods sold, gross profit, dividends, interest, gross rents, gross royalties, and capital gains.</li>



<li>Tax-Deductible Expenses: These expenses include advertising, charitable contributions, repairs and maintenance, employee benefit programs, etc. You do not need to attach documentation, but keep your records in case of an IRS audit.</li>



<li>Tax, Refundable Credits, and Payments: This section aims to determine if you need to receive a tax refund or owe taxes to the IRS.</li>



<li>Schedule A – Cost of Goods Sold: If your business deducts the cost of goods from gross income, you must report this information in this section.</li>



<li>Schedule C – Dividends and Special Deductions: If dividends or special deductions have been claimed, you must record this information here.</li>



<li>Schedule E – Compensation of Officers: Document the compensation amounts of your corporate officers in this section.</li>



<li>Schedules J and K: These sections indicate your business's accounting method and information that can affect your corporate tax rate.</li>



<li>Schedules L, M-1, and M-2: In these sections, you need to attach your business’s balance sheet, document the reconciliation of income loss, and analyze unappropriated retained earnings.</li>
</ul>



<h2 class="wp-block-heading">Benefits of forming a C Corporation</h2>



<p>There are numerous advantages of a C corporation,&nbsp; including the following popular features.&nbsp;</p>



<h3 class="wp-block-heading">Limited liability protection&nbsp;</h3>



<p>C corporation shareholders/owners enjoy limited liability protection, which protects their personal assets. This means they aren't personally responsible for their C corporation's liabilities and debt.&nbsp;</p>



<h3 class="wp-block-heading">Unlimited number of shareholders</h3>



<p>Unlike S corporations, which must limit their shareholders, C corporations can offer shares to an unlimited number of shareholders, including both private individuals and public entities.&nbsp;</p>



<h3 class="wp-block-heading">Perpetual existence</h3>



<p>C corporations feature perpetual existence, meaning they will continue to exist even after ownership departs.&nbsp;</p>



<h3 class="wp-block-heading">Increased credibility&nbsp;</h3>



<p>C corporations often have greater credibility than other entities in the eyes of third parties, including suppliers, vendors, and potential investors.&nbsp;&nbsp;</p>



<h2 class="wp-block-heading">Potential downsides&nbsp;</h2>



<p>If your business would benefit from forming as a C corporation, there aren't many downsides. However, two issues often give prospective C corporation ownership pause.&nbsp;</p>



<ul>
<li>C corp double taxation. C corporations are subject to double taxation at the corporate and individual levels. This differs from other business entity types, where ownership is only taxed on the individual level.</li>
</ul>



<ul>
<li>Complex. It is much more challenging to run a C corporation than other entities. There are many more requirements to comply with as a C corporation, while entities such as sole proprietorships or single-owner LLCs are less formal.&nbsp;&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Role of Shareholders, Directors, and Officers in a C Corporation</h2>



<p>While these roles are unique in certain ways, they might also intersect. For instance, a person appointed to a director role might also own shares in the corporation.<br><br>Shareholders are the owners of the corporation and appoint directors. Directors are typically appointed to oversee management and will appoint officers. Officers are usually involved in the day-to-day happenings of the corporation.&nbsp;</p>



<h2 class="wp-block-heading">Partner with C Corporation Experts to ensure a path to success</h2>



<p>Complying with the various C corp requirements can be difficult. That's why so many small business owners and entrepreneurs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their corporate needs.<br><br>Whether it's <a class="link" href="https://1800accountant.com/services/entity-formation">C corp formation</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the affordable solution you need to help your C corporation stay compliant. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;</p>

The legal entity type you select will have significant tax implications for you and your small business. That&#8217;s why it&#8217;s so important to understand the strengths and weaknesses of each entity before making a selection. In this blog, we&#8217;ll tell you everything you need to know about C corporations, including what it is, the steps [&hellip;]

everything-you-need-to-know-about-a-c-corporation_blog-header

Everything You Need to Know About Your C Corporation

<p>You may be wondering: "Why create a chart of accounts?"<br><br>Even a basic chart of accounts is an excellent way to view your <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-keep-good-financial-records">business's finances</a>. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format.<br><br>In this blog, we'll go into detail about what a chart of accounts is, how to create one for your business, critical real-world examples, and other helpful information that provides you with a comprehensive picture. </p>



<h2 class="wp-block-heading">Understanding the small business chart of accounts</h2>



<h3 class="wp-block-heading">What is a chart of accounts?</h3>



<p>Your chart of accounts allows you to view multiple <a class="link" href="https://1800accountant.com/blog/common-bookkeeping-terms">financial transactions</a> along with a description, identification number, and name of each. You're able to view the chart of accounts categories within a general ledger, which includes:&nbsp;</p>



<ul>
<li>Assets</li>



<li>Liabilities</li>



<li>Shareholder’s equity</li>



<li>Revenue</li>



<li>Expenses</li>
</ul>



<h3 class="wp-block-heading">Main chart of accounts components</h3>



<p><strong>Assets</strong><br>What your business owns are called assets, and you'll track two types: current and noncurrent. The assets section in your chart of accounts will begin with the account number "1000."<br><br>Current assets include assets your business will use in the next year, such as:</p>



<ul>
<li>Accounts receivable&nbsp;</li>



<li>Cash</li>



<li>Inventory</li>



<li>Prepaid expenses</li>
</ul>



<p>Noncurrent assets or long-term assets are assets that will be used for longer than one year, including the following: </p>



<ul>
<li>Accumulated depreciation</li>



<li>Buildings</li>



<li>Furniture and fixtures</li>



<li>Leases&nbsp;</li>



<li>Plant and equipment</li>



<li>Vehicles</li>
</ul>



<p><strong>Liabilities</strong><br>Your business owes liabilities. This section begins with the account number "2000," and like your assets, you'll track both current and noncurrent liabilities.</p>



<p>Current liabilities, or short-term liabilities, include liabilities that your business will use next year. Current liabilities include:&nbsp;</p>



<ul>
<li>Loans and mortgages payable</li>



<li>Payroll taxes payable</li>



<li>Sales taxes payable</li>
</ul>



<p>Noncurrent liabilities or long-term liabilities are liabilities that will be used for longer than one year, including:&nbsp;</p>



<ul>
<li>Loans payable</li>



<li>Mortgages payable</li>
</ul>



<p><strong>Equity</strong><br>Equity refers to shareholder equity in your chart of accounts and will begin with the account number "3000." Common examples of equity found in your chart of accounts include: </p>



<ul>
<li>Common stock</li>



<li>Preferred stock</li>



<li>Retained earnings</li>
</ul>



<p><strong>Revenue</strong><br>Revenue is the income your business makes, primarily or secondarily. There are two revenue types that begin with the account number "4000" in your chart of accounts: operating revenue and non-operating revenue.</p>



<p>Operating income is the income that your business primarily makes. Non-operating revenue is revenue that your company makes indirectly. This form of revenue can come from:&nbsp;</p>



<ul>
<li>Asset write-downs</li>



<li>Dividend income&nbsp;</li>



<li>Foreign exchange gains or losses</li>



<li>Interest income</li>



<li>Profits or losses from investments</li>



<li>Rental income from property</li>
</ul>



<p><strong>Expenses</strong><br>There are two expense types: operating expenses and non-operating expenses, which will begin with the account number "5000."</p>



<p>Operating expenses are expenses that occur to cover operational costs. You may have expenses from the following:&nbsp;</p>



<ul>
<li>Equipment&nbsp;</li>



<li>Insurance</li>



<li>Inventory costs&nbsp;</li>



<li>Marketing</li>



<li>Payroll</li>



<li>Step costs</li>
</ul>



<p>Non-operating expenses are expenses unrelated to business operations. These include:&nbsp;</p>



<ul>
<li>Amortization&nbsp;</li>



<li>Depreciation</li>



<li>Interest charges</li>
</ul>



<h3 class="wp-block-heading">Importance of structure and organization&nbsp;</h3>



<p>There are two critical areas where your chart of accounts is vital for your business.<br><br><strong>1) Structure</strong>. How your chart of accounts is structured allows you to view all of your business's financial transactions based on the general ledger. This allows you to search transactions swiftly.<br><br><strong>2) Organization</strong>. A second benefit to the organization of a chart of accounts is that you can use this information for investment opportunities. This lets prospective investors or shareholders determine your business's financial health via the financial information provided. </p>



<h2 class="wp-block-heading">Components of a chart of accounts</h2>



<p>The information you record in your chart of accounts provides the data necessary to create your business's financial statements. All of your accounts will appear in these statements, with the chart of accounts determining which statement they should appear in. If your chart of accounts is outdated or incorrectly structured or organized, your statements won't be correct, either.<br><br>The financial statements include the following:&nbsp;</p>



<ul>
<li><strong>Income Statement</strong>. Also known as a profit and loss statement, this statement focuses on your business's revenue and expenses.&nbsp;</li>



<li><strong>Cash Flow Statement</strong>. This statement records the total cash from various sources, including petty cash, and cash going out of your business in support of your operations.&nbsp;</li>



<li><strong>Balance Sheet</strong>. This sheet records your business's assets, liabilities, shareholder equity, and debt.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">How to create a chart of accounts</h2>



<p>To set up your chart of accounts, you'll create three columns to help you categorize: an Account Name, Type of Account, and Description.</p>



<ul>
<li><strong>Account Name</strong>. You’ll list your account names in this column.&nbsp;</li>



<li><strong>Type of Account</strong>. This column, to the right of Account Name, will list the account that you’re adding. You can select from an asset, cost of goods sold, equity, expense, income, or liability.</li>



<li><strong>Description. </strong>The final column, to the Type of Account's right, describes the transaction that occurred.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Real-world examples of standard chart of accounts</h2>



<p>Medical practice chart of accounts (chart of accounts example 1)</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Account Type</strong></td><td><strong>Account Code</strong></td><td><strong>Account Name</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1010</strong></td><td><strong>Cash - Operating Account</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1020</strong></td><td><strong>Cash - Savings Account</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1030</strong></td><td><strong>Medical Supplies Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2010</strong></td><td><strong>Medical Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2020</strong></td><td><strong>Office Furniture</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2030</strong></td><td><strong>Accumulated Depreciation - Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2040</strong></td><td><strong>Accumulated Depreciation - Furniture</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3010</strong></td><td><strong>Accounts Payable</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3020</strong></td><td><strong>Payroll Liabilities</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3030</strong></td><td><strong>Unearned Revenue</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4010</strong></td><td><strong>Owner's Capital</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4020</strong></td><td><strong>Retained Earnings</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5010</strong></td><td><strong>Patient Service Revenue</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5020</strong></td><td><strong>Miscellaneous Revenue</strong></td></tr><tr><td><strong>Cost of Goods Sold</strong></td><td><strong>6010</strong></td><td><strong>Medical Supplies Expense</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7010</strong></td><td><strong>Salaries &amp; Wages</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7020</strong></td><td><strong>Rent or Mortgage Expenses</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7030</strong></td><td><strong>Utilities</strong></td></tr></tbody></table></figure>



<p>Restaurant chart of accounts (chart of accounts example 2)</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Account Type</strong></td><td><strong>Account Code</strong></td><td><strong>Account Name</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1010</strong></td><td><strong>Beverage Supply Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1020</strong></td><td><strong>Food Supply Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1030</strong></td><td><strong>Prepaid Expenses</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2010</strong></td><td><strong>Kitchen Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2020</strong></td><td><strong>Dining Furniture</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2030</strong></td><td><strong>Accumulated Depreciation - Kitchen Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2040</strong></td><td><strong>Accumulated Depreciation - Dining Furniture</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3010</strong></td><td><strong>Accounts Payable</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3020</strong></td><td><strong>Payroll Liabilities</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3030</strong></td><td><strong>Loans</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4010</strong></td><td><strong>Owner's Capital</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4020</strong></td><td><strong>Retained Earnings</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5010</strong></td><td><strong>Dining Revenue</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5020</strong></td><td><strong>Miscellaneous Revenue</strong></td></tr><tr><td><strong>Cost of Goods Sold</strong></td><td><strong>6010</strong></td><td><strong>Food, beverage, and employee Expense</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7010</strong></td><td><strong>Salaries &amp; Wages</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7020</strong></td><td><strong>Insurance</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7030</strong></td><td><strong>Depreciation Expense</strong></td></tr></tbody></table></figure>



<h2 class="wp-block-heading">Maintaining and updating a chart of accounts</h2>



<p>You will make adjustments to your chart of accounts as time goes on. But before you start, here are a couple of things to keep in mind.&nbsp;</p>



<ul>
<li>First, if you want to add an account to your chart of accounts, you should do so before it becomes a problem. While you can add transactions at any point in the year, you don’t want to delay adding transactions and their accompanying information. If you wait, then you may need to adjust other entries in related categories or subcategories, causing more issues.</li>
</ul>



<ul>
<li>Second, if you add an account, it is helpful to designate a name for it. The name most commonly used for newly added accounts is Miscellaneous Expenses. You should use this name whether you have one uncategorized transaction out of the year or multiple uncategorized transactions.&nbsp;</li>
</ul>



<ul>
<li>Third, if you add a Miscellaneous Expense to your account, provide a more detailed explanation than usual. Even though you’ve already added a description, you want to explain how and why this expense differs. As you add accounts to this category, make adjustments as needed.</li>
</ul>



<ul>
<li>Finally, and most importantly, you shouldn’t delete any accounts until the end of the year. If you delete the accounts earlier, that can create additional disruptions.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Partner with professionals who understand the chart of accounts</h2>



<p>Financial data and financial reporting are an important addition to any small business and can be harvested from many areas, including the following: </p>



<ul>
<li>Expense accounts</li>



<li>Asset accounts</li>



<li>Balance sheet accounts</li>



<li>Equity accounts</li>



<li>Financial accounts</li>



<li>Liability accounts</li>



<li>Revenue accounts</li>



<li>Sub-accounts</li>
</ul>



<p>A chart of accounts isn't required, but the valuable insights it provides can contribute to critical data-backed decision-making for your small business. However, creating and managing a chart of accounts is often too much for many busy owners and entrepreneurs to handle, which is why so many of them trust 1-800Accountant, America's leading virtual accounting firm for small businesses, <a class="link" href="https://1800accountant.com/blog/outsourced-bookkeeping-guide">for their needs</a>.</p>



<p>Whether it's <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping for the chart of accounts</a>, robust <a class="link" href="https://1800accountant.com/blog/catch-up-bookkeeping">educational content</a>, or any of our professional accounting services, we have the solution you need at a price that fits within your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;</p>

You may be wondering: &#8220;Why create a chart of accounts?&#8221; Even a basic chart of accounts is an excellent way to view your business&#8217;s finances. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format. In this [&hellip;]

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Chart of Accounts: A Comprehensive Guide with Real-World Examples

<p>Independent contractors, freelancers, sole proprietors, self-employed individuals, and gig workers.</p>



<p>No matter what you call it, earning an income from something other than a full-time job is booming in the United States. According to <a class="link" href="https://www.statista.com/statistics/921593/gig-economy-number-of-freelancers-us/" target="_blank" rel="noreferrer noopener">statistia.com</a>, 73.3 million Americans call themselves freelancers, up from 57.3 million in 2017.</p>



<p>While freelancing offers significant benefits not available for full-time employees, such as&nbsp; greater schedule flexibility, working for yourself also comes with new responsibilities. One of the most eye-opening responsibilities for new (and current) freelancers is being completely responsible for your tax situation.</p>



<p>The first place you should start when trying to understand taxes for independent contractors, freelancers, and gig workers is learning about the tax forms you'll need, including Internal Revenue Service (IRS) Form 1099-NEC.</p>



<h2 class="wp-block-heading">What is a 1099-NEC Form?</h2>



<p>If you work as a contractor or freelancer, you’ll likely receive a 1099-NEC form come tax time. This 1099-NEC form shows the total amount of money you received from this business in the 2023 tax year.</p>



<p>Form 1099-NEC is one of three different types of 1099 tax forms you’re likely to see as a contractor or freelancer:</p>



<ul>
<li><strong>IRS Form 1099-NEC</strong></li>
</ul>



<p>NEC is an acronym for “nonemployee compensation,” which is exactly what it sounds like. If you receive more than $600 in compensation from a business but aren’t an employee, you’ll receive a 1099-NEC showing how much you made during that calendar year.</p>



<ul>
<li><strong>IRS Form 1099-MISC</strong></li>
</ul>



<p>MISC stands for “miscellaneous.” Think of a <a class="link" href="https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/what-is-the-irs-form-1099-nec-and-form-1099-misc.aspx" target="_blank" rel="noreferrer noopener">1099-MISC</a> as a hodgepodge of all the other types of income you could receive from a business or an organization: rental income, prizes or awards, medical or health care payments, crop insurance proceeds, and certain legal proceeds such as settlements are all reported on a 1099-MISC. If you receive over $600 in any of these miscellaneous categories, you should receive a 1099-MISC.</p>



<ul>
<li><strong>IRS Form 1099-K</strong></li>
</ul>



<p>A 1099-K shows the payments you receive from third-party payment platforms such as PayPal, Venmo, and credit card companies. Prior to 2023, you would only receive a 1099-K if you were paid more than $20,000 AND had a total of 200 or more transactions from one of the payment processors. Starting this year, this $20,000 threshold has been lowered to $600, while the transaction requirement has been eliminated. So, if you accept any form of electronic payment, there’s a good chance you’ll receive at least one 1099-K when it comes time to file your return for the 2023 tax year.</p>



<p><em>A reminder about the $600 threshold:</em> Just because you don’t receive a Form 1099-NEC doesn’t mean you don’t have to include this income on your federal income tax return! Blank forms may be found on the IRS website.</p>



<p>You’re required to report ALL income you receive, from whatever source derived, on your tax return.</p>



<h2 class="wp-block-heading">1099-NEC form: Background</h2>



<p>As mentioned in this article’s introduction, you’re now responsible for your entire tax universe as a freelancer, Form 1099-NEC included. But what does this exactly mean?</p>



<p>To answer this question, let’s start by reviewing the tax situation for a full-time or part-time employee, and <a class="link" href="https://1800accountant.com/blog/1099-vs-w2">then we’ll compare it to the tax situation for a freelancer</a>.</p>



<h3 class="wp-block-heading"><strong>Tax Situation for an Employee</strong></h3>



<p>An employee never has to make a payment to the IRS to pay taxes.</p>



<p>Each time an employee receives a paycheck, the employer withholds a certain amount of money representing the income tax, Social Security tax, Medicare tax, and state &amp; local taxes (if applicable) for that employee.</p>



<p>Having withheld the employee’s taxes from their paycheck, the employer - not the employee - sends this money to the IRS on behalf of the employee.</p>



<h3 class="wp-block-heading"><strong>Filing a tax return for an employee</strong></h3>



<p>Every January, an employee receives a Form W-2 from their employer showing the total amount of all the paychecks received during the previous year. The employee fills out their tax return using information from their Form W-2 and other tax documents.</p>



<p>After filing their tax return, an employee - in theory - shouldn’t owe the IRS any additional money, nor should they receive a refund. The amount of money withheld from the employee’s paycheck should be equal - or pretty close - to the actual amount of taxes owed for that year.</p>



<p>Now, let’s compare what an employee goes through with their taxes to what a freelancer must deal with.</p>



<h2 class="wp-block-heading">1099-NEC form: Tax Situation for a Freelancer</h2>



<p>There are many moving parts to a freelancer’s tax situation. Here are the most important areas you should know about:</p>



<h3 class="wp-block-heading"><strong>Estimated tax payments</strong></h3>



<p>A freelancer must calculate the estimated tax owed to the IRS four times per year. The filing deadline may vary from year to year. Here are the due dates for these estimated tax payments:</p>



<ul>
<li><strong>April 15 -</strong> Due date to pay taxes on taxable income earned in January, February and March</li>



<li><strong>June 15 -</strong> Payment due date for April and May estimated taxes</li>



<li><strong>September 15 -</strong> Payment due date for June, July, and August estimated taxes</li>



<li><strong>January 15 -</strong> Payment due date for September, October, November, and December estimated taxes</li>



<li><strong><em>NOTE:</em></strong><em> If a due date falls on a weekend or a holiday, your payment is considered on time if it is made no later than the next business day.</em></li>
</ul>



<h3 class="wp-block-heading"><strong>Common types of taxes paid</strong></h3>



<p>The estimated tax payments a freelance taxpayer must make cover four main types of taxes:</p>



<ul>
<li><strong>Income tax.</strong> An income tax of up to 37% is due on your taxable profit.</li>



<li><strong>Social Security tax.</strong> A tax of 12.4% is due on your first $160,200 of taxable profit in 2023.</li>



<li><strong>Medicare tax.</strong> A tax of 2.9% is due on all your taxable profits.</li>



<li><strong>State and local taxes.</strong> Don’t forget about state and local taxes, if applicable. Many states follow the federal estimated tax payment due dates, but do double-check to confirm your specific payment deadlines.</li>
</ul>



<h3 class="wp-block-heading"><strong>Other types of taxes</strong></h3>



<p>If your income is high enough, you’ll owe an additional 0.9% Medicare surtax and a 3.8% tax on certain investment income. If you sell an asset at a gain, you’ll owe a capital gains tax of up to 25%.<br><br>Payments may be made in person, by mail, or electronically.</p>



<h2 class="wp-block-heading">How a freelancer can stay out of tax trouble</h2>



<p>With so many types of taxes and deadlines to meet, <a class="link" href="https://1800accountant.com/blog/5-tax-issues-that-cause-irs-trouble-for-1099-workers">it may seem a bit overwhelming</a> to understand your responsibilities as a taxpayer. If you follow these 3 tips, though, you’ll be in great shape.</p>



<ol>
<li><strong>Set aside money every week to pay taxes.</strong> Hopefully, you budget for everything else you spend on…taxes should be no different. Consider setting aside a flat percentage of every payment you receive, for example, 20% or 30%, to cover all the taxes you must pay.</li>



<li><strong>Know your deadlines.</strong> Now that you’re setting aside money on a regular basis to pay your taxes, make sure you don’t miss the payment deadlines. Consider putting your tax payment due dates on your calendar for the next 12 months. If you’re late with a payment, you may be required to pay penalties and interest in addition to the tax you owe.</li>



<li><strong>Ask for help.</strong> Remember that you’re never alone if keeping up with your taxes starts to become overwhelming. Asking for help is just an email or phone call away.</li>
</ol>



<h2 class="wp-block-heading">Work With the Small Business CPA Experts to File Form 1099-NEC</h2>



<p>Whether you need to fill out and file Form 1099-NEC, file taxes, obtain an EIN (your business's taxpayer identification number), or prepare a tax return, the CPA experts at 1-800Accountant, America's leading virtual accounting firm for small businesses, can help.<br><br>We offer services with affordable pricing for most independent contractors, freelancers, and all other types of gig and self-employed workers. Schedule a short consultation to learn how we can help with your accounting and tax needs so you can focus on your work!</p>

Independent contractors, freelancers, sole proprietors, self-employed individuals, and gig workers. No matter what you call it, earning an income from something other than a full-time job is booming in the United States. According to statistia.com, 73.3 million Americans call themselves freelancers, up from 57.3 million in 2017. While freelancing offers significant benefits not available for [&hellip;]

What-is-a-1099-nec_blog-header

Freelancing and Form 1099-NEC: Everything You Need to Know

<p>You’re finally ready to dive into your passion and create an organization for your cause.&nbsp;</p><p>Do you dream of supporting an underrepresented group, improving social welfare, or starting a sports club? After you decide on a goal, you should determine whether a non-profit or a not-for-profit organization is best for your mission.&nbsp;</p><p>You may wonder: What is the difference between non-profit vs. not-for-profit? This article will compare the two organization types. You’ll learn the key considerations and how to choose the organization type for your cause.</p><h2>Understanding Non-Profit Organizations</h2><h3>What Is a Non-Profit?&nbsp;</h3><p>A <a class="link" href="https://1800accountant.com/blog/non-profit-business-entities" target="_self">non-profit organization</a> is a business established for a specific public benefit.&nbsp;</p><p>Your non-profit’s purpose could be <a class="link" href="https://1800accountant.com/blog/4-types-of-non-profit-organizations">charitable, religious, or educational</a>. For example, many hospitals, churches, and public universities are non-profit organizations.&nbsp;</p><p>Despite its name, a non-profit organization may generate profits.&nbsp;</p><p>However, the entity’s earnings must funnel back to the non-profit to support its business activities. Non-profit organizations may not distribute profits to their members, directors, or officers.&nbsp;</p><p>The non-profit supports a social cause, so donations and business receipts should benefit the cause.</p><p>1-800Accountant can help you <a class="link" href="https://1800accountant.com/services/entity-formation">determine whether your organization is eligible</a> for non-profit status.&nbsp;</p><h3>Benefits of Non-Profit Organizations</h3><h4>Tax-Exempt Status</h4><p>Non-profit organizations enjoy several tax benefits.&nbsp;</p><p>Non-profits often qualify for <a class="link" href="https://www.irs.gov/charities-non-profits/applying-for-tax-exempt-status" target="_blank" rel="noreferrer noopener">exemption from federal income tax</a>, known as 501(c)(3) status. Non-profit organizations may also gain exemption from state and local taxes such as income, sales, and property tax. (If your non-profit hires employees, your organization is still responsible for payroll taxes.)</p><p>Further, donors can take tax deductions for charitable contributions to 501(c)(3) non-profit organizations. The IRS incentivizes donations to social causes by allowing tax benefits for people who support your mission.&nbsp;</p><p>To obtain 501(c)(3) status, the organization must form a legal entity separate from its owners. Eligible entity types include corporations, trusts, or associations.&nbsp;</p><p>Before applying for tax-exempt status, review the <a class="link" href="https://www.irs.gov/charities-non-profits/before-applying-for-tax-exempt-status" target="_blank" rel="noreferrer noopener">IRS application process</a> and <a class="link" href="https://www.irs.gov/pub/irs-pdf/p557.pdf" target="_blank" rel="noreferrer noopener">filing requirements</a>.&nbsp;</p><p>You can check your organization’s eligibility with the <a class="link" href="https://www.irs.gov/charities-non-profits/application-process" target="_blank" rel="noreferrer noopener">IRS tax-exemption eligibility questions</a>. The IRS also provides links to <a class="link" href="https://www.irs.gov/charities-non-profits/state-links" target="_blank" rel="noreferrer noopener">state websites containing resources</a> for tax-exempt organizations.&nbsp;</p><p>We know the terminology can get confusing. <a class="link" href="https://1800accountant.com/services/entity-formation">Let us support you</a> through your application process.&nbsp;</p><h4>Eligibility for Public and Private Grants</h4><p>Many public and private programs set aside annual funding to support charitable causes. Your non-profit can apply for grants to support your organizational purpose.&nbsp;</p><p>Many <a class="link" href="https://www.grants.gov/web/grants/learn-grants/grant-making-agencies.html" target="_blank" rel="noreferrer noopener">federal agencies</a> award grants to non-profit organizations. Eligible causes include educational access and heritage protection. You can <a class="link" href="https://www.grants.gov/web/grants/search-grants.html" target="_blank" rel="noreferrer noopener">search for available grants</a> and review the eligibility requirements.</p><h4>Lower Postal Rates</h4><p>Non-profit organizations may qualify for reduced postage prices from the US Postal Service. Educational, religious, and other organizations can <a class="link" href="https://faq.usps.com/s/article/What-is-Nonprofit-Mail" target="_blank" rel="noreferrer noopener">apply for non-profit postage rates</a>.&nbsp;</p><h4>Limited Liability Protection</h4><p>As mentioned, non-profits must organize as corporations, trusts, or associations. Each entity type is legally separate from its owners. Non-profit owners gain limited liability protection from potential claims against the organization.&nbsp;</p><h3>Disadvantages of Non-Profit Organizations</h3><h4>Public Scrutiny</h4><p>Non-profits must publicize their annual income statements and balance sheets.&nbsp;</p><p>Organizations can face scrutiny over amounts spent on salaries or administrative costs. The public could question how the spending directly supports the non-profit’s mission.&nbsp;&nbsp;</p><h4>Restrictions on Political Activities</h4><p>Non-profits can maintain social stances but cannot participate in certain political activities.&nbsp;</p><p>For example, non-profit organizations <a class="link" href="https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-political-campaign-intervention-by-section-501c3-tax-exempt-organizations" target="_blank" rel="noreferrer noopener">cannot publicly support or oppose political candidates</a>. Non-profits must not donate to political parties or campaigns.&nbsp;&nbsp;&nbsp;</p><h4>Compliance Requirements</h4><p><a class="link" href="https://1800accountant.com/blog/nonprofit-taxes">Non-profit organizations must comply</a> with IRS annual reporting requirements. State and local authorities may impose additional compliance rules.&nbsp;</p><p>The <a class="link" href="https://www.irs.gov/charities-non-profits/annual-filing-and-forms" target="_blank" rel="noreferrer noopener">IRS requires the following</a> annual filings:</p><ul><li><strong>Form 990 Series informational returns</strong>, which include the organization’s annual financial statements.</li><li><strong>Employment tax forms</strong> report employment taxes for organizations with employees.</li><li><strong>Unrelated business income tax forms</strong> report revenue from activities unrelated to the non-profit purpose.&nbsp;</li></ul><p>Review your state and local tax authority websites for additional reporting requirements. We can help you <a class="link" href="https://1800accountant.com/services/small-business-taxes">maintain non-profit compliance</a>.</p><h3>Examples of Non-Profit Organizations</h3><p>Non-profit organizations may include churches, public schools, hospitals, research organizations, and museums.&nbsp;</p><p>You may be familiar with some of the following non-profit organizations:</p><ul><li>American Heart Association</li><li>American Red Cross</li><li>ASPCA</li><li>Goodwill Industries</li><li>Habitat for Humanity</li><li>United Way</li></ul><h2>Understanding Not-for-Profit Organizations</h2><h3>What Is a Not-for-Profit?&nbsp;</h3><p>A not-for-profit organization is a group that supports a specific mission.</p><p>Not-for-profit organizations aren’t required to benefit the public. For example, not-for-profits can include sports clubs, business affiliations, and social organizations.&nbsp;</p><p>Like non-profit organizations, not-for-profit organizations must not distribute profits to members, owners, or directors. Earnings must further the not-for-profit’s purpose.&nbsp;</p><h3>Benefits of Not-for-Profit Organizations</h3><h4>Flexibility in Organizational Goals</h4><p>Your not-for-profit organization can choose one of many activities to support, including recreation, business, and other community-based interests. The not-for-profit owners can choose a goal that aligns with their interests.&nbsp;</p><h4>Tax Advantages</h4><p>Like non-profits, not-for-profit organizations may be eligible for exemption from federal income tax.&nbsp;</p><p>Your not-for-profit may not be eligible for 501(c)(3) status, but the IRS provides income tax exemptions for <a class="link" href="https://www.irs.gov/charities-non-profits/other-tax-exempt-organizations" target="_blank" rel="noreferrer noopener">numerous organizations</a>. For example, certain business leagues may qualify for federal income tax exemption under Internal Revenue Code Section 501(c)(7).&nbsp;</p><p>We recommend reviewing the <a class="link" href="https://www.irs.gov/charities-non-profits/other-non-profits/requirements-for-exemption" target="_blank" rel="noreferrer noopener">list of requirements for tax exemption</a> to understand whether your not-for-profit should apply.&nbsp;</p><p>Consult <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business professionals</a> who can walk you through the rules.&nbsp;</p><h4>Access to Grants and Other Funding Sources</h4><p>Not-for-profit organizations have many of the same funding opportunities as non-profit organizations.&nbsp;</p><p>Depending on your not-for-profit’s mission, your organization can apply for public and private grants to help keep the business running. Welfare organizations often qualify for more opportunities than social clubs and sports leagues.&nbsp;</p><h3>Disadvantages of Not-for-Profit Organizations</h3><h4>Public Scrutiny</h4><p>Like non-profits, not-for-profits can face public scrutiny over spending decisions. The public could question whether spending supports the not-for-profit’s goals.</p><h4>Limited Tax Deductibility for Donors</h4><p>Donors can only take tax deductions for charitable contributions to 501(c)(3) tax-exempt organizations. If your not-for-profit does not qualify for 501(c)(3) status, your donors cannot deduct their contributions to your organization.&nbsp;</p><p>For example, local employee associations may qualify for tax-exempt status under 501(c)(4) but could not offer tax deductibility for donors.&nbsp;</p><p>You can <a class="link" href="https://www.irs.gov/charities-non-profits/common-tax-law-restrictions-on-activities-of-exempt-organizations" target="_blank" rel="noreferrer noopener">review the restrictions on tax-exempt organizations</a> to understand the rules that apply to your not-for-profit.&nbsp;</p><h4>Compliance Requirements</h4><p>Like non-profit organizations, not-for-profits must file annual financial statements and informational returns.&nbsp;</p><p>Tax-exempt organizations should follow the <a class="link" href="https://www.irs.gov/charities-non-profits/annual-filing-and-forms" target="_blank" rel="noreferrer noopener">IRS annual reporting requirements</a> or risk losing tax advantages. Your not-for-profit should follow federal, state, and local compliance requirements.&nbsp;</p><p><a class="link" href="https://1800accountant.com/services/small-business-taxes">Consult with a tax professional</a> to understand which forms to submit.&nbsp;</p><h3>Examples of Not-for-Profit Organizations</h3><p>Not-for-profit organizations may include athletic leagues, business affiliations, and social welfare organizations.&nbsp;</p><p>The following not-for-profit examples illustrate a range of organizational purposes:&nbsp;</p><ul><li>American Federation of Teachers</li><li>American Legion</li><li>Greater Rochester Chamber of Commerce</li><li>Jules Weber Foundation</li><li>Laborers' International Union of North America</li><li>Noyac Golf Club</li></ul><h2>Non-Profit vs. Not-for-Profit Organizations: Key Similarities and Differences</h2><h3>Key Similarities</h3><p>Non-profit organizations and not-for-profit organizations share several characteristics.</p><p>Similarities between non-profit vs. not-for-profit include the following:&nbsp;</p><ul><li><strong>Use of profits</strong>: Both non-profit and not-for-profit organizations must not distribute profits to owners, members, or directors.</li><li><strong>Public scrutiny</strong>: Both organizations face potential financial scrutiny and should ensure spending aligns with their stated purpose.</li><li><strong>Eligibility for private and public funding</strong>: Non-profit and not-for-profit organizations can apply for grants and private funding.</li><li><strong>Stringent compliance requirements</strong>: Tax-exempt organizations must file annual informational returns and comply with compliance requirements.&nbsp;</li></ul><h3>Key Differences&nbsp;</h3><p>What are the differences between non-profits and not-for-profits? The following characteristics differ between non-profit vs. not-for-profit:&nbsp;</p><ul><li><strong>Organizational goals</strong>: While non-profit organizations must support the public benefit, not-for-profit organizations may exist to further their owners’ interests.</li><li><strong>Deductibility of charitable contributions:</strong> Donations to non-profit organizations are generally tax-deductible for the donor, but not all contributions to not-for-profit organizations qualify for deductibility.</li><li><strong>Tax-exempt status</strong>: 501(c)(3) tax-exempt status applies to specific activities, and many not-for-profit organizations cannot qualify for the same tax advantages that non-profits can obtain.&nbsp;</li></ul><h2>How to Choose: Non-Profit vs. Not-for-Profit</h2><p>Now you know the key characteristics of non-profits vs. not-for-profits. How do you choose the best organization type?</p><p>Consider your goals and imagine your mission’s beneficiaries. For example, think through the following key considerations:&nbsp;</p><ul><li><strong>Organizational purpose</strong>: Non-profit organizations must benefit the public, while not-for-profit organizations can align with owners’ interests.</li><li><strong>Fundraising needs</strong>: Non-profit organizations can solicit donations by providing tax deductions for donors. In contrast, not-for-profit organizations might not secure large private donations.</li><li><strong>Compliance requirements</strong>: Non-profit organizations typically follow stricter reporting requirements than not-for-profits, depending on their tax-exempt status.&nbsp;</li></ul><p>Don’t hesitate to consult <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation professionals</a> for help with your situation.&nbsp;</p><h2>Partner with Small Business Experts to Understand Non-Profits</h2><p>Now you understand the non-profit vs. not-for-profit differences, and you’re one step closer to choosing the best organization to support your cause.&nbsp;</p><p>As you navigate the complexities of your decision, consider your goals, beneficiaries, and fundraising needs. Be sure to seek guidance from legal and accounting experts.&nbsp;</p><p>1-800Accountant professionals can help you understand the entity formation intricacies. <a class="link" href="https://1800accountant.com/services/entity-formation">Consult entity formation experts</a> for support in pursuing your mission.</p>

You’re finally ready to dive into your passion and create an organization for your cause.&nbsp; Do you dream of supporting an underrepresented group, improving social welfare, or starting a sports club? After you decide on a goal, you should determine whether a non-profit or a not-for-profit organization is best for your mission.&nbsp; You may wonder: [&hellip;]

non-profit-vs-not-for-profit_blog-header

Non-Profit vs. Not-for-Profit: Key Considerations and How to Choose the Best Organization Type

Owning and operating a small business can be a gratifying experience. You&#8217;re your own boss, and you call the shots! But you also take on numerous responsibilities, including the calculation and timely submission of small business quarterly taxes. This ongoing responsibility may seem intimidating, but once addressed, it will help support your business&#8217;s long-term tax [&hellip;]

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Why Small Businesses Should Pay Attention to Quarterly Tax Payments

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