Agh! I got a tax form! What do I do now?

Anyone who has ever worked legally in the U.S. has received a 1099 or a W2 form at some point in their lives.  However, I don't think that everyone knows exactly what these forms are.  So, in honor of the upcoming tax season, here is an explanation of the most common tax forms that you might receive.

W4s and W2s:

If you have a job where you get paid a regular salary or an hourly wage, and taxes are withheld from your paycheck, then you are considered an employee, and you will fill out a W4 form when you start work. A W4 looks like this, and it tells your employer how much tax to withhold from your paycheck.  

At the end of the year, you will get a W2 from your employer.  This is a summary of how much you were paid and how much tax was withheld from your paycheck.  You use this information to file your income taxes.  Then the government can see if you have had too much or too little tax withheld, and you will either owe taxes (bummer!) or get a refund (yay!).

If you have simple taxes, you might want to use TurboTax.  If you have complicated taxes (like lots of investments or something), get an accountant.  It is worth it to not have to worry about the scary men with briefcases knocking on your door in the middle of the night.

W9s and 1099s:

W9s and 1099s are for contractors.  Contractors are people that do not actually work for a business, but they provide outside services. Examples include landscapers, freelance writers, accountants, lawyers, website designers, etc.  

When a contractor performs services in excess of $600, they need to fill out a W9 form that looks like this and the business will issue a 1099 at the end of the year.  A 1099 is a summary of the payments that the business has made to the contractor during the year.  

Here is the thing to remember about contractors: the business does not withhold any taxes, so the contractor is responsible for paying all the taxes at the end of the year.  If you are a contract worker, it is a good idea to set aside a chunk of your earnings so that you don't get a nasty surprise when you file your taxes.

Receipts: The Bane of Everyone's Existance!

Everybody hates receipts.  As a business owner, you hate them, and as a bookkeeper, I hate them.  But we all know that the scary men with briefcases will come knocking at our doors if we don't keep them, right?

I wish I could say "Wrong!" unequivocally, but I can't.  The truth is, the IRS DOES require you to keep receipts for business purchases. If you get audited, they really truly will ask you to pull random receipts for purchases that you have made--going back as far as 6 years. Believe me! I've witnessed real live audits.

That being said, there are exceptions to the receipt-keeping rules. This article from Pay Simple tells you pretty much everything you might want to know about the whole business. The main take-aways are:

-Keep your business and personal finances separate.

-You don't need to keep receipts for expenses under $75, except for lodging receipts.

-Digital receipts are acceptable, so don't delete receipts for online purchases. If you don't want to keep paper receipts around, you can scan them and keep them electronically. A great bookkeeper can help keep both physical and digital records!

-Keep receipts and bank statements for at least 3 years, or 6 years to be very safe.

The other great news about receipt management is that since EVERYONE hates receipts, there are technological geniuses working on making it better.  One product that I have been recommending to my clients is Expensify.  Expensify has options for individuals and businesses to easily track and record business expenses.  I use it for my own business as well as for several of my bookkeeping clients and so far I have been blown away by its awesome features.

Do you have other product recommendations for receipt management? Other tips? Tricks of the trade? Questions? Post a comment!