Posted on December 24, 2013December 6, 2018 by Jan Roberg

5 Things You Probably Didn’t Know About Santa’s Tax Return

What about Santa’s taxes? Here’s a few things I bet you haven’t thought about before.

1. Given that Santa travels about 75 and a half million miles a year (mostly on December 24th) his mileage deduction (at 54.5 cents per mile in 2018) is $41,147,500.

2. Reindeer are depreciated over a period of 7 years.

3. North Pole elves are considered employees and receive W-2s. Elves outside of the North Pole are considered contract labor and receive 1099s. (There are people who work as “elves” outside the North Pole that work for other organizations–like at the mall, who receive W2s, but they are not real elves and are not employed by Santa himself.)

4. Because the elves live at the North Pole for the convenience of their employer, and since living at the North Pole is a condition of employment, elf lodging is not taxable to the elves.

5. Santa doesn’t actually make any money from his toy distribution operation. Most of Santa’s income comes from royalties from his guest appearances in movies, books, and television commercials.

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Footnotes:

1. Santa’s distance traveled: The Physics of Santa, http://www.daclarke.org/Humour/santa.html

2. Reindeer depreciation: IRS publication 225 Farmer’s Tax Guide

3. Elves are employees: Common Law Rules of employment, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

4. Elf housing: IRS publication 15B Employer’s Tax Guide to Fringe Benefits

5. Santa’s income from royalties: https://en.wikipedia.org/wiki/Royalty_payment

Posted on September 27, 2013May 31, 2016 by Jan Roberg

What is a W-9 and Do I Need One?

I’ve you own your own business and provide service to another company, they may ask you to fill out a W9 form.

If you own a business and you pay for services to an individual, and you expect to pay over $600 for those services, then you should have that person complete a W9 form for your files. You’ll need the information in order to prepare the 1099MISC forms next January. Also, you only need a W9 if someone is working for your business. For example: when I have Brad the Painter come to my house to replace my damaged siding—I don’t give him a W9, it’s a personal service to me. Now if I hired Brad to paint my office, then I’d have to collect the W9 because it would be a business expense.

The general rule here is if you’re writing the service off as a business expense, then you’ll need to collect a W9 from the vendor.

Who should I give a W-9 to? This is an important question because I received numerous complaints from people who were asked to complete a W9 form. Basically, if you’ve done work for a business and they’ve paid you over $600 you should just hand them a completed W9. That was the instruction I was given by the IRS for my own company. You might think you’re not self-employed, or that you don’t have a business—but if you are doing work, getting paid, and not on the payroll; that means you’re self-employed.

When you look at the W9, the check boxes indicate if you’re an S Corp, C Corp, or sole proprietor. The instructions also recommend that sole proprietors use their social security numbers instead of EIN numbers. This is where I’m going to disagree with the IRS, in light of the huge number of identity theft cases this past year, do not use your social security number on your W9 form. Anybody can get an EIN number for their business. You can do it for free and it takes about 5 minutes at the IRS web-site: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employer-ID-Numbers-(EINs)-

When completing the EIN application, a sole proprietor is anyone who is filing a schedule C (self employed), E (rental real estate) or F (farm) for their business. It’s important to know that the minute the IRS issues the EIN number, it’s good. If you have to submit a W9 but don’t have an EIN, you can go online, get the EIN, and use it on your W9. The business issuing you a 1099 must accept your EIN even if you did the work a year ago.

Is there any way to avoid having to complete a W-9 form or issue a 1099MISC? The easy way to avoid having to issue a 1099 MISC (and collecting a W9 form) is to pay by credit card. Credit card companies are now issuing 1099K forms so that revenue to the vendor is already being reported to the IRS by another reporting agency. If you don’t want to be collecting W9 forms and issuing 1099s, then use your credit card. This is the easiest way to avoid 1099MISC and W9s, but remember that there are lots of fees associated with using credit cards. As my Mom used to say, “Pick your poison.”

What about home office expenses? Do I need to collect a W9 from my landlord? I think this is a case of the overzealous W9 collector. If you have a home office, you’re reporting that on your Form 8829. Whether you are reporting mortgage interest or apartment rent, it is considered to be a personal expense that you are attributing a percentage of to your business expenses. You do not need to collect W9s from your mortgage company, landlord, or utility companies to claim your home office deduction. (I’ve been asked this question enough times that I felt it necessary to include it here.)

What about purchasing an item from an individual? Do I need a W-9 then? The example that was given to me was buying a claw foot bathtub from Aunt Bertha. I tend to think of this kind of like going to a garage sale—you wouldn’t dream of giving a 1099 to the person running the garage sale would you? Now if Aunt Bertha were in the business of refurbishing bathrooms; that might be another story. But if you just buy something, a private transaction between two people, that’s not a W9 issue.

What about small jobs that are repeated monthly so the total will be over $600. Do I need to get a W-9 for those? Once again, if you’re talking about business expenses then you should collect a W9 and issue a 1099MISC for the work. For example: I used to pay $50 a week to a guy to edit my blog posts and monitor my website. (Now Mike does that.) Although the payment was only $50, over the course of a few months, it exceeded the $600 threshold so I had to issue a 1099.

Generally, if you’re unsure about needing a W9, it’s safer to err on the side of collecting one and issuing a 1099MISC than it is to not have it.

Posted on November 20, 2012January 13, 2017 by Jan Roberg

Top Tips to Prepare 1099-MISC Forms on Your Own

You can prepare your own 1099 MISC forms. All you need are the right forms.

The 1099-MISC form is what you need to give to a contract laborer if you pay them over $600 in the course of the year. There’s a whole new emphasis on reporting and so many more businesses are finding that they need to be issuing 1099s. But there’s a lot of confusion about how.

A few years ago I was at the IRS office near my house asking if they had any of the new 1099-MISC forms that I could have. “What do you want them for?” The IRS agent asked me. So I explained to her that I was teaching a class about 1099s and wanted to have the actual forms to hand out to the class.

“Oh thank God!” She said. Now, I work with the IRS a lot. I do audits and debt resolution, and although I genuinely like most of the agents I get to work with, I can assure you that “Oh, thank God,” is not a phrase used when the IRS is dealing with me. (Unless it’s used as “Oh thank God she’s gone now, but that’s about it.)

So I asked her why she was so excited that I was teaching a 1099 class and she told me about all the mistakes that they see and the problems they have with bad 1099s. “Somebody’s got to teach this stuff,” she told me. So I figured it would make for a good blog topic.

The Basics

Here’s a link to see the 1099-MISC form. 1099MISC If you’re the business owner, you need to issue the 1099 to the recipient by January 31. New for 2017 – you must submit the 1099 to the IRS by January 31 also.

My directions here are just an overview; here are the official IRS directions: IRS 1099 Directions If you have questions, that’s the best place to look.

The Quick and Dirty

Generally, when you prepare a 1099-MISC you’ll put the dollar amounts in box 7 for non-employee compensation. If you’re preparing a 1099-MISC for any other reason, you should check the rules to make sure you’re using the right box. I’m talking about non-employee compensation. Write in the white part of the box, not the red.

Payers name, address, etc, is you. Recipient is who you paid. I recommend using EIN numbers instead of Social Security Numbers whenever that’s an option for safety.

You put the whole amount of money you paid the person into box 7. For example, let’s say I hired Brad the Painter to do some work in my offices. I paid him $600 for the labor, $75 for the paint, and $25 for his parking. If I paid that money to Brad, even though part of it was for supplies not labor, I give him a 1099 for the whole $700. Brad will write off the $75 for paint and $25 for parking as his business expenses.

Mail your 1099MISC with a transmittal form. 1096 Transmittal Form

The filer is you (or your company.) The forms being reported is the 1099-MISC. The total amount reported on the 1096 is the total of what you paid the 1099 contract laborers. Here’s a clue—that number you put in box 5 should also go somewhere on your business tax return as a 1099 contract labor expense.

The IRS’s Biggest Complaints

People are supposed to use the red forms. You have to use the real form; you can’t print it off the computer, even if you have a color printer. Those forms are scanned so it has to be the right paper. You can order your 1099-MISC and your 1096 transmittal from for free from the IRS. Here’s the link: IRS Forms Order
Don’t cut the copies. Leave all the pages whole. If you only have 1 form to issue, just leave the second one blank.
Don’t staple the returns. Don’t fold, spindle or mutilate them in any way. They have to go through a scanner so leave them plain.
That means you have to mail them in the big envelope. I keep getting asked about that. Don’t fold means use a big envelope.

Smaller Complaints

Do not use a $ sign when typing in the amounts. It’s already on the form.
Do use a decimal point and cents. So I didn’t pay Brad $700 I paid Brad 700.00
Do not put 0’s in spaces, just leave them blank.
Do not use # signs. For example, on the form 1096 where it asks for the number of forms, I would write 1, not #1.

A note about handwritten returns: Handwritten returns are more likely to have errors than other returns. Usually it’s a Taxpayer Identification Number and name mismatch. If you are using a person’s name—use their social security number. If you are using a business name, use the EIN number. That’s a common mistake. Be sure to use block print and not script. Yes, I need to say, print neatly.

If you are typing it on a typewriter, you need to use black ink and 12 point courier font.

The 1099-MISC reporting rules have a lot of people confused, but you don’t have to do this alone. We can prepare 1099-MISC for a fee and we e-file them with the IRS.

Posted on August 29, 2011May 31, 2016 by Jan Roberg

What You Need to Know About Hiring Contract Labor

Photo by Julien Harneis on Flickr.com

I’ve done a lot of blog posts about what to do if you’re the contract labor, but the other day I had a client ask me about hiring contract labor. Here’s what you need to know if you’re doing the hiring.

First, you don’t need a “contract” with them. Contract labor is a term that’s used to mean they are working for you, but they are not on the payroll. For some things, it’s good to have a contract, but often it’s not necessary.

Second, never pay in cash—always pay by check. A check shows where you paid the money to – it’s a paper trail of how your business spent it’s money. That’s a good thing. The number one mortal sin in business accounting is making cash payments. Never take cash out of the ATM for your business; never pay bills in cash. You can use a “petty cash” account for really minor things, but there should be receipts for everything and a check should be written for “petty cash”. Cash gets you into trouble so you have to be doubly careful with it. If you remember nothing else, remember:real businesses do not pay bills with cash!

Third, although you don’t need a contract for the people who do work for you, you do need to have them fill out a form called a W-9. Here’s a link to get the form: http://www.irs.gov/pub/irs-pdf/fw9.pdf

Say for example that John Doe was doing some construction work for your business and over the course of the year you thought you might pay him over $600. You would have him complete the W-9 form for your records. (I even had my own kid do a W-9 and I didn’t expect her to make over $600. It’s just a good business habit.) I recommend having your contract labor give you the completed W-9 before you make the first payment. This keeps your behind covered in case the IRS or one of the other taxing jurisdictions decides to audit your books.

Anyway, on the form, John Doe would list his name under “name”.

For business name, he would leave it blank unless he had a business with a different name like “John’s Construction Business.”

Under the business type, he’d be an individual/sole proprietor (once again, unless he owned a regular business that was a corporation or something.)

He’d put down his address, zip code etc. He probably wouldn’t have an account number for you, but if he did, he could put it in the box. It’s not necessary.

Requester’s name is “Your Business Name.” You don’t really need to fill that out, you know who you are. If he’s completing the form right in your office, it’s okay to leave blank. If you’re mailing it to him, then you should put your business information in that box.

The TIN is John Doe’s social security number, unless he has a business EIN number. A regular business will know the EIN number and use it. If the person doesn’t know what an EIN is, then he should put his social security number. This W-9 form gives you good records and will protect you in an audit.

Make sure your contract laborer understands that if he receives over $600 from you, then you will be reporting his pay to the IRS as non-employee compensation. You need to do this or else the IRS will not allow you a deduction for the money you paid him.

You will need to prepare 1099 MISC forms in January (they’re easy to do.) Your contract laborer will receive his form by January 31st. You’ll also be sending copies to the IRS which are due at the end of February.

Hiring contract labor is much easier than putting someone on the payroll, but you do have to remember the rules: pay by check, get a W-9, and issue a 1099 MISC. These three things will help audit-proof your contract labor.