Posted on June 3, 2011May 31, 2016 by Jan Roberg

Small Business Bookkeeping Tips, for People Who Hate Bookkeeping

Photo by Dystopos, Acme adding machine as shown in "Cheese Chasers" directed by Chuck Jones 1951.

I hate bookkeeping! I know, you probably found this site looking under “accountants” but I hate doing bookkeeping. I’ve found that many other small business owners do too. So if you’re like me, you want to keep your bookkeeping time spent to a minimum so you have more time to work on the part of your business that you love. Here are some of my tips to keep things simpler:

Make a separate bank account for your business and keep it apart from your personal money. Income goes into the business account, expenses go out of the business account. If you do this one step, your bank statements become a perfect record of your business.

What if I accidentally make a business purchase with my personal funds? Write yourself an expense report, just as if you were working for a major corporation- attach receipts, and write a check to yourself as an “expense reimbursement.”

What if I need to take money out of my business account to pay for personal stuff? Once again, you write yourself a check, label that as “owner’s draw”. One business owner I know writes checks for his reimbursements and uses account transfers for his draw so that it’s easier for him to keep track of what is what. The important thing to remember is that your draw is not an expense, that’s part of your profit.

Never take cash out of your business account with your atm card. Never.

What if I don’t have enough money to pay my business bills with my business account? Can I pay my business bills with my personal checking account? No. You should write a check from your personal account to your business account and pay the bills from there. Keep track of that. When your business is doing better, you can reimburse yourself.

I get a 1099 at the end of the year and I write less than five checks a month for expenses, if even that. Do I really need a separate bank account? In a case like this, probably not, you could get away with a handwritten log of your expenses. The point is to do what’s easiest for you, in this case separate accounts might be more of a headache.

I’ve got the opposite problem. I’ve got lots of little expenses from all over the place. It takes me hours to load it all into Quickbooks. Any help for me? Maybe, here’s a tip I learned from one of my clients that might work for you. This fellow had lots of expenses, but the vast majority of them fell into two categories: production and shipping. He got two credit cards, the Visa he used exclusively for his production expenses, and the Mastercard for shipping. Any other expenses he put on his debit card or wrote checks for, but they were minimal. Each month, as he paid his credit cards he entered that one expense as his production or shipping expense instead of the dozens of smaller charges that he had been entering. If you’ve got a business where you can group your expenses like that, this might be helpful for you. Make sure you save all your receipts in a file with your credit card statements to back up those entries in case you get audited.

If you’ve found a tip that helps you keep your small business bookkeeping simple, please share it here. Thanks.

Posted on May 27, 2011May 31, 2016 by Jan Roberg

Reconstructing Tax Records: Getting Your Ducks in a Row

Photo by Ducklover Bonnie on Flickr.com

A few years back I represented a client who had lost all of his tax records in a flood. He had excellent documentation of the flood, but the IRS didn’t care about that, they still wanted him to back up some items that he had deducted on his tax return from a few years back. They wanted copies of receipts for expenses that he claimed on a tax return that was destroyed in the flood. He filed the receipts with the return, everything was destroyed.

This year, with all the tornado damage across the Midwest, including my own neighborhood, it seems like reconstructing records is an important topic.

First the easy stuff: You can get a copy of your tax return transcript for free from the IRS. If you still live at the same address that was on your last tax return, you can do it online at: https://sa2.www4.irs.gov/irfof-tra/start.do

If your address has changed, you will either need to fill out form 4506T, here’s a link to that: http://www.irs.gov/pub/irs-pdf/f4506t.pdf or call the IRS at 1 800 829-1040.

Not only can you get information about your tax return, but you can also get information from your W2s, 1099s, and 1098 forms if you need it. Note: the IRS W2 information does not include your state tax withholding, this is really a problem if you’re having a state tax issue, but at least you’ll have a list of your employers and you can contact them if you need that.

So that gets you the information that the IRS already has about you in the first place, but how can you reconstruct documentation when all of your files have been destroyed? One thing in your favor, although the IRS requires actual receipts during an audit, if you’ve been the victim of a flood or tornado or some event where your documentation is lost, they will allow you to prove you expenses some other way. But don’t just walk into an audit and say, “My files were destroyed you’ll just have to take my word for it.” We’re talking about the IRS, they don’t take your word for nothing. You’ll have to show them that you put some effort to recreating your expenses and it had better look plausible. So what should we look at?

Bank Statements: this is really easy if you have a business account and you run all your business expenses through that one account. Even if you’re running your business expenses through your personal account, it still provides you with proof of payment. Most banks let you access your statements on-line for free. Some banks still charge a fee for old statements but they should at least be able to access them for up to three years back.
Credit card statements: Once again, you can often get these online for free.

Bank statements and credit card statements are your two biggest and best sources of expense documentation, not just for business expenses, but also for proving your charitable donations which is another expense item that’s often looked at.

After you’ve proven your expenses, you may need to recreate your mileage log. That can be tough, but once again, if you don’t try you’ll lose the entire deduction.

If you still have your appointment calendar, start from day one and figure out where you’ve been and Mapquest everything. (I’ve done this with folks who hadn’t really lost their data, they never had a mileage log in the first place. Technically you’re supposed maintain it on a daily basis, or at least at the end of each week.)
If you’ve lost everything though, you probably don’t have your appointment calendar to work with. You can check with your oil change company. They keep records of your mileage at each oil change. This will at least give you a baseline to work with. (Hint: if your oil changes show you put 12,000 miles on the car don’t try to claim that you drove 20,000 miles for business.)
Once, for a client that had lost her mileage log, I was able to show the IRS that she routinely went to a certain store once a week for her supplies. She had driven on some business trips to various cities and we could prove that from her credit card statements as she had made charges in Nashville, Indianapolis, and some other cities. I used those charges to vouch for her mileage there. Although I didn’t have a “perfect” log book, by pulling together that information, the IRS auditor allowed the entire mileage claim because it was reasonable for what the taxpayer was doing.
If you are in the same line of work, you can take a 90 day sample of your daily business mileage and use that as a sample of what you normally do throughout the year. The problem here being that you might not have the luxury of 90 days to pull a sample together. If you have nothing else to work with, I would at least do a sample log for as long as you can—something is better than nothing.

The most far- fetched proof I ever provided to the IRS was for a client who was adamant that an expense that the IRS had disallowed was legitimate. We couldn’t find a record of it in the bank statement, and it wasn’t something that would go on a credit card. It was a very normal and logical expense for the business but I just couldn’t prove it. (The company refused to provide my client with a new receipt because they were upset because she fired them. Oopsie.) Anyway, I pulled up the company’s web site and they advertised their prices on line. I had printed out the website price list and the agent allowed the expense. I don’t believe that would work under most situations, but once again, if you have nothing else to use it can’t hurt.

As you can see, reconstructing expenses for a tax audit is not fun. (Okay, let’s be real, audits in general aren’t fun but they’re definitely easier if you have all your ducks in a row.) Now might be a real good time to think about how you’re storing your important data. Are you backing up to the “cloud”? Maybe you copy your annual records to a jump drive and store that in your safe deposit box? Or perhaps you have a fireproof box that you keep your records in? It’s a good idea to plan ahead, just in case there is an emergency.

Posted on May 10, 2011May 31, 2016 by Jan Roberg

Rethinking Your Auto Deduction

claiming actual versus mileage expenses for your auto

Green Hornet car, photo by Jan Roberg

Generally, when I’m filing a tax return for a business owner, I tend to use the mileage rate. For many of my clients, it’s the best deduction for them financially. For some of them, I use mileage because they don’t keep good enough records for me to use their actual expenses.

To be honest, I hadn’t really pushed the actual expense method much, but with gas prices creeping upwards of $4 a gallon and the IRS mileage rate at only 51 cents a mile, it’s time to rethink strategy. Remember, you never want to leave money that’s yours on the table for the IRS. If you want to claim your actual auto expenses for your business, there are some things you need to know.

First, whether you claim your mileage or your actual automobile expenses, you still need to keep records of your business mileage. A real common mistake people make is they think that they can hand over a bunch of receipts and claim their actual business auto expenses. It doesn’t quite work that way. You have to track your business versus your personal miles in order to determine a percentage. Let’s say you saved all of your receipts for your auto expenses and they totaled $5,000. It means absolutely nothing if you aren’t able to tell me how many miles you put on your car this year and how many of those miles were for business. Without the mileage information to go with it, the $5,000 in receipts is pretty worthless.

Now I’m quite certain that people “make up” their mileage all the time. But I also know, if you are selected for an audit and you have claimed auto expenses; I guarantee that your mileage log will be requested. I guarantee it.

So why set yourself up for losing an audit? Keep good records, and you’ll have nothing to worry about. What’s even better is that you may even find that you have a bigger deduction to claim than you would have had just by guessing at your miles. (True story, client got audited, had to recreate his mileage log. He used to lowball his mileage estimate to avoid an audit. He’d listen to what the other guys in the office claimed and lowered his a little to be “safe.” It didn’t work. Turns out he underreported by about 5,000 miles. That’s a $2500 deduction. In his tax bracket that was worth $625. Wouldn’t you like to have an extra $625? He’s my best record keeper now.)

So now you’ve got your mileage log and you’ve determined that exactly 25% of your miles are used for business. If we go back to the $5,000 of auto expenses you had, that would give you a deduction of $1,250. You’d check that against what your deduction would be for claiming straight mileage. As long as you claimed mileage the first year you put the car into service, you can switch back and forth between actual expenses and the mileage rate. If you started with actual expenses, you have to stay with actual expenses until you change vehicles.

So if you’re claiming actual auto expenses this year, what do you need to keep track of? Besides your mileage, you’ll want receipts for your gas, car washes, auto repairs, oil changes, tags, personal property taxes, and insurance. I can hear you thinking, “I don’t have receipts for my gas. It’s too late to start for this year.” Not really. One nice thing about auto expenses is you don’t actually have to have a receipt for anything under $75—you may have to start saving the gas receipts soon, but most of us can still fill up for under $75, just barely anyway. I always get my gas at the local shell station. I always pay with my debit card. I can go to my bank statement and tell you exactly how much money I spent in gas this year. Granted, I’m boring and predictable (I do taxes for a living, give me a break!) But I bet you can reconstruct your gasoline expenses too. And from here on out, you can keep better records. Please note–when I say you don’t need a receipt, that doesn’t mean you don’t need proof, you do need proof, you just don’t need to have the little printed receipt from the gas pump if the expense is under $75.

When you claim your actual expenses, you’ll also be claiming depreciation. There are special rules and regulations about the depreciation you can claim on luxury cars, but most software programs these days will tackle that for you. Remember that you’ll need information on the date your purchased the vehicle, the price you paid, and when you placed the car in service (using it for your business.) Because you kept track of your mileage, you’ll know your exact business use percentage to claim as well.

But what about your mileage? What if you haven’t been keeping records of that? Once again it’s not too late. In a perfect world, you have perfect records for the entire year. But, if you have consistent auto usage, you can keep good records for 90 days and use those records to extrapolate the mileage for your return. (Extrapolate is a pretty big word for the likes of me. It basically means that if you’ve got good records for 90 days, we can make a pretty good guess as to how you did the rest of the year.) A full year of tracking is better, of course, but the 90 day rule has been accepted by the IRS in audits before so it’s a workable documentation plan.

It’s really not too late to start tracking your actual auto expenses for your business. But don’t wait much longer or it will be.

Posted on March 11, 2011February 28, 2017 by Jan Roberg

Claiming Your Dog on Your Tax Return: Part 2

A working dog may be claimed as a business expense if the dog truly works on your business.

The first thing you need to know is that you can’t claim your dog as a dependent on your tax return. Never! Don’t even think about it. There are no special rules for St. Bernard’s or Great Danes. It doesn’t matter how much your dog depends on you or that he’s a regular member of the family. A dog can never be claimed as a dependent on your U.S. income tax return.

There are two places you can claim a dog on a tax return, as a medical expense, such as a service dog, or as a business expense. This post is about claiming your dog as a business expense. If you’re looking for information on dogs as a medical expense, then you need to check my other post http://robergtaxsolutions.com/2011/03/claiming-your-dog-on-your-tax-return-part-1/

If you intend to claim your dog as a business expense, you have to remember the two most important words for business expenses: regular and necessary. Is the dog a regular and necessary expense for your business? For example: my dog likes to help me when I work from my home office. She guards my door and prevents my college age children from coming into the room to bother me (i.e. ask for money.) Her favorite part of her job is barking at the IRS agents whenever I’m on the phone. How she can tell I’m talking to an IRS agent instead of a client amazes me. As you might have guessed, I cannot claim my dog as a business expense. Her service to my company is neither regular, nor necessary. (No matter how much I get a kick out her barking at IRS agents.)

Real working dogs, on the other hand, are a legitimate business expense. Sheep herders, guard dogs, bomb sniffers and rescue dogs all are legitimate working dogs. My dog neighbor used to star in the dog program at Busch Gardens—once again, a legitimate working dog, although now he’s retired.

Breeding dogs can be a little trickier. A real dog breeder is a legitimate business. Where it gets a little tricky is that fine line between dog breeding as a hobby versus breeding as a business. For example, if you’re treating your dogs as “livestock” they have a depreciation rate of 7 years. If you buy a full grown bitch with the intent to breed her, you may claim the purchase price as a section 179 deduction (that means you can write off the whole purchase price.) If you purchase a puppy—with the intent of breeding it when it grows up, you can’t write off the whole cost immediately. The best you’ll be able to do is to claim depreciation.

I once was consulted on a “dog breeder” case. The woman had purchased two “designer puppies” for $2,000 each with the purpose of mating them together and selling the puppies. She wanted to write off the entire $4,000. The woman had no experience with breeding dogs, no experience running any type of a business before, and didn’t seem to have a clue about raising dogs in general. First, the IRS is clear about not completely writing off “immature” animals so a total write off was out of the question. Additionally, because there was no income and the client just wasn’t meeting any of the business qualifications, claiming any kind of deduction would be problematic. I recommended holding off on claiming any deduction. If the business truly panned out, she could depreciate the dogs when (and if) they were put into service. Just because the puppies you buy are expensive, they don’t necessarily qualify as a business expense.

Once again, you have to make sure that if you are claiming a dog as a business expense, you really need to make sure you’re on the up and up. A dog on your return is going to be a red flag so you start out with the assumption that you will be audited. Document everything. Have receipts for your expenses, and proof that your dog is a necessary and regular expense for your business. Dot your i’s and cross your t’s and you’ll be okay.

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Posted on March 4, 2011May 31, 2016 by Jan Roberg

Hobby vs. Business: What About the Collector?

Honus Wagner Baseball Card sold for $262,000

If you’ve seen some of my other blog posts, you may have noticed some of my articles about hobbies and businesses. Most of the time, people know if they own a business or not, but sometimes the category gets a little blurry. Like the other day, I was reading a message board by a fellow you sold his baseball cards on E-Bay. In his case, he only sells about $50 worth of cards a year, definitely a hobby, not a business at this point. But he was thinking about increasing his sales and crossing out of the “hobby” mode and into the “business” mode.

Now I have all sorts of advice about moving from a hobby to a business, but in this case, things might be a little different. The reason I say that is because baseball cards are collector’s items. It kind of depends what level the gentleman is at. You can buy cards and sell them at retail of course, that would be a regular business. But there are also the folks that buy and trade “collectibles”. The recent auction price of a Honus Wagner card for $262,000 gives you a clue as to what I’m talking about.

If your business or hobby involves selling collectible items, such as art, guns, coins, stamps, and things like that, you might be reporting your income on a schedule D form. The same form that you use to report gains and losses from the sale of stocks, bonds, and mutual funds.

I like reporting income that way because of the tax advantage, there’s no self employment tax and if you sell an item that you’ve held for over a year then you’re also taxed at the lower capital gains tax rate. The downside to reporting this way is that you get no loss deduction for the sale of “capital assets held for personal use.”

There could be three possible ways to report the same income for a “hobby/business/capital gain” sale. For example: Let’s say you purchase a painting for $1,000. You keep it in your living room for a few years and then you sell the painting for $2,000. If you report the income as a hobby: $2,000 goes on line 21 of your 1040 and you might be able to claim the $1000 you paid for the painting as a deduction on your Schedule A, (but because of the other rules involved, most like you won’t get to deduct that at all.) If you’re in the 25% tax bracket, you’ll pay $500 more in income tax. If you report the $2,000 as self employment income on Schedule C, you can deduct the $1000 as an inventory expense leaving you with a profit of $1,000. Taxed at 25%, that’s $250. Add to that the 15% self employment tax which adds another $150 making your tax bill $400. As a sale of a capital asset, you report on schedule D the income of $2,000, the basis of $1,000 with a taxable long term capital gain of $1,000 which will be taxed at the capital gain rate of 15% costing you $150 of tax money. In this example, I know I’d want to use the capital gain.

Of course, there are other rules and issues you have to consider when determining if an activity is a hobby or business or collection, but the example above does let you see some of the differences in how you might want to structure your business/hobby/collection.

I’d have to ask the baseball card fellow some more questions about his business plan to determine exactly what category I’d place him in. But with some collectors, it’s pretty obvious that you’d want to classify their collecting income as capital gain and not self employment.

Posted on March 2, 2011May 31, 2016 by Jan Roberg

Why You Might Want to Let Your Spouse Own Your Business

Photo by Living in Monrovia at Flickr.com

First and foremost—this post will only apply to a limited number of people, so please don’t go changing your business ownership based on the title.

One of the downsides of owning your own business is that you have to pay self employment tax. Self employment tax is 15.3% of your profit, you pay it in addition to your regular tax rate. So, if you’re in the 25% income tax bracket, you’re actually paying 40.3% in taxes on your self employment income. That’s a lot of tax.

Social security makes up 12.4% of that. (8.4% for 2011 only.) The maximum amount of your earnings that are subject to Social Security taxes is $106,800. Once you cross that threshold, you don’t pay Social Security tax anymore for the year. If you’re in that situation, you know how great it is when your company quits withholding your Social Security, it’s like a temporary pay raise.

So let’s say that you own a small business with a net profit of $50,000. Your husband gross pay is $125,000 a year. He’s already completely paid up for his Social Security. After claiming all of your deductions, let’s say your taxable income is $135,000 – that’s still in the 25% tax bracket. Your tax liability would be $33,765. That would be $26,115 for your regular tax plus another $7,650 for your self employment tax.

But what if your husband owned the business instead of you? He’s already maxed out his social security taxes. In this case, your total tax liability would be $27,565. That would be the same $26,115 for the regular tax, plus only $1450 for the self employment tax (it would be the Medicare portion.) In this example, it’s a total tax savings of over $6,000.

What are the downsides? Obviously, you wouldn’t want to have your business in your spouse’s name if divorce were a possibility. It wouldn’t make sense to do this if your spouse’s wage income wasn’t above or at least near the social security maximum threshold. Also, by putting the business in your spouse’s name, then you’re not contributing to your social security pool for the future. See that $6,000 saved in the scenario above? The best thing to do with that money is to put it towards your retirement.

Another issue is continuity. If you’ve had your business in your name for 20 years, why would you change it now? On the other hand, if you’re starting a new venture maybe it makes sense to set it up that way. You may have other perfectly legitimate reasons for not doing this as well. It’s an option for saving some money, certainly not a requirement.

Posted on January 16, 2011December 3, 2016 by Jan Roberg

Missouri Tax Credit for Self-Employed Health Insurance

MO self-employed health insurance tax credit

One of the really fun parts of my job is finding cool tax deductions or tax credits that most people don’t know about that can really benefit people. Here’s a cool one: The Missouri Self-Employed Health Insurance Tax Credit.

The thing about Missouri Tax Credits is that most of them won’t just pop up on your computer software. You have to actually know about them and specifically request the forms to come up. Major things, like the Missouri Property Tax Credit will usually have a pop-up reminding you to apply for it if you meet the criteria, but most other tax credits just hide in the corner. The Self-Employed Health Insurance Tax Credit is one of the sneaky, hide in the corner credits.

How sneaky is it? To tell you the truth, I called the Missouri Department of Revenue to ask a few questions and the person on the other end of the phone had never even heard of it. She had to go hunt down someone who knew about the Self-Employed Health Insurance tax credit before she could answer my question. I’ve never had that happen before. The Missouri Department of Revenue front line folks are pretty knowledgeable and quick with answers. While I tend to stump the IRS on a regular basis (I think if they had caller ID they’d never answer my phone calls,) I’ve never stumped a Missouri DOR employee before.

Here’s how it works: Let’s say you own your own company and you also pay for your own health insurance. Normally, on your federal tax return, you can claim a deduction for your health insurance up to the amount of your business profit. But what if your business didn’t have a profit? Or if your business profit was less than what you paid for your health insurance? That’s where the Missouri Self-Employed Health Insurance Tax Credit kicks in. Whatever tax savings you lost on your federal income tax return because you couldn’t claim your self-employed health insurance will become a tax credit to you in Missouri.

I know that sounds pretty confusing so here’s an example: Let’s say your federal taxable income on your 1040 was $100,000 (I like to use round numbers.) But you couldn’t claim your self-employed health insurance because your business actually had a loss (we’ll assume the $100,000 is from your spouse’s wages and other income.) Your health insurance cost you $6,000 for the year. If you could have claimed that as a deduction, it would have saved you $1,500 on your federal tax return. With the Missouri Self-Employed Health Insurance Tax Credit, you get to take that $1,500 as a credit against your Missouri state income tax liability. How cool is that?

Now that was a pretty drastic example, but even so, claiming a dollar for dollar tax credit against what you missed out on from your federal income tax return is a great deal. Here’s a link to take a look at the form:

Missouri Self-Employed Health Insurance Tax Credit

So you want to know the best part? Many of the Missouri tax credits have limitations that, if missed, you don’t get a second chance to claim them. But with the Self-Employed Health Insurance Tax Credit, if you happened to miss out on claiming this credit last year, you can go back and amend your prior Missouri tax return and still get the refund.

Posted on January 12, 2011January 14, 2017 by Jan Roberg

1099 Rules for Landlords and Small Businesses

Are you confused about the rules for small businesses and landlords issuing 1099’s for anyone that they’ve paid over $600 to? Has a company asked you to fill out a W9 form because you or your business is doing some kind of work for them? It seems like everybody is a bit confused, even the IRS. But here’s help.

UPDATED JANUARY 2016
The rules have changed several times since the original post. If you’re preparing 1099s or tax returns for tax year 2016–these are the updated rules.

The 1099 law is actually part of the Affordable Care Act although it has nothing to do with health care. Is your head spinning yet? Seriously, the 1099 law states that businesses will be required to issue 1099 forms to contractors that they have paid over $600 to.

So who gets a 1099 MISC? Basically, if you own a business, or are a landlord, you need to issue a 1099-MISC to anyone that you’ve paid over $600 to for labor. So, let’s say you pay a computer programmer to set up your office system – you’d issue a 1099 MISC. But if you buy a computer for $1000 – then you don’t. Confused yet?

Okay, here’s another situation – you issue a 1099 MISC to individuals and LLCs, but not to corporations. So, let’s say Roberg Tax Solutions prepares your business tax return for $800. Roberg Tax Solutions is an LLC, so you think okay, I’ve got to issue a 1099 – BUT, Roberg Tax Solutions has elected to be taxed as an S Corporation. Say what? Now you don’t have to issue me a 1099. How do you keep track of that? By looking at the W9. Make sure all contractors you work with complete a W9 form. It will tell you if they are a corporation or not.

If you need to prepare 1099s, here’s a link that will give you information on how to do it: How to Prepare a 1099

If you’re a landlord or small business owner you should expect that you will need to file 1099 forms for your contract laborers this year. Start collecting information from them now so that you’ll be prepared come January. You’ll need a W9 form, here’s a link: W9

Print it out and have all of your vendors sign one. You can be hard-nosed about this too. No W9, no payment. It’s that easy.

If a business that you provide a product or service to asks you to complete a W9 form, it is a legitimate request. If you’re a sole proprietor and don’t have an EIN number, you may want to apply for one so that you’re not giving out your social security number all over the place. If you’d like more information on EIN numbers, read my other post: Free EIN

You can get an EIN number directly from the IRS for free.

One question that I’m always asked is, “Is there any way to get out of having to issue a 1099?” The answer is, “Yes.” If you pay a vendor with a credit or debit card, you do not have to issue a 1099. The reason is, when you use a credit card to pay a vendor, the credit card company will be issuing a 1099K statement showing the payment you made. So, it you want to reduce the 1099s you have to issue, use your credit card more often.

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Posted on December 27, 2010May 31, 2016 by Jan Roberg

IRS Electronic Deposit Rule Starts January 1st!

Starting on January 1, 2011, many businesses will be required to make federal tax deposits electronically. You will no longer have the option of making your federal tax deposits using coupons at the bank. Businesses that owe minimal amounts and were not subject to tax rules regarding coupons and filing will still be able to mail their payments with their filed tax return. For example: 941 filers with a deposit liability of under $2,500 can still mail their payments if they want to.

But if you were required to use the coupon system and made deposits at the bank, then you’re going to have to switch over the Electronic Federal Tax Payment System (EFTPS.) I’ll tell you the truth, I love EFTPS. I use it myself and I don’t have to. It’s free and it’s easy. But in order to use it, you have to sign up.

First, go to their website: https://www.eftps.gov/eftps/

It’s important to sign up before you actually have to make a payment because the signing up process takes some time. Go ahead and get started today if you’re going to be making payments in January. Make sure you have all of your information together before you start. You’ll need all of your standard business information, including EIN number, and of course the bank account and routing number that you’ll be making your tax payments from. You’ll be sent a PIN number and you’ll be able to start making payments after that.

You don’t even have to be a business to use EFTPS. An individual is also able to have an EFTPS account. I recommend that to people who have set up monthly installment agreements with the IRS. When you make a payment on EFTPS you get confirmation that you made the payment. That comes in really handy if you’re having an issue with the IRS.

The most important thing to know is that you need to make your payment on EFTPS one day before the payment is due by 8PM. If you don’t do it by then, your payment will be late. It’s okay to go in and schedule a payment in advance though. Let’s say for example that your company owes $3,641 in payroll taxes for December and your payment is due January 17^th. You can go into EFTPS on January 2^nd and schedule your payment for the 17^th. You can schedule payments up to 120 days in advance.

One more important piece of information: When you use EFTPS, the government will not have unlimited access to your checking account. You initiate all of your payments. The IRS can’t just go in and grab your money without your say so.