Episode Transcript
[00:00:00] Welcome to another episode of Financial Snickens. I'm your host, Alisa McCabe, and today we're going to be talking about demystifying the forms that business owners should know. So there's all these forms that you get asked for or talked to about by your accountant, uh, by the IRS, by any, um, government agencies.
And so one of the things that we wanted To try to get straight in your head is all these different forms and why you need them. So we're going to start with the easy ones. If you have employees, when someone is hired, You give them a W 4. The W 4 allows them to fill out all their information, their name, their address, their social security number, and what kind of tax deductions they want.
So that gets filled out on the W 4. You take that [00:01:00] information, you give it to your payroll person, you, if you do payroll yourself, you put it in the payroll information and it's there. Um, at the end of a year, And, you know, this will be, those will be coming out soon. You get W 2s and you get those in the mail or electronically they get delivered to you and that is your earnings for the year.
So the W 4 is the form that employees fill out and a W 2 is what you get when you are an employee and you get a record of your work. If you are a business owner and you pay yourself through the business, you will get a W 2. Now, we see an error that happens when people don't have a CPA working with them or they don't have our team at First Steps working with them.
What they end up doing is they end up putting themselves on payroll. But they are an [00:02:00] LLC and LLC is pretty much a sole proprietor and you just take withdrawals from the company. You do not run payroll for payroll to be on payroll. You have to be an escort or a C corp. And we can talk more about those.
If you have any questions, uh, you can seek out your CPA, uh, a good attorney. A good business attorney can talk to you about the difference and what is right in your situation. But if you are an s-Corp or a C-Corp, or an owner of an s-Corp or AC Corp. C Corp, you will get AW two. At the end of the year or actually at the beginning of the next year.
Um, so the next thing I want to talk about, which actually talks more about, um, a K1 and a K1 is a tax form that actually reports the information that is used for business partnerships and it reports the [00:03:00] partners income losses,
capital gains, dividends, and dividends. From the partnership that year. So it's, it's something that you get and it's very similar to the W tour W two.
It's the earnings that you get from being a business partner. So, now we're going to be talking about W nines. And 1099. That is all about contractors. So if you hire somebody to do a service, if you hire someone to build a website for you, provide bookkeeping services, provide, um, advice on something, you hire a marketing firm, anyone that's providing you a service.
You need to get a W 9 from them and the IRS and I'm going to put links in, um, in the notes so you can go to the IRS website, download a W 9 and [00:04:00] send it to that person that you're going to pay. I highly suggest you make them fill out the W 9. Before you pay them, if you pay them through a payment system, uh, bill.
com or, uh, Melio or a lot of these other payment systems actually have the W 9 that you can send to somebody before you pay them and they have to fill it out before you can, they can get set up to be paid electronically. Get this, get this W 9 from the contractor before you pay them because it's very difficult to get this form from them after you've paid them.
And why do you need this form? This form will tell you if your contractor is a sole proprietor, an LLC, an S corp, or a C corp. And why does that make a difference? Because you are responsible for giving a 1099 to that person that you paid and you have to pay them more than 600. [00:05:00] Now you say, wait a minute, but I'm only paying this person 300.
I don't need to get a W 9 from them. Get one anyway. What if you do work for them later in the year? You forgot they even paid them earlier in the year. You paid them in January and now it's December and you're like, oh, hey, yeah, no, that'll be 350. No problem. You know, it's under 600, but then you go and look and you're like, Oh, no, I paid him 650 and I have no information on him.
So it's important to have that information. So it also lets, um, these are for individuals that you will not take taxes out for. It is somebody you are paying the full amount and you have nothing to do with the taxes being withheld. So now those contractors that you paid and they did a service for you, you are going to give them.
a 1099 NEC. Now the IRS, in their ultimate wisdom, gave us really good acronyms. These are called [00:06:00] non employee compensation, NEC, easy to remember, right? So 1099 NEC. These are for independent contractors and it
is for contractors and freelancers. They, you are required to file this form if you have paid anyone over 600 and they are an LLC.
Or a sole proprietor. If they're an S Corp, you do not have to give them a 1099, but you have to have the form on file because if you were ever audited, they're going to ask you, well, how do you know that they're an S Corp or a C Corp and didn't need a 1099? You could say, this is the information that I have.
So it's very important to keep that information and have it on file. If you have QuickBooks, you can actually attach it to the vendor file inside of QuickBooks. Thanks. Okay, so there's another 1099 form that [00:07:00] you may be responsible for, and it's called a 1099 miscellaneous, M I S C. This form you will need to send to landlords when you do rent payments.
If you act, if you received a prize, You're going to get one too if it's over 600. Um, it could be for health care payments and any attorney payments. Attorneys get this form. So if you get a prize, Or you give a prize to somebody, say you run, um, you know, a lottery or a sweepstakes through your company and you give out a prize, you actually have to give that person a 10 99 miscellaneous form.
So I know there's a lot of forms out there and there's a lot to remember on it, but if you go through and you think about the W four, it's for employees, W two is for employees, and the W nines are for [00:08:00] contractors. And the 1099 NEC, non employee compensation, is what the contractor gets at the beginning of the following year to say how much you paid them and you're responsible for sending out those 1099s.
If you have questions about any of these, Or you want to talk more about, uh, knowing more forms in your business. These are just some basic ones that business owners should know what each one means. It'll help you to run your business better and understand what is going on, especially when your accountant asks you questions, or when you're onboarding an employee or hiring a contractor.
Go head over to my website, FirstEpsFinancial. com, and we can chat more about forms and run a business.
