Joining us today is Jerry Huskey, a CPA and tax professional from Jackson, Mo. Jerry has spent the past 40 years in income tax preparation and financial preparation for individuals and corporations. Jerry was gracious enough to sit down with us to answer all of your questions.
Jerry wanted to start the interview with a disclaimer. All the information provided in this interview is tax information, not tax advice. Tax information will let you know that there is something out there that you have to be aware of that you will then need to take to your CPA or tax advisor, wherein tax advice is going to be reviewed on a case-by-case basis.
This article will be a short, summarized version of the interview, but I urge you to watch the entire interview. There is a ton of great information here, and you won’t want to miss anything.
What is a 1099-K, and how did it change in 2022?
We start this journey of tax information with one of the big ones…income tax. The 1099-K is a form issued by credit card companies that will report all of your credit card sales for a specific period. The 1099-K was introduced initially in 2012 to keep tabs on companies reporting too much or too little money for the year. The most recent change to the 1099-K came about this year. Previously, your business wouldn’t receive a 1099-K unless there were $20,000 in credit card sales or had 200 credit card transactions for that year.
The requisites for getting a 1099-K are now $600 in sales, and there is no transaction minimum. As an estate sale company that works off of commission, Jerry strongly urges you to report all of your earnings from the sales, not just what you get in commission from that sale. Another scenario that will throw a red flag to the IRS is if you have a sale at the end of the year but don’t report earnings and pay the proceeds until the beginning of the following year.
The 411 on Quarterly Taxes
Jerry suggests that as soon as you start your business, start considering your estimated taxes. Quarterly taxes are due on April 15th, June 15th, September 15th, and January 15th. This is the tricky part: the January 15th payment will be the last installment for the previous year, not the first one for the current year. If you miss one of your quarterly tax payments, you can make up that payment when the next one comes due, but you may be subject to a penalty depending on where you are. Taxes are fun, huh?.
Escrow Accounts and Why They Could Be Good for You 13:36
The requirements of an escrow account will be on a state-by-state basis. For instance, escrow accounts are required in Missouri if attorneys hold money for clients or real estate transactions. One of the benefits of having an escrow account is that you can make sure you have the money to pay your client at the end of the sale. Remember that no matter whether the money is in escrow or just a regular bank account, that is still taxable income and will need to be reported.
Sales Tax: Get It Right or Pay the Price
When diving into the topic of sales tax, there are so many factors to consider. Sales tax rates are not only state-specific, but they can even be narrowed down to what district you are in. Doing your research and knowing exactly what to charge for tax can help you avoid many headaches in the long run. As an estate sale company that sells a wide array of merchandise, something else to consider is that there may be different tax rates depending on what you’re selling.
One of the running themes in this article is going to be “do your research.” When considering what tax rate to use, this is extremely important. If you are shipping items out of state, you may be subject to sales tax not only in your state but also where you’re shipping the items. Check with common carriers you use, like UPS. FedEx, etc., and they will let you know what taxes you’re subject to.
1099 vs. W2
1099’s vs. W2’s is one of the most controversial topics but also one of the most important things you should focus on getting right. It would be best if you first established whether you have full-time employees or hired contractors. Once you have that part verified, deciding whether to 1099 or W2 should be pretty straightforward. With employees, you’re setting their schedule and keeping up with their time. Contractors should keep up with their times and schedule since they’re independent and therefore should be given 1099. In the interview, Jerry goes in-depth on why you should classify your employees correctly, but here’s the long story short: Using a W2 for your employee has a few main benefits. It allows the government to collect the proper taxes on your employees and will also protect them if they have to file unemployment.
What to look for when hiring an accountant
When you’ve found yourself in the position of needing an accountant, Jerry’s number one criterion is finding someone that will call you back. Having an accountant that actually wants your business and that will also be invested in your situation is the first step. You aren’t always going to see eye to eye with your accountant, but that’s a good thing, believe it or not.