Tax Accountant Services
Q & A With Marcelino Dodge, EA
Cash Tracks Financial, Inc.
Tax Accountant Podcast From 10/07/2021 Continuation . . . Part 4
This tax advisor information is Part 4 from the podcast transcript originally recorded on the Tax Answers Advisor program on VoiceAmerica on October 7, 2021. This program is presented by Marcelino Dodge, Enrolled Agent, owner of Cash Tracks Financial, Inc. Cash Tracks Financial is a tax accountant in Lamar Colorado, providing tax services, tax accountant services, tax preparation, tax planning, tax advisory services, financial advisory services, retirement planning, business planning, and insurance services to individuals and businesses in Lamar, Prowers County, and throughout South East Colorado.
W2 Tax Form Or 1099 Tax Form?
Tiff:
Okay, that kind of somewhat answers the next question and goes in to this. It’s a lump question. I guess the what, specifically, is the difference between a W2 and a 1099?
Marcelino:
Yes, well, keep in mind a W2 is what you should get from me. And what you should get from your other employers a W2 at the end of the year, if your employer is doing things right. Now, I did a whole program a few months ago on correctly classifying employees. Under certain regulations, some businesses try to not classify their employees correctly, and they should be giving them a W2, instead of a 1099. And that’s another one of those things you don’t want to mess with. Because if the IRS doesn’t get you, your local state Department of Labor will get you and the State Department of Labor is the one that’s more likely going to get you. I’ve actually had audits on such things in the past with clients and they ended up having to pay the State wasn’t too bad, but they ended up having to pay quite a bit to the IRS because, because you have not only does it affect the state, which you do at the state level affects the federal level too, because they got it they got to be matching.
Tiff:
Okay.
Marcelino:
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When Should I Use A 1099 Tax Form
So, so yes, W2 as an employee now, a 1099 is issued should be issued out to sole proprietors and individuals to whom you pay $600 or more to during the year, that could be rent or other type of income, or a lot of paint various types of payments you make to them. And there’s actually two,, two of these common ones that are given to people on a 1099 M, which has things like rents other income and some other little boxes on it, then there’s the 1099 in EC, which is not employee compensation, which is basically for your contractors and those to whom you pay like for services like could be your plumber could be could be anybody that you pay a service to basically if it’s a sole proprietor you got to issue it out. So which is I ran into this few years ago had a place call me and say something to me, and I’m like, Well, I’m not a I’m not a sole proprietor, I’m a corporation.
They’re like, Oh, okay, they’re actually happy because they don’t have to issue a 1099 now to a corporation under current law, so when less there and see when then we got some businesses where we actually prepare these out these NPCs and send them out to people so there’s a big difference. And keep in mind if you’re on a if you get a 1099 you’re likely going to pay self-employment tax, which is why it’s such a big issue, because that’s core self-employment tax is Social Security. And Medicare paid by using individual for which is normally if you have W2, half of that is paid by the employer. Okay, you and you pay half out of your check, as a self-employed person, you pay all of that you pay both sides of that, which is like, which works out about 15%. Okay. And we always end we always plan for that with contractors, we tried to have them do it and try to have a make estimated payments, always recommended, but not everybody always does it. So sure. That’s a. So what’s next?
Tiff:
So I guess that we might as well go on this roll that we’ve started here. If you are self-employed, obviously you’re getting no W2, what documents should you be keeping? Or bringing? How do you record all of your stuff at the end of the year to file for taxes?
Self Employed Sole Proprietor Taxes
Marcelino:
Well as a self-employed sole proprietor, basically whether you’re getting paid cash, which is the big one, if you’re getting paid cash that still counts, cashes still counts. You need to you need to be keeping some type of a record or log of it, which is why once again why we provide a, we have a sheet to help you track income. For those that aren’t so technical. For those who are technical, we can definitely help you track all of that now, in tracking income, it usually helps to have a separate bank account for your business.
Tiff:
Right, I’ve heard that.
Marcelino:
The biggest mistake, especially sole proprietors make is not having a separate bank account and not and they’re constantly commingling funds, which granted on a sole proprietorship it is okay, you’re not going to get penalized by the IRS for it. But from a business and practical and tax standpoint, it’s not very wise. Because you got to be able to keep your personal expenses separate, that helps you to do that as well as helps you to really track your expenses better, especially using a debit card, they’re all in one place. Sure. Or if you designate using a credit card for business expenses, just use that credit card for business expenses. And just and keep them all separate. If you’re writing checks, which some businesses are still writing checks out that we have it all neatly lined up, the in there.
And then of course, your receipts or whatever, make sure you keep those by category and some type of filing system and by date, as well. So that if we need to look through them, we can easily find, okay, I need to match this with this, boom, I got it, and I’m good to go. Or if I especially if you buy that $5,000 piece of equipment or whatever, we need to go look at some things and, and try to find that trying to match that up there. So yeah, you need to make sure all those documents are there, which we can help you get organized. But again, you as the client needs to follow the follow the instruction in the suggestions. And in the end, it really saves you money, saves money paying us and saves money in paying tax to the IRS, which is what I want you rather be paying us than the IRS
Tiff:
At least know exactly, yes. We would prefer that. Yeah. Okay, that makes sense. And I guess the next question kind of goes with that, because I guess I would see this a lot more with self- employed people are people running a business taxes on bartered goods and services. So you trade out your services for somebody else’s services. That’s where I’ve heard and seen things get sticky. And I’ve heard people say, Well, if we do this, then we don’t have to pay a tax on it, because we traded this for that or let half technically how does that all work?
Bartering And Taxes
Marcelino:
Okay, you’re talking about bartered goods and services? And you really touched on it mentioned trading? Wow. It’s interesting. Yeah, money’s not exchanging between their trading sometimes. And I hear people do this all the time. Well, I had so and so give me this. Or they went in did this work for me to cover whatever that they did for me. What most people don’t realize is that this exchange this fair market value of the goods that you gave them, or services that you provided. So I’ll give an example say I do a tax return, I charge $800 for a tax return. And said person, I’m going to tell okay, its $800 for this tax return.
And this gentleman says, Okay, well, I’ll go over and cut this tree down for you. That I normally charge $800 for. And so I’m like, Okay, well, that could be good now. No, that’s not a good graph. I had a tree on my business. Let me keep that I had a tree on my business. I had a tree that needed to be trimmed around my business, or taken down around my business that this gentleman could do for $800 But I was going to charge him $800 for the tax return. Okay, okay. I do the tax return. It’s worth $800 He cuts down the tree, it’s worth $800. Now, according to IRS rules, even though I didn’t collect money, or I didn’t collect that $800. That still income to the business. I should be reporting that.
Tiff:
Okay.
Marcelino:
Okay, now, I paid $800 for this service, misguided $800 and basically work for me, I can take the, I can turn around then take that $800 is like a maintenance expense. In the end, it comes out as a wash, but lack of reporting of such is where you can get into trouble with the IRS.
Tiff:
Okay, so needs to be recorded regardless, even though it may not have any monetary change or anything like that.
Marcelino:
Okay, now, and, and, and that there’s an answer to this as well. Is that this gentleman that I paid that I normally would have paid $800 to. I also have to give him a 1099 for $800. Right, as well, because that’s the value of the services he provided to me in trade. Okay, for that for doing that tree. So that’s how it’s supposed to be done.
Tiff:
Okay,
Marcelino:
Now. I, I that’s why I usually don’t do any trading. Sure. So I don’t even want to go there.
Tiff:
It gets muddled I’m sure.
Marcelino:
There’s a lot of muddle in there. And I hear clients say this, and I try to ask a question about it and stuff. And sometimes you just got to run with what you got. But technically, you should. It should be reported both ways. It washes out usually, but it still should be reported both ways. Now that’s in the best interest of the taxpayer that way, if there is an audit at a date, you have the documentation saying hey, yeah, we imported it here. And here’s the expense. We’re good to go.
Tax Advisor Services
When you need professional expert IRS tax services, call Cash Tracks Financial Services, Inc. at our office phone number (719) 336-8739 or via our website Contact Us form at Contact Cash Tracks Financial
Our Tax Advisor And Tax Accountant Services Office
Cash Tracks Financial Inc.
117 W Beech St
Lamar, CO 81052
(719) 336-8739
https://cashtracksfinancial.com
Your Tax Accountant, Tax Advisor, and Tax Consultant for SE Colorado
More IRS Tax Accountant Q & A in this Podcast series.
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