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Entity Types vs Tax Classifications

What’s the Difference Between Entity Types and Tax Classifications?

If you’re a business owner, you may have wondered about the difference between a legal entity and a tax classification. It’s a common area of confusion, and knowing the distinction can make a big difference in how your business operates and is taxed. Here’s a quick breakdown to help clarify:

  1. Legal Entities
    Think of a legal entity as the official structure of your business. This structure is set up at the state level and includes some common types like:
  • Sole Proprietorship
  • Single-Member LLC
  • Multi-Member LLC
  • Corporation

(While there are more than just these four, they’re the ones business owners most frequently ask about.)

  1. Tax Classifications
    Tax classifications, on the other hand, are assigned by the IRS and affect how your business is taxed at the federal level. The main classifications include:
  • Sole Proprietorship
  • S-Corporation
  • C-Corporation
  • Partnership

Why the Confusion?
You may have noticed that “Sole Proprietorship” appears on both lists. That’s because it can serve as both a legal entity and a tax classification. But here’s the key: legal entities identify your business structure at the state level, while tax classification determines how it’s taxed by the IRS.

Understanding Default Tax Classifications
Each legal entity has a default tax classification:

  • Sole Proprietorships and Single-Member LLCs are usually taxed as Sole Proprietorships
  • Multi-Member LLC defaults to Partnership
  • Corporation defaults to C-Corporation

How About S-Corporation?
An S-Corporation isn’t a default tax classification for any legal entity. To be taxed as an S-Corp, you need to file IRS Form 2553. Without this, your business defaults to either Sole Proprietorship, Partnership, or C-Corp depending on your entity type.

So, if you’re thinking about forming a business or reviewing your current setup, understanding these basics can help you decide the best path forward.

Stay Connected with Sapphire Tax Notary

For more tips, updates, and exclusive offers, be sure to like, follow, and share on Facebook, Instagram, and LinkedIn.

Thank you for trusting Sapphire Tax Notary with your tax and financial needs. We’re here to help you navigate these important deadlines and finish the year strong!

Warm regards,
Shemea Broom
Owner, Sapphire Tax Notary
Phone: 205-235-2373
Email: mea@sapphiretaxnotary.com

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Avoiding Audits: Let’s Limit Our Risk

Some believe that audits are random, but are they really?

Report all of your income correctly…the IRS already has your tax documents on file.

Examples include all income forms, capital gains,  dividends,  interest, crypto, currency,  royalties, prices, gambling, debt cancellation,  etc.

Do not overinflate the size of your home office or deductions for benefits of a larger income.

Not everyone who submits a Schedule C opts for the home office deduction. It’s essential to consistently maintain thorough records of all business expenditures, including those related to your workspace.

Use a tax preparer rather than tax-preparing software….using tax software requires a thorough understanding.

Examples include claiming losses that are higher than your true losses, making math errors, or omitting information that should be on the tax return.

Low-income earners taking the earned income tax credit (EITC) equal high risk of an audit.

It is very important to be honest and upfront when adding information to filing tax forms. This credit is a regular audit item on the IRS exam list. Adhere to the EITC due diligence checklist.

Discrepancies on your tax return.

Examples include using round or whole numbers, erroneous math calculations, reporting business deductions without income, or over-inflating donation fair market values.

Intensional characteristics of filing your tax return.

Examples include filing occasionally or not filing at all, claiming educational credit while not in school, filing hobby expenses as self-employment, or claiming 100% of personal your vehicle for business.

Higher incomes invite audits.

The odds increase as your income increases. High-new-worth earners and pass-through entities have dedicated teams to examine tax forms. $400,000 and more is the threshold typically.

For the latest updates, tax tips, and exclusive offers, follow us on Facebook, Instagram, and Linkedin.

Shemea Broom
Owner, Sapphire Taxes & Signing Services
Phone: 205-235-2373
Email: mea@sapphiretaxnotary.com

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Tax Deadlines: Which Date Concerns You?

1099 Deadlines

1099-NEC:

  • E-file your 1099–NEC forms with Intuit on or before January 27, 2024 before 5:00 PM PT so they can be processed and postmarked to your contractors by January 31, 2024.
  • Mailing 1099-NEC forms (not e-filing): Must be postmarked by January 31st to contractors & IRS.

 

1099-MISC:

  • E-file your 1099-MISC forms by March 29, 2024 so they can be processed by March 31, 2024.
  • Mailing 1099-MISC forms (not e-filing): Must be postmarked to IRS by February 28, 2024.

Year-End Payroll Form Deadlines

W2 ‘s & W3:

  • W2 forms become available from Intuit on January 13th, 2024.
  • E-file your W-2 forms before January 27th at 5:00 PM PT so they can be processed by January 31, 2024.
  • Mailing W-2 forms (not e-filing): You must furnish Copies B, C, and 2 of Form W-2 to your employees by January 31, 2024.

*W-2 forms if processed through Intuit will be mailed to your employees to the addresses indicated in the employee profile by January 31, 2024. (W-2 forms are mailed to employees by USPS from January 20 through February 1.)

940 Form – 2023 E-filing/Mailing Deadline:

  • The Form 940 annual filing deadline is January 31, 2024.
  • However, if you deposited all your FUTA tax when it was due, you may file Form 940 by February 10, 2024.

 

941 Form – 2023 4th Quarter Deadline:

  • The 4th Quarter filing deadline for 2023 Form 941, Employer’s Quarterly Federal Tax Return, is January 31, 2024

Sales Tax Deadlines

Quarterly:

Jan – March Due by April 30th

April – June Due by July 31st

July – September Due by October 31st

October – December Due by January 31st

(Prepayments are due on the 24th)

 

Annual:

Sales Tax Accounts: Due January 31st for the prior year.

Qualified Purchasers and Consumer Use Tax Accounts: Due by April 15th.

Prepayment accounts file on the 24th of the first 2 months of each quarter. 

Estimated Tax Deadlines

Estimated Tax Due Dates 2024

First Payment Jan 1 – March 31 Due by April 18, 2024

Second Payment April 1 – May 31 Due by June 15, 2024

Third Payment June 1 – Aug 31 Due by Sep. 15, 2024

Fourth Payment Sept 1 – Dec 31 Due by Jan. 15, 2024

Secretary of State Deadline

Statements of Information with Secretary of State Six-month filing window that starts six months after the month of incorporation. (Example: If you incorporated in February, your filing period is the 1st day of Sept. through the last day of the following February.)  

 

Estimated 2024 IRS Income Tax Refund Dates

If the IRS Accepts an E-Filed Return By:Then Direct Deposit refund may be sent as
early as 10 days after e-file received.
(Paper check mailed sent apx. 1 week after that):
* IRS may start accepting returns on Jan. 22, 2024. 
* Jan 22, 2024Feb. 2 (Feb. 9)**
*Jan. 29, 2024Feb. 9 (Feb. 16)**
Feb. 5Feb. 16 (Feb. 23)**
Feb. 12Feb. 23 (Mar. 1)**
Feb. 19Mar. 1 (Mar. 8)**
Feb. 26Mar. 8 (Mar 15)
Mar. 4Mar. 15 (Mar. 22)
Mar. 11Mar. 22 (Apr. 29)
Mar. 18Mar. 29 (April 5)
Mar. 25Apr. 5 (Apr. 12)***

* = Estimated date the IRS may start accepting e-filed tax returns.

** = Returns with EITC or CTC may have refunds delayed until March to verify credits.

*** = Filing during peak season (late March through April 15) can result in slightly longer waits.

IRS Accepts Return By:Direct Deposit Sent (Or Paper Check Mailed one week later)
Apr. 1, 2023Apr. 12 (Apr. 19)***
Apr. 8Apr. 19 (Apr. 26)***
Apr. 15Apr. 26 (May 3)
Apr. 22May 3 (May 10)
Apr. 29May 10 (May 17)
May 6May 17 (May 24)
May 13May 24 (May 31)
May 20May 31 (June 7)

IMPORTANT: If you file electronically (using an online tax program or preparer), the IRS will notify you of the actual date on which the agency “accepted” your return. This is often 1-3 days from the time you hit the “file” or “submit” button, and it is this date that you need to use on the left side of the above chart.

Taxpayers who mail a paper version of their income tax return can expect at least a 3-4 week delay at the front end of the process, as the return has to be entered into the IRS system before it can be processed.

For the latest updates, tax tips, and exclusive offers, follow us on Facebook, Instagram, and Linkedin.

Shemea Broom
Owner, Sapphire Taxes & Signing Services
Phone: 205-235-2373
Email: mea@sapphiretaxnotary.com

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Tax Filing Goodies: Checklists, Schedules, and More

ACCESS OUR CLIENT TAX PORTAL

Filing Flowchart
IRS Tax Refund Calendar 2023 Guideline
$50
Checklist
10 % OFF (2)

For the latest updates, tax tips, and exclusive offers, follow us on Facebook, Instagram, and Linkedin.

Shemea Broom
Owner, Sapphire Taxes & Signing Services
Phone: 205-235-2373
Email: mea@sapphiretaxnotary.com

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Starting Your Business Journey: A Simple Guide to Learning The Ropes

Embarking on a new business journey is thrilling, but it brings financial considerations. In this post, we’ll explore startup expenses under $5,000, using W-2 forms to offset costs, the timing for filing a Statement of Information, and what to do during no-income or no-expense phases.

  1.   Understanding Startup Expenses Up to $5,000:  Launching a business involves initial costs, like legal fees and licenses. Owners need to track these expenses, especially those under $5,000.
  2.   Leveraging W-2 Offsets:  Owners might not know that some startup expenses can be offset using W-2 forms. Consult Sapphire Tax to identify qualifying expenses personally incurred during startup.
  3.   When to File a Statement of Information Form:  This form keeps the state updated on vital business details. It’s typically required annually or biennially, varying by state. Failing to file on time may result in penalties, so know your state’s requirements.
  4.   Navigating No-Income or No-Expense Scenarios:  Early in business, periods of no income or minimal expenses are common. Maintain accurate financial records and stay informed about reporting obligations, even during dormant phases. File a $0 tax return to cover your bases.

Embarking on a business venture brings rewards but requires a clear understanding of financial responsibilities. Keep yourself updated on startup expenses, take advantage of W-2 offsets, ensure timely filing of the Statement of Information, and navigate phases with no income or expenses thoughtfully. Consulting with Sapphire guarantees compliance and enhances your business’s financial well-being.

For the latest updates, tax tips, and exclusive offers, follow us on Facebook, Instagram, and Linkedin.

Shemea Broom
Owner, Sapphire Taxes & Signing Services
Phone: 205-235-2373
Email: mea@sapphiretaxnotary.com

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Registered Agent: Is This Part of Your Business?

Why Bother with a Registered Agent?

Even though you could be the registered agent for your business, it’s usually a good idea to bring in external help for these down-to-earth reasons:

  1. Following the Rules of the Road: You’re obliged to have a registered agent in each state where you operate. So, if you’re doing business in multiple states, you’ve got to have an agent in each one.
  2. Keeping Things Hush-Hush: Being your own agent means sharing your address with the public, and opening the door to unwanted attention. External agents act like a shield, preserving your privacy.
  3. Dodging Awkward Moments: A third-party agent can spare you from the awkward scenario of getting legal papers served in front of clients, employees, or family. 
  4. Staying on the Map: An external agent makes sure your registered address stays up-to-date, preventing any slip-ups during moves or changes in your team.
  5. Being Open for Business Hours: Agents need to be around during regular business hours to handle legal stuff. If your business address is often deserted during the day, an external agent becomes your go-to hero. 

The Fallout of Skipping the Registered Agent: 

Forgetting about your registered agent responsibilities can lead to serious consequences, like default judgments, losing your business’s good standing, facing financial penalties, and, in the worst-case scenario, saying goodbye to your business altogether.

How to Rope in a Registered Agent: 

You can scout for registered agents with a simple Google search or hitch a ride with online legal service providers for extra convenience. Many of these providers throw in a free registered agent for the first year, and afterward, it can cost you a small annual fee. All in all, bringing in a registered agent ensures you’re playing by the rules, keeps your private matters private, and helps you steer clear of potential legal and financial headaches. 

For the latest updates, tax tips, and exclusive offers, follow us on Facebook, Instagram, and Linkedin.

Shemea Broom
Owner, Sapphire Taxes & Signing Services
Phone: 205-235-2373
Email: mea@sapphiretaxnotary.com

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Bookkeeping and Jotform: A Comparison Guide of Roles, Tasks, and Efficiencies

Business Owners, did you know that Jotform can serve as a versatile and efficient tool for bookkeeping? In the various ways described below, Jotform is designed to make business processes easier, more efficient, and a no-brainer when accomplishing tasks, and gathering information. Jotform offers a range of functionalities that can be effectively leveraged for bookkeeping purposes.  We’re diving deep into the realm of bookkeeping and accounting, exploring how Jotform transforms mundane tasks into seamless, efficient workflows. 

Jotform proves versatile in bookkeeping with features like customized invoice generation, efficient expense tracking, and streamlined submission of digital receipts. It simplifies client information collection, aiding in contact details, billing information, and other crucial data. The platform supports time tracking for freelancers, facilitates structured expense reimbursement requests, and aids in inventory management. Jotform standardizes financial report collection, seamlessly integrates client feedback with invoicing, and enables structured budget requests. Additionally, it serves as a centralized tool for managing contracts and agreements, while its integration capabilities with accounting software enhance overall bookkeeping efficiency by reducing manual data entry.

Efficient Workflows of Jotform

1. Invoice Generation:
Bookkeeping: Creating invoices manually.
Accounting: Recording and analyzing financial transactions.

2. Expense Tracking:
Bookkeeping: Managing day-to-day expenses.
Accounting: Analyzing financial data to make strategic decisions.

3. Receipt Management:
Bookkeeping: Organizing receipts for record-keeping.
Accounting: Auditing financial records for accuracy.

4. Client Information Handling:
Bookkeeping: Collecting and updating client data.
Accounting: Preparing financial statements for reporting.

5. Expense Reimbursement:
Bookkeeping: Processing employee reimbursement requests.
Accounting: Auditing expense reports for policy adherence.

6. Financial Reports:
Bookkeeping: Generating basic financial reports.
Accounting: Creating detailed financial statements for analysis.

Bookkeeping vs Accounting Tasks

  • Classifies, tracks, and records financial transactions
  • There are no strict legal and regulatory requirements
  • Prepares financial statements
  • Does not require licensing
  • Does not violate the generally accepted accounting principles 
  • Interprets and analyzes data to give advice
  • Follows legal, conceptual, and regulatory requirements
  • Processes financial statements prepared by the bookkeepers
  • Requires a license
  • Does not violate the generally accepted accounting principles 

By incorporating Jotform into your bookkeeping processes through these methods, you can enhance efficiency, accuracy, and overall organization in managing financial information for your business. Jotform emerges as a transformative tool that bridges the gap between bookkeeping and accounting tasks. Its adaptability, user-friendly interface, and robust features empower businesses to elevate their financial processes. 

For the latest updates, tax tips, and exclusive offers, follow us on Facebook, Instagram, and Linkedin.

Shemea Broom
Owner, Sapphire Taxes & Signing Services
Phone: 205-235-2373
Email: mea@sapphiretaxnotary.com