Frequently Asked Questions
Math errors are usually caught by the IRS. If the error was in the agency’s favor, it will send you a bill for any additional tax due. If you forgot to report income or claim a credit for which you are eligible, you should file an amended or corrected return. To claim a refund resulting from an error, you must file a return three years from the date of the original return’s filing.
You must make estimated tax payments if you expect:
to owe at least $1,000 in taxes after subtracting your withholding and credits, or your withholding and credits to be less than the smaller of 90% of the tax on your current year’s tax return or 100% of the tax shown on your prior year’s return.
A W-2 is issued by an employer to employees. It includes all compensation paid as well as income and social security taxes withheld on the employee’s behalf. A 1099-MISC is issued to non-employees who were paid at least $600 in miscellaneous income, such as rent, during the year. A 1099-NEC is a new form used to report non-employee compensation. This includes compensation payments to all independent contractors, gig workers, or self-employed individuals who previously had income reported in box 7 of 1099-MISC.
This is a complicated topic. Basically, the designation depends on the amount of control a person has over their work and when or how they perform it. The designation does not depend on how or when the person is paid or how many hours they work. The three basic factors are: behavioral control, financial control, and the relationship of parties.
A sole proprietor who does not have any employees, and who does not file any excise or pension plan tax returns, does not need an EIN. The sole proprietor uses their Social Security Number to file taxes.
An audit is an independent examination of the financial statements of a company. It provides reasonable assurance that the financial statements are free of material errors, and is the most detailed, time-consuming, and expensive of financial examinations. A review is a more cursory look at whether the financial statements were prepared using Generally Accepted Accounting Principles. A compilation is a restatement of financial statements. There’s also something called an agreed-upon procedures engagement, which is a detailed look at one particular area within the financial statements.
Your company’s debt covenants or loan agreements may require an annual audit. Some contracts, particularly those with a state or federal government agency, may also require an annual audit. If you are not required to have an annual audit, you may want to have a review performed instead. If you are concerned about one particular area of the financial statements such as cash receipts, then an agreed-upon procedure engagement may suffice. While a compilation may provide useful information, it is really just a basic summary of your company’s financial statements using data you provide.