Live Q&A: Ask Financial Experts anything about how to prepare your business for tax season!

[Tom]

Hi Sellers!

On Wednesday, January 20th, we hosted a live Q&A on an important topic: taxes! We were joined by Keila Hill-Trawick and Chris Browning, a Financial Analyst and creator of Popcorn Finance podcast, who answered your questions.

We recently partnered with Chris to create a podcast on how small businesses can prepare for tax season. In the episode, Chris interviews CPA Keila Hill-Trawick with Little Fish Accounting on how to get ahead and avoid common mistakes for tax time, such as combining your business and personal expenses. They discuss how using a business debit card, such as Square Card, is an easy way to draw a clear line between personal and business expenses.

Click here to watch the full episode on the Popcorn Finance YouTube channel: Avoid This Major Tax Mistake.

A few example questions:

• Why is it so important not to combine your business and personal finances? 
• When should I start preparing for tax season? 
• What are some tax tips or secrets that can apply to any business?

How can Square Card make things easier for you come tax season? 

Square offers a business debit card, tied directly to your Square Balance, so you can instantly access the money you process with Square. 

• Use labels for business and personal expenses in your Square app to make it easy to track your business expenses and keep them separate from your personal expenses. 
• Keep tabs on your money with simplified reporting. Download a Square Card transaction report to view your expenses so you can simplify balancing your books or filing taxes.

Learn more about Square Card.

*We aren't able to address account-specific questions in this Q&A. Those are best directed to our CS team via email or the phone to keep your account secure!

Thanks to all who participated and for all of your questions!

[Liana1]

What is the best way to report income if there is an overlap btw 1099 misc income receive from a client and 1099-k received thru square - and not double count income?

[lupesaenz58]

Make a list and compare them if they issue you two. Just count the one received through square and clip the other one behind it with all the invoices for future reference in case of an audit. 

[littlefish]

Hey Liana! The 1099-K only reports credit card transactions, so if a client paid you outside of the system or with a bank account, it won’t show up on the 1099-K. Remember that the main rule is that all income must be reported - whether or not you get a 1099, which means there might be income received for which no 1099 was received and offset the accidental double counting. If the form would truly double count income, I advise reaching back out to the client and requesting an amended 1099.

[Blayha]

What documents does a customer need in order for me to have the correct filing for taxes. For context, the customer has been paying me for services for the entire year and I guess my question is, Do I send them an invoice, or is there some other special 1099 form that I need to send them?

Thank you in advance for your help

Blay

[littlefish]

Great question, Blayha! 

If they’ve been paying for services the entire year, you’ve probably already invoiced them, so an additional invoice isn’t needed (luckily or we’d be double counting income!). If they have been paying via credit card, the amount will be captured on the 1099-K from Square and any other credit card processor. Otherwise, you should send over a W9 for any client for which income hasn’t already been captured, and they’ll use that info to prepare a 1099-NEC for your taxes.

[StilloLLC]

How do we obtain a monthly statement if we use the square card for business purposes?

[Tom]

Hi @StilloLLC — thank you for bringing this up. I checked in with our Square Payments team and monthly statements aren't available at this time. For now, you can get this information and download by heading over to the online Square Dashboard > Balance > Activity > All.

For more information and an illustration on downloading your payment history, have a look at our Support Center: Summaries and Reports from the Online Dashboard. Hope this helps for now, and thank you for your patience as we continue to make improvements.

[littlefish]

Hi @StilloLLC! Would add here that you’ll also want an accounting system to track all income and expenses, especially if you are using other accounts to make business purchases and / or receive income. This way, you can ensure that you’re capturing all relevant transactions for strategic decisions on the business, as well as tax preparation

[StilloLLC]

I currently use QuickBooks to track everything. I take payments through the Square software but to enter sales into QuickBooks I need a statement to see month to month transactions in detail. 

[Lizavila1986]

What documents will I need  from Square to do my tax return?

[littlefish]

Square will provide a 1099-K form that reflects all credit card transactions, which you’ll include as income on your return. Remember that all income must be reported, whether you get a form on it or not, so if you have received income via bank account, cash, or another payment processor, make sure that's included as income as well!

[RT32B]

What time does this start in central time? I don't see it listed.

[Tom]

Thanks for checking in, @RT32B! We'll be back to answer questions on Wednesday at 11:30am Central Time. It looks like you were able to drop in your question below and we'll be sure to tag you as soon as the reply to your post is live. Keep watch on your email inbox for updates or come back to this page on Wednesday for any followups. 💯

[RT32B]

Since I'm just starting off I have to file quarterly for Illinois. Am I only calculating for the taxes I've collected on my sales?  What about fee that square takes for each sale.  How do we calculated that fee in our taxes?

[littlefish]

Sales tax rules vary by state, but essentially the sales tax is captured and held, then paid back to the state so it’s a passthrough amount, not an expense. You are just a go-between, holding the money until it’s due to the state. It is neither income when received, nor an expense when paid. You can track/manage how much sales tax was collected by following these instructions: https://squareup.com/help/us/en/article/5061-create-and-manage-your-tax-settings. You can review your Square reporting to determine how much was collected in sales tax, and that amount should be sent back to the state from which it was collected.

The fee that is charged by Square on sales is considered a deductible expense, and should be recorded for tax purposes as a bank or processing fee. The actual sale amount would be recorded in your accounting system, and the Square charge would be backed out as a cost.

[littlefish]

Good question @RT32B.

Sales tax rules vary by state, but essentially the sales tax is captured and held, then paid back to the state so it’s a passthrough not an expense - you are just a go-between, holding the money until it’s due to the state. It is neither income when received, nor an expense when paid. You can review your Square reporting to determine how much was collected in sales tax, and that amount should be sent back to the state. 

The fee that is charged by Square on sales is considered a deductible expense, and should be recorded for tax purposes as a bank or processing fee. The actual sale amount would be recorded, and the Square charge would be backed out.

[RT32B]

I know that the taxable receipts is where I will pay my sale tax from. But what about the the online sales. If they're in the same state the square application handles that. What happens to the taxes on items I have to ship or even the shipping fees. Are these to be taxed as well.  For example: 

subtotal is $65.00 taxes on that 5.43 shipping 9.75 leaving a total of 80.18.  Is the shipping tax included in my totals on my spreadsheet for payments. Or would it just be my taxes for owed to the DOR?   

[littlefish]

Generally shipping charges are not taxable. You should ensure that within the system, you are charging sales tax on the product only (in your example, it looks like this is correctly being applied, if sales tax is being calculated prior to the shipping cost being added).

[pessosices]

Thanks @Tom !

Hey Chris - love the podcast! Thanks for being a part of this!

We have an accountant that we've been using for many years, so we send them over all of our documents for Tax time. What are some non-standard documents/things that most businesses might not think to send over, but can have decent benefits to including?

Thanks!

Pesso

[littlefish]

Hey Pesso! A couple that come to mind immediately are mileage and home office deduction info, as well as cell phone amounts. People often forget these because they’re not paid out of their business account but they're definitely deductible.