What's Your Tax Prep Style?

Dear Readers, this is an evolving blog post. I’d love to get your feedback on which terms / descriptions work or don’t work for you!

Work with your nature. 

This is one of my favorite guiding principles. And it's more important than ever when it comes to chores or anything that feels tedious, new, overwhelming. 

What style fits you? ....when it comes to working on IRS tax prep?
(Nicknames are works in progress.)

♥  The truth?: I ignore it until the last minute, then scramble and get it all done. (Phoenix)
♥  I like to start as early as possible. In fact, I already have! I work steadily until the job is done finished. (Early bird)
♥  I do best breaking up a task. I prefer to work over several sessions. (Marathoner)
♥  I like to do the job all at once, on a planned day. (Personal work party)
♥  None of these fit exactly/I'm a mixture. (4 Leaf Clover)

The idea: choose your style. Name it. Claim it. Plan for it. Be at peace with it. Below are a few ideas for each style.

P.S. If you're new to this, I suggest reading the Marathoner description as well as your style.

Phoenix 

Do your thing! No reason to fix something that works. When the time comes, find this email and these tools to offer some help: All-at-once Prep + CalculateBasic. If needed, here's an article if you get stuck somewhere. Perhaps, mark off a day or two around 4/12, 4/13, 4/14 to do the work. Lastly, if you can, clear your calendar on 4/15 or 4/16 to take a break, go to the spa or drive out of town to reward yourself and recover. (I'm keeping this short, because your mind is busy with other things right now. You'll get to this later.)

Early Bird 

This message to you might be too late because you're probably finished. In case I caught you in time, here's an article that outlines the whole process. And a worksheet to capture all your numbers: CalculateBasic. You'd probably like to fill out this second sheet as well: Calculate Next Level. Before you get too far, please be sure to choose a reward for yourself. Set aside some money for it and plan whatever time it takes. Yes, you start early because it's your nature, there's an urge to. That's cool. Still, let's reinforce and reward that nature! We want to keep you happy in your job. If you feel a bit guilty, then it's probably the right amount.
Oh, and here's an article on filing options. As you know, it feels so good to get the appointment for the actual filing on the calendar, whether it's meeting your accountant, filing yourself online, etc. Heads up, there are a few changes this year! A new 1040 and a few new rules. I'll be sharing about that soon. I'm just mentioning it so you plan in a little extra time. If you'd like to dive into research now, here are the 1040 Instructions, start on page 6. 

Marathoner 

Slow and steady wins the race! And, "Life ain't a track meet, it's a marathon." Ice Cube. You know that working slowly over time means less impact on your life, the pain can be spread out. If you've done this before, you've probably got a system already. If you're new / as a reminder to experienced folks: plan several work periods over the next 4 - 6 weeks. Prep time really ranges from 2 hours to 12 or more. Just take your best guess and plan in the time. You can pick a regular day + time, like "Fridays from 1 - 3pm", or choose a time block like "1 hour" to fit into your weekly schedule.  
One option is for you to follow along with the Sidekick Service Tax Prep series coming out soon. I've broken the process into 6-7 steps, and will send an email about each one...so you can follow along with me. If you'd like to space it out yourself, take a look at this article, with worksheets for each step. Or, look at this All-at-Once Prep Sheet to plan your own sessions. I also suggest choose a little treat for each work session and a big Reward for when you're all finished. 

Work-Party Girl

You like to get in the zone; to give this task your whole attention, all at once. Like gearing up for party or 5K, you want to collect all your tools and resources, create the space, and get it done, and done well, and then shut the door and be finished. Tips for you (if you're new/need reminders): schedule three days on your calendar: 1- Personal Tax Work Party, 2- Time OFF to recover/reward yourself, 3 - Follow-up Tasks.
Create a space in your house to collect all of the things you'll need. Tax documents coming in the mail, bank statements, receipts, etc. Perhaps print out this sheet Collect Stuff. You can use it to slowly collect items prior to your Party day, or, do it first thing that morning. Consider getting a friend to hang out with you. Oh, and if you're the cook in your house, arrange for someone else to handle meals or to go out for dinner. Be sure to have a breakfast and lunch you love, plus snacks on hand. On that day, I suggest printing out these two sheets:  All-at-once Prep + CalculateBasic. Here's an article if you run into questions.

Four Leaf Clover 

Perhaps none of these fit, you're a combination, or you're new to this and just don't know. Or, maybe you're a rebel and as soon as someone tries to type you, you don't like it! That's cool. I get that we're a spectrum and not everyone fits into boxes. A few ideas. First, find a way to name your own style. Think about what's true, even if you're different/changing all the time. The reason? It's empowering to claim what we do naturally and then we've got a strategy to stick to.  
Next translate your style into some logistics. Do you want to plan ahead, wait until inspired, ignore? Three Options for you. 1) read through the tips for the other styles, and whatever sounds good/calming/easy, then do that. 2) Plan to follow along with the Sidekick Service emails over the next 6 weeks. If it sounds good, do the work suggested for each. Then, if you want to jump off at any point, please do! 3) Look at this All-at-Once Prep sheet. Or skim this article. Then ask yourself this, Now that I see all the work involved, how do I want to tackle it?


Once you discover your name + system, I'd sure love to hear about it. Please email me at jennygirlfriday@gmail.com

I'm excited to hear what you think of these Styles + Tips! 

• How-To Prep for IRS Taxes (Includes fun + rewards!)


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Prepping for taxes is a lot like planning a big party or fancy dinner. (Okay, maybe a little bit different.)

It's possible to do it all at once.........or to break it up over time.  There are pros and cons to each!

Doing it all at once

....is more efficient, you get really in the zone, and sometimes adrenaline fuels quicker working. 

Breaking up over time

....means the effort is less intense, you have time to catch important details, you can rest in between. 

Either way, it's helpful to know early how you're going to file, so that you can line up any help, or make appointments. (For example, if you're planning to go to H&R Block, you'll need to find their open hours. If you're hoping to work with an accountant, they'll have their own deadlines for you, earlier than April 17th!) Click here to read more about options for filing.

Overview

I've broken up the process into several steps, which can be spread over days/weeks, or done all at once. More details about each step below. Please keep in mind: as a project manager client once explained to me.......when you break things into many steps, each step looks easier, but then, you have a lot of steps! Don't let this discourage you. Just find a way to start, and, in theory, each step should feel easy and quick, and you'll build momentum.

0. Review REWARDS Menu (optional + recommended)
1. WARM UP 
2. COLLECT stuff (coming next)
3. CALCULATE some numbers - Basic + Next Level
4. CHECK + find any missing pieces
5. FILE / SUBMIT along with your IRS taxes - File-paper, File-online, File-tax pro
6. STORE tax forms and back up document
7. Optional: Reward + Reflect 

It can look like a lot! And feel like a pain! It can also be very rewarding, and I'm determined to help you build in some fun. 


Warming Up

Warming up ... okay, so you don't have to, but it will make things more pleasant. 

It's like stretching before playing soccer, or better yet, like a cocktail + appetizer before dinner!

As part of our Tax Prep, Warming Up includes picking a due date, your option for filing, considering your way of working, putting time on the calendar, and most importantly...........finding ways to make it fun and picking rewards

Click on the image to get a downloadable PDF.

You might notice that I often refer to inviting a friend to join you for some of this work.  I'm not kidding about this! If you make an appointment with a friend, you're more likely to do the work (not put it off), it's way more more fun, it can go faster, and they can help you figure out anything confusing. Most often, friends are happy to lend a hand in exchange for dinner, a bottle of wine, a candle, or just some sincere thanks.

Do you have someone who could keep you company with this?


Collect Stuff

AKA.....Treasure Hunt Time!!!!!!

I love this step.  Can you tell? Here's why. Every receipt you find for business expenses is like finding $$$$$!  Depending on your specific tax scenario...for each receipt, you'll be saving 20 - 30% of what that receipt is worth.

For example, if you bought a few books for your business, and the cost totaled  $80...then you'll pay $16 - $24 less in taxes. 

With this step, we're just collecting stuff. No adding, no smoothing receipts, just find it.  

ProTip: create a spot somewhere to put all these things, or perhaps a very pretty basket, or decorated office box.

Heads up: it's very helpful to print a lot of records, so you may have to stock up on some ink. (I like to use remanufactured ink to save money.)

Click on the image to get a downloadable PDF.


Calculate

So.........you don't pay too much!

 

>>>  If you know what to do, or would like to just figure it out as you go, print the Calculate-Basic sheet and start filling in numbers.

 

Why we're doing this

Before we talk about the numbers we need, let's review why we have to do all this work. Basically, it's so that you don't pay too many taxes! The IRS taxes you on your Income. When you are a sole proprietor or single-member LLC, the profit from your business is considered your income.

If you were to only report your total payments (gross sales), you'd have to pay taxes on that entire amount...even though you likely had to spend money on running the business. That wouldn't be fair. Thank goodness, we don't have to do that! Instead, we report our profit, and we're taxed on that.  In order to report our profit....we required to report several numbers, as a sort of proof. Here's more on that....

The Basic Numbers + Formula

To find our profit, we report the following numbers + formula:

Gross Sales
- Expenses
= Profit

Two of those numbers (gross sales and expenses) are made up from several other numbers, and have to be reported in the right way. The IRS created the form Schedule C for sole proprietors and single-member LLCs. The worksheets I created are simplified versions of the Schedule C.

Gross Sales, may include:

- totals from 1099-MISC, given to you
- totals from 1099-K, given to you
- totals from all other payments, including barter

Expenses, may nclude:

- totals by category of business expenses
- total business miles
- square footage of home office

The Calculate Step

In this step, the idea is to find these numbers. It's possible you have them already if you've been keeping records, or using a program such as QuickBooks. 

[Even if you have these totals, it's great that you've collected your receipts and bank statements, because these are part of the evidence that you need to keep for several years—7, I think?—in case you get audited.  (Btw, good news, less than 1% of people get audited.)]

If you still need to calculate your totals, and would like some guidance, click here to read more about this. There are several ways to do this!  Just a few include: pen and paper, spreadsheets, and software. Find what works best for you, and consider getting a friend to help.


Check

Congrats! You've finished the CALCULATE step, often the longest one. By any chance, did you discover that you were missing some things? Or did you have new questions as a result of your work?

That's super normal! That's what the Check + Find is about: finding missing things, getting answers, and double-checking your math. This step is optional. It's offered for those of you who like to be very thorough before filing.

This checklist prompts you to check the math you've done so far (income subtotals, expense totals, mileage).
+
There's space to list questions and things to find.  Use it to keep track of your progress.


For use when Filing with Paper Forms

For use when Filing with Paper Forms

For use when Filing Online

For use when Filing Online

For use when Filing with a Tax Pro

For use when Filing with a Tax Pro

File!

It's finally here, the big moment.

Well, actually, with all your amazing prep work, this part is likely to go rather quickly.  :)

There are slightly different actions to take, depending on which way you're filing. The worksheets to the left work for:

Filing with Paper Forms

Filing Online - TurboTax, H&R Block, TaxAct, etc.

Working with a Tax Pro - Accountant, CPA, preparer, volunteer

Each checklist covers the basics that are related to Self-Employment—Schedule C, SE, and a few lines on the 1040. The checklists do NOT include steps to complete the entire 1040 form.

It's possible that you might have a few additional details to add, or issues to explore. Hopefully, getting the basics all done will make it easier to figure out the rest.  

(Please note: Technically, these are not guides, they are reminders in a logical order. This blog is for tax education, and doesn't constitute tax advice.)

♥ They might look long, but don't worry too much! They only look long because I wrote out each little step separately. 

♥ Remember to get a friend to keep you company, and/or make the job fun with things like favorite music, treats, a show in the background.

♥ Also, when you're finished with this step, be sure to give yourself the reward you identified! It's common to be too tired and relived to care, and to skip the reward. Please don't!  You deserve it.                                                        


Store

Phew! You're almost done. There's just one last crucial step - to Store everything away. You might be thinking, I'm over this!  I'm done! I get it, that's super reasonable....and I promise, this last step is worth it and feels really, really good.

It's your choice: you can shove papers in an envelope or file willy nilly.  Or, put things in place...neatly, and methodically. Either way, you'll feel so much satisfaction, relief, and closure.

And, if ever in the future, you do need these documents, you'll be SO glad that you did this.

As usual, I invite you to add a reward for this step, even though it's not on the checklist!


Optional: Reward + Reflect

Well done! You just finished a big job. It's essential that you reward yourself. (This is part of staying in the game of self-employment.)

Hopefully, you already did this. If not, now's your second chance.

Also, right now, fresh off the job, is the BEST time to make a change or two, to make life easier next tax season, and throughout the year. Do your future self a big favor by taking just 5 - 10 minutes to reflect!

Yay! Now we're really done. :)


You got this!

 


Jenny Girl Friday

P.S. Know any other self-employed Seattleites who could use this information? Please forward freely!
P.S.2 Are you already signed up for Sidekick Services? If not, click here and join the list to receive tax + license reminders, how-tos, inspiration and more delivered to your inbox.

• Rewards Are Important + Rewards Menu

It is SO important to give ourselves rewards...and on a regular basis.  For chores, celebrations, or just because. (They are essential for tax season.) 

Who would run a 5K if we didn't get some swag at the end? Who would keep playing video games without achievements and level-ups?  They keep us motivated, feeling satisfied, and happy.  They are an important part of self-management.

Strangely, one of the biggest reasons we forget to reward ourselves is that we're often too tired after a big push to decide!  The solution?  Decide ahead of time what kind of rewards you like to get. It's good habit to assign specific rewards to specific tasks, and, to have a general list, for when you need one on-the-go.

Make up your own, or print the one below.  Fill it out, and hang up somewhere visible.

Click on the image to get a downloadable PDF.  You can also find this menu along with other helpful tools on the Tools For Download page.



: )  Jenny Girl Friday

P.S.  Did this help you?  Please share freely with friends. I think self-employed folks are keeping the soul in Seattle.  I want to make the chores of business easier, so you all can keep being awesome.  

P.S. 2 Are you signed up for Sidekick Services via email?  Get reminders and links to how-tos delivered right to your email inbox.  :)

• For Retail + Combo Businesses ~ How To Make Your Annual Report To The City Of Seattle (For B&O Taxes)

Hello + Note from July 2, 2018: The state has a new portal, which looks a little different. I'm hoping to add screenshots of the new one sometime soon. Meanwhile, this post will still give you a good idea of the process. Thanks for your patience!


Does your work include: retail, retail-service, wholesale, manufacturing, or royalties. Or a combination?

Then this post is for you!

If your business is NON-retail SERVICE only, click here to see a different walkthrough.


Due: January 31st
Time Required: 2 - 8 minutes to file
Frustration Factor: If you use the SELF Portal, 3 out of 10.  If you use the FileLocal, 6 out of 10.
Cost/Taxes Due:  If you earned under $100K (gross sales), then you will not pay any taxes to Seattle.  To read about tax rates for over $100K with Seattle, click here.
Type of Tax:  B&O (business and occupation)
With: City of Seattle
Use:  Seattle SELF Portal (Recommended).........or FileLocal-wa.gov.

If you need help, call the city at:  206.684.8484


Summary

1.  Log in to Seattle SELF Portal or FileLocal-wa.gov
2.  Find that business categories that apply to you:  retail, wholesale, service, printing, manufacturing
3.  Fill in total sales for each category
4.  Hit next until the end, confirm
5.  If you earned over $100K in total gross sales, complete the payment screens

One Note:  The state collects sales tax for Seattle.  So if you have to submit sales tax, you'll do that through the WA state DOR, Department of Revenue.

Some Screenshots below.


How to Prepare - If You are NEW to This  :)

Reporting to Seattle is very similar to reporting to the WA state DOR. I recommend preparing for both at once.  Everyone's situation is a little different, so it's hard to give estimates or exact instructions.

Here's what I recommend:

1.  Schedule some prep time on your calendar in the next week
2.  Schedule a 20 - 40 minute block for tax filing, during the weekday, with a plan to call the city if needed (they will walk you through this). This is includes buffer time.
3.  Print out the Prep Sheet below
4.  During your prep time, fill out as many numbers as you can on the Prep Sheet
5.  On your scheduled day, give it a try.  If you have to call the city, be prepared to wait...have something fun to do while on hold.


A Prep Sheet for reporting to the City + State

Click on one of the images for a form to download.  2 pages.


If you understand these terms, then great. :)  Fill it out to get ready for your call to the city.

If you DON'T understand what these all mean.  It's okay!  Call the city to arrange to get some help.  (Or, get in touch for a one-time consult with me.)


Option One - Screenshots with the Seattle SELF Portal (Recommended)

This portal is being phased out...........scroll down to see Screenshots with FileLocal-wa.gov, the new portal.

Click here to go to the SELF Portal

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The directions say to choose the last month of the period you're filing for.

With Annual Reports, choose December of the last year.

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It took a few seconds for these drop down menus to work.  Choose "Seattle B&O tax form" and your Main branch.  (Or whatever you named it.)

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Fill in each box relevant to your business.

The total sales in each category, NOT including any sales tax that you collected.

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This is a second view of the same screen.  Note, this symbol means a (confusing) worksheet is about to pop up.

It includes boxes for Royalties and NON-Retail Services

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Some questions.  Note:  you are NOT an employee.  You are the business owner.

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Royalty information~ enter in the box circled in Orange.

Non-Retail Services, enter in two places.  

1.  Line 1 for Worldwide Gross Service Receipts.  (Worldwide!!!)

2.  Line 7 for Seattle Service Receipts

If you did all your work in Seattle, these should be the same.

Notice, the form will fill in some numbers for you.....

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A shot after this screen is filled in.  You can only change the numbers in White.

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This example shows gross sales + taxes in three categories.

Note, no tax is due............because this person earned under $100K.

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Eventually, this screen pops up as a confirmation.  Hurray!  Success!!!!!

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FYI - the first 3 times I tried, I got this error message.  I waited a few days, and tried again and it worked!  One good thing........FileLocal had kept all my numbers, so I just had to move through all the screens.

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Well done!  Phew!  One thing about reporting to the city is that it forces us to know our total sales number.  I find that kind of rewarding, how about you?

One more hoop of tax season is all done.  Be sure to give yourself a little or even medium reward!  Perhaps some Theo's chocolate, some yummy juice from HeartBeet, or a trip to Ladywell's.  

: )  Jenny Girl Friday

P.S.  Did this help you?  Pretty please share with any friends, or post on Facebook.  I think self-employed folks are keeping the soul in Seattle.  I want to make the chores of business easier, so you all can keep being awesome.  

P.S. 2 Are you signed up for Sidekick Services via email?  Get reminders and links to how-tos delivered right to your email inbox.  :)

• How to Fill Out + Send 1099-MISC forms

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If you paid any Independent Contractors more than $600 in one year, for service work, you need to submit a 1099-MISC form (1099 for short).....both to the Recipient and to the IRS.  To read more, click here.  

Time Required: 5 - 10 minutes per form (+more time if you have to collect W-9s)
Cost: About $1.50 in postage to IRS + any postage costs to mail to recipients
Due: January 31st
Frustration:  3 out of 10
Tedium Factor:  10 out of 10

Summary

On a half sheet form, you fill in a few boxes.  Your name, address, phone number, and tax ID number.  Your recipients name, address, tax ID number.  The amount you paid them.

You send a copy to the recipient, to the IRS, and you keep one for yourself.

In addition, you must work with two more forms. A 1096 acts as a cover sheet when mailing 1099-MISCs to the IRS.  Use W-9s to collect information from recipients. More below....

Photos with notes below.  First some information.

You can choose to use paper forms or to file electronically.  

Paper forms are carbon and MUST be ordered from the IRS or another source.  They canNOT be printed. To ORDER forms, click here.  To see a walkthrough of ordering forms, click here.

I haven't worked with e-filing yet.  Some tax software systems provide this, such as TurboTax.  The IRS also gives this tip, "To locate an IRS business partner who may be able to offer low-cost or even free filing of certain forms, enter "e-file for business partners" in the search box on IRS.gov."

Some accountants will also do this for you.

What you need~

For each recipient:
• Full legal name (of the person)
• Legal name of the business
• Address
• Tax ID Number ~ Either their SSN (social security number) or EIN (employer ID number)
• Amount you paid them ~ called "Nonemployee compensation"

If filing with paper forms:
• 1096 Form
• Large Envelope
• Postage
• Black ball point pen

Use this prep sheet to keep things straight!  Click on it to get a PDF.  :)  This will also help when it's time to file your IRS taxes later this Spring.

Heads Up!  There are two more forms to know about!  1096 and W-9 

Like the Charlie's Angels, there are actually 3 forms that you'll be working with!  They always go together.

W-9 The IRS created a W-9 form to collect the required information from recipients, including their tax ID.  It's a one page form with lots of pages attached.  As you can imagine, tax ID numbers are sensitive information, and W-9 forms must be stored securely.  You can collect W-9s on paper, or electronically.  Click here to download from the IRS.gov site.

1096 This is like a cover letter.  When you submit certain types of forms to the IRS, they want a 1096 as well.  It's basically a summary of everything you're sending in.

Important Things to Know When Filling Out Paper Forms!

1.  Use a BLACK ball point pen, press hard!
2.  Use legible, block printing
3.  Do NOT add any symbols.  NO dollar signs, NO apostrophes, NO number signs.
For Susie's Flowers, you'd write:  Susies Flowers
For an apartment #302, write APT 302
4.  Do NOT cut the 1099 form top sheet (the one you send to the IRS)
5.  Write the dollars + cents for all amounts.  For example, 1235.00 is correct.  (1235 is NOT correct.)

> > If you happen to make any mistakes, check the VOID box at the top of the form, and start again.

Mailing Information

• Address for Washington Residents:

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999

• You must use a FLAT envelope, with no folds.

• It must be postmarked on or before January 31, 2018.

1099-MISCs Forms

Two separate forms are on each page.  This shows the top sheet which is sent to the IRS.  Do NOT cut this page.  The pages underneath are torn in half before giving to the recipients.

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Notice the names.  It's important to write both the recipients full legal name AND the business's legal name.

 

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Whenever a business is a Sole Proprietor or Single Member LLC, you may use either the SSN (social security number) OR an EIN (employer identification number).

This example shows the Payer having an EIN.
The recipient using their SSN.

On the bottom form, I made a mistake!  I used a # sign.  This is not allowed, so I stopped filling it out and marked the VOID box.

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After they are filled out, tear the strip off and separate the forms.

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Look for THREE to keep, and do the following:

1.  For the IRS - send in the mail, in a flat envelope
2.  For Recipient - send in the mail, may be folded
3.  For Payer - keep in your tax records

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Here's a look at the 1096 Form.

Moving from left to right with notes:

1.  Be sure to check the box 1099-MISC.
2.  Use your EIN ....OR.....your SSN.  (Not both)
3.  Number of forms.  Put the number of filled out 1099-MISCs.  There are two per page.  If you filled out for 3 recipients, you'd write "3".
4.  "Total amount reported with this Form"  Add up the total of all dollar amounts on all forms.  If I was reporting $2100 for a coach and $1400 for a designer, I would record $3500 in this box.

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Finishing up!

To the IRS - one 1096 form plus the top copies of all 1099-MISCs
To the recipients - their 1099-MISC copy
For your records - full page copies

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Well done!  Bravo!  Even though the contents of this are straightforward, it can feel so taxing because it takes a lot of care and attention, yet it is boring.  In addition, just the thought of the IRS can be triggering or get the adrenaline going.  ♥ If you can, find a time to relax a bit.  Perhaps a bath, a trip to Ladywell's, a long walk, even a short walk around the block.

Also, remember to check off of your Cheat Sheet / Sticker Chart!

Cheers!

: )  Jenny Girl Friday

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• Estimated Quarterly Payments to the IRS - What are they? Do I have to send them? How do I calculate payments?

What are estimated quarterly tax payments to the IRS?  Why do I have to send them?

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Our federal taxes are a "pay-as-you-go" system.  When you're an employee, federal taxes are taken out of each check.  If you are self-employed, the IRS requires that you send in tax payments throughout the year.  For the smallest business, this is required 4 times.  (Larger businesses may have to end in more often.)

I just had to make a report to Washington State and send in Sales Tax.  Is this the same thing?

Great question and No.  Every level of government wants to tax you...and it's easy and reasonable to get them confused.

Washington State - collects Sales Tax, B&O tax, and Use Tax.  Some businesses report annually, some report quarterly.

The Federal Government (IRS) - collects Income and Self-Employment Tax.  We file an annual report, but we're asked to send in estimated tax payments throughout the year.

This post is about tax payments to the IRS.

Do I have to send in the estimated quarterly payments (EQ$) to the IRS?  What happens if I don't?

Technically speaking, YES—the letter of the law is that if a person is doing business, they must send payments in each quarter.  In some cases, if you don't send in your EQ$, you'll have to pay a penalty.  

The reality: I've met many self-employed folks who did not send in their EQ$ the first year, and they had no penalties, or the penalties were very low.  Having said that, the IRS may choose to more vigorously enforce this rule at any time.  

In some cases, if your income is low enough, it is allowable to NOT send in payments.  To see if this applies to you, click here to read more (scroll down to page 24), or call the IRS at 800.829.4933

How do I calculate payments?

If you filed business taxes last year, usually your tax preparation software or accountant will provide you with a recommended amount for you to pay.  It'll be based off of your earnings for the previous year.

If you are a brand new business, you'll need to calculate an amount to pay.  There's a formula and worksheet below.

An important note:  it's common for new businesses to grow quite a bit from year to year! Because of this, the estimate made for the quarterly payment can be too low.  ProTip:  Always transfer 30% of all business deposits into a savings account for taxes you may owe.  (40% if you collect sales tax.)  If what you're saving is more than what your EQ$ require, you can either....send in extra money for each EQ$.  OR, hold the money in your account until you file your federal taxes.

Simplified Formula for Calculating EQ$ + Worksheet

Click on the worksheet for a PDF version for download.

1.  Estimate your Gross Sales - all the money you'll collect from buyers/clients.  (Never include Sales tax in the amount.)
Example:  $12,000

2.  Estimate your costs of doing business.  
Example:  $3000

3.  Subtract the costs of business from your Gross Sales.
Example:  $12,000 - $3000

4.  The answer is your Profit or Income.
Example:  $9000

5.  Estimate your tax owed.  Multiply your profit by .30.
Example:  $9000 x .3 = $2700

6.  Divide tax owed by 4.  This is the amount to use for your EQ$
Example:  $2700 / 4 =$675

When are they due?  How do I send them in?

They are due on the following dates each year.  If a date falls on a weekend or holiday, the deadline is extended to the next business day.

January 15
April 15
June 15
September 15

You may submit payments electronically or through snail mail.  Click here to read more on How To Submit EQ$.

ProTips + Doing Yourself a Favor

ProTip:  Each year after you file taxes, print off all your Payment Vouchers.  Find four envelopes and put stamps on them.  Put these vouchers + envelopes in a visible place, for example, pin to a bulletin board, set on your bookshelf, or clip to your fridge.

ProTip:  Add these dates to your calendar right now:  Jan 1, Apr 1, Jun 1, Sep 1.  Prep and send your payments on these days.

Do yourself a favor and send these payments in!  If you skip these payments, it can be very tempting to spend the money from your account......leaving you high and dry next April!  In addition to making your future brighter, it can feel very satisfying to mail the checks, and gives peace of mind right now.  

 

Happy Working,

Jenny Girl Friday


Read more on the official FORM 1040-ES info sheet on the IRS.gov site.