The Ultimate Guide to Independent Contractor Taxes – New Jersey

Independent contractors have to worry about federal income tax, self-employment tax, and local and state taxes when they file their returns. Sole proprietors use Schedule C with Form 1040 to report their business profits and losses to calculate the taxes they will have to pay. To avoid an underpayment penalty, independent contractors must also submit quarterly estimated tax payments each year. When you begin working for one or more companies, they should determine whether you should be treated as an independent contractor or employer based on several factors. If you are classified as an independent contractor, you will be responsible for paying both your portion and the employer’s portion of your taxes and will receive a 1099-NEC at the end of the year instead of a W-2 for your annual earnings. Here is what you need to know as an independent contractor about taxes from TMD Accounting.

Taxes Self-Employed People Must Pay

Independent contractors must pay federal, state, and local taxes and the federal self-employment tax. Here are the taxes self-employed people must pay:

  • Federal income tax at a rate ranging from 10% to 37% based on the total income for the tax year
  • Self-employment tax to pay into Medicare and Social Security with tax rates of 15.3% for net profits of up to $147,000 and 2.9% for net earnings above that amount
  • Additional federal taxes in some situations such as the net investment income tax, alternative minimum tax, and additional Medicare tax
  • State and local taxes, including income tax, registration and licensing fees, and business tax
  • Sales tax if you sell goods
  • Excise tax if you sell items such as guns, cigarettes, alcohol, or telephone services

Understanding the Self-Employment Tax

The self-employment tax includes a 12.4% Social Security tax on your net profits up to $147,000 and a 2.9% Medicare tax on all net earnings. This means you will pay a total self-employment tax of 15.3% on your earnings up to $147,000 and 2.9% on any earnings above that amount. If you have net earnings of more than $200,000 as a single taxpayer or $250,000 as a joint filer, you might also have to pay an additional 0.9% Medicare tax.

Available Deductions for Independent Contractors

There are many different deductions that might be available to independent contractors, including the following:

  • Home office deduction for contractors who work from home and use the office space solely for business purposes on a regular basis
  • Health insurance premiums
  • Retirement plan contributions
  • Depreciation of your equipment, machinery, and furnishings for your office and business use
  • Truck and auto expenses if used for work
  • The qualified business income deduction
  • Expenses for outside services and contract labor
  • Miscellaneous business expenses

Preparing to File Your Taxes as an Independent Contractor

Before you file your taxes, it is important for you to organize everything. You will need to know the gross amount you made as an independent contractor and how much you spent on tax-deductible expenses. Gather your 1099-NECs, profit and loss statements, expense statements and bills, receipts, and other relevant documents together.

Report Income and Deductions on Schedule C

When you fill out your Form 1040, you will use Schedule C to report your business income and deductions. You will report other sources of income, including rental income, dividends, and interest on Form 1040.

Report Net Self-Employment Income on Schedule SE

Once you complete Schedule C, you will then carry over the self-employment income to Schedule SE to calculate your self-employment tax. The self-employment tax will then need to be entered in your Form 1040 tax section.

Complete Form 1040

On your Form 1040, you will include all of your other non-business income. You can also claim non-business deductions on Form 1040, including things like student loan interest, charitable donations, self-employed health insurance, itemized deductions, and others.

Calculate Your Federal Taxes

When you enter everything into your Form 1040 and perform the calculations, you will see your total federal tax obligation. After you subtract your estimated tax payments made during the year, you will either owe taxes or have an expected refund.

Estimate Your Taxes for the Next Tax Year

As a self-employed person, you will need to estimate the taxes you’ll likely owe in the next tax year so that you can divide that amount into quarterly estimated payments to send each quarter throughout the year.

Complete Your State Income Tax Return

Once you have completed your federal tax return, you will then need to complete your state return.

What Happens if You Can’t Pay?

If you can’t pay your taxes in full, you can complete Form 9465 to request an installment arrangement. However, you can’t owe more than $25,000 and must show that you do not have the means to pay your taxes. You will then have three years to pay. The IRS will penalize you for waiting to pay your taxes after the deadline. If you fail to file a tax return by the deadline, you will be assessed a 5% penalty for each month of the outstanding amount you owe but haven’t paid. If you submit your return on time but do not pay what you owe, the late payment penalty will be 0.5% of the tax owed for each month you are overdue.

Find an Accountant for My Small Business

Small business accounting services can help to make filing your taxes simpler. If you are self-employed, working with TMD Accounting might help to ensure your taxes are filed on time and correctly and that you claim the deductions that are available to you. Contact us today to schedule an appointment at 1-856-228-2205.

How to Find the Best Business Accountant for Your Small Business in South Jersey

Running your business is difficult enough without including managing your business’s finances and books. Financial management of your company can involve potential landmines. If you make a wrong choice, your business could lose money, face penalties, and deal with tax consequences. To make sure that you avoid accounting errors and ensure your books are accurate, you might consider hiring an accountant. Finding the right firm for your small business accounting needs will require you to know the steps to take. Here is some information to get you started from TMD Accounting.

Why Do I Need an Accountant for My Small Business?

If you’ve never worked with an accountant, you might not understand whether you need one for your business. There are multiple reasons why you should work with an accountant to help with your business’s finances. Some of the benefits an accountant can offer include the following:

  • Ensure the accuracy of your books
  • Assist your business with budgeting
  • Simplify tax filing
  • Provide strong device for business decisions
  • Answer your accounting questions
  • Ensure your bases are covered in the event of an audit

An accountant can ensure that your books are current and accurate. While accounting software can help with tracking day-to-day transactions, you should partner with an accountant to review your books on a regular basis.

Identify the Accounting Services You Need

Once you’ve decided that you should find an accountant, you will need to determine which accounting services you will need. Some of the types of services accountants offer include the following:

After you have determined which services your business needs from an accountant, you can move forward with searching for the best accounting firm to meet your needs by taking the following steps.

Ask for Referrals From Other Business Owners

A great way to narrow down your list of potential accountants is to ask others you trust for referrals. Ask your family, friends, and fellow business professionals for their recommendations of the accounting firms they trust. You can also ask your attorney or your banker for recommendations and ask members of your business network.

Once you have gathered several referrals, research the options by reading online reviews. Make sure the reviews you read are authentic by checking their consistency over time and the validity of the profiles that the reviews are attached to.

Research on Your Own

Whether or not you receive quality referrals, it is also a good idea to research on your own to find the best accountant. Try searching online, reading reviews, and looking at a business directory. When you read reviews, be sure and read both those that are positive and those that are negative. This can provide you with a picture of the experiences of others. If you identify accountants in a business directory, follow up by searching the firms online to read about others’ experiences. Once you have done your homework, you should have a list of a few prospective firms.

Interview Prospective Accountants

Once you have a list of a few accounting firms, schedule time with each one to interview them. This can help you see which accounting firm will be the right fit for your company. Prepare some questions to bring with you so that you know what to ask. Some of the types of questions you should consider include asking about their services, their fees and fee structures, any additional fees they charge for specific services, their communication methods, and the types of clients they typically do business with.
You should also ask about the accounting programs they use, their credentials, and their experience with businesses in your industry. You should ask more questions than you might think are necessary because doing so can help you identify red flags. For example, if an accountant overpromises, doesn’t have credentials, or seems to embellish their accomplishments, you might want to steer clear. Make sure to interview several accountants so that you can compare the pros and cons of each before you decide.

Choose Your Accounting Firm

Once you have interviewed potential accountants, you will need to make a decision about which one to hire. In addition to weighing the pros and cons of each one, make sure to consider whether you are compatible with the accountant you are considering. You will need to work closely with your accountant, so picking one you trust and believe you can do business with is important. After you decide on a firm, contact the accountant to get started.

Contact TMD Accounting

If you are searching for an accountant for your small business, it is important to take the necessary steps to research and interview several potential firms to ensure you find one that meets your business’s accounting needs. TMD Accounting has provided small business accounting services to many different businesses throughout New Jersey for 40 years and has extensive experience helping companies in a variety of different industries. To learn more about the services we can provide, contact us today to schedule a consultation by calling 1-856-228-2205.

Why Your Law Firm Needs a Specialized Accountant

Law firms have unique financial needs that must be addressed differently than how other types of businesses handle their finances. A law firm’s need for specialized accounting applies to both the firm’s business and accounting strategies and how they track and manage various types of accounts. Because of the requirements law firms have, they can benefit from working with accounting firms that offer small business accounting services to attorneys. TMD Accounting provides accounting services that focus on the unique accounting needs of law firms and can help your firm stay on track.

Help With Income Forecasting

Most law firms use billable hours to determine how much to charge clients. Many attorneys charge for their time in six- or 10-minute increments. Tracking billable hours can be a headache for many attorneys. To ensure that your firm is accurately determining its billing, we can help you transition to tools in the cloud to track your lawyers’ hours. Using the cloud can help you to accurately and efficiently track billable hours for every client while reducing or eliminating time losses. Many small- and mid-sized law firms contend with income fluctuations, which make managing your firm’s cash flow important to your success. Our accountants help law firms to manage accounts payable, create forecasts, and reduce the time involved with receiving payments for accounts receivable.

Optimizing Taxes

Employment agreements with attorneys can be structured by law firms in different ways. Some firms pay attorneys as independent contractors. Others hire lawyers as full-time, salaried employees. Some agreements might include profit-sharing or bonuses. What might work for your firm will depend on several factors. An accounting firm that specializes in providing services to law firms can help you choose the structure that works the best for your business.

In addition to your employment agreements, you also need to ensure that you have the right business structure. The business structure you choose for your law firm can affect the taxes you might pay. We can help you choose the structure that will provide you with the most tax advantages.

Tracking Trust Funds

Law firms must keep their clients’ funds in separate trust accounts and cannot commingle them with their other money. Many firms ask for retainers upfront before they begin work. Firms must follow strict rules when they hold client funds in a trust account for recordkeeping and client notification. It is critical for you to avoid commingling the funds with your firm’s money or using one client’s money to pay for services you provide to another client. If you mismanage your trust accounts, deposit funds in the wrong account, or fail to meet your recordkeeping and reporting requirements, you could face significant penalties, including the possible suspension of your law license. A specialized accountant can help to track client funds to ensure you avoid these types of mistakes.

Matter Cost Tracking

Law firms have both direct and indirect costs. You must correctly identify which costs are direct and indirect. The accounting for direct and indirect costs must be handled differently. Our accountants can help to identify which costs are direct or indirect and account for them properly.

How to Choose the Right Accounting Firm

Choosing the right accounting firm to handle your law firm’s accounting needs is important. Here are some tips to find the right legal accountant for your firm.

1. Ask About the Company’s Experience

While finding an experienced accountant is important, you want to find an accounting firm that has significant experience working with legal clients. Ask a prospective accounting firm about its experience working with law firms.

2. Ask About the Services Provided by the Firm

You will want to know about all of the services the accounting firm offers to law firms and their levels. For example, you will need to determine the degree of control you want to give the accounting firm over your bookkeeping. If you want comprehensive accounting services, you will want to look for a full-service firm. Some firms have bookkeepers to handle daily transactions. Others might charge more if you need to hire a certified public accountant to handle regular bookkeeping tasks.

3. Ask About Audit Support

It is a good idea for you to find an accounting firm that offers help in case your law firm is audited by the state or the Internal Revenue Service. The state licensing body can audit law firms to ensure they are accurately tracking and handling client funds, and the IRS audit can happen to anyone. Undergoing an audit can be stressful. If you have a trusted accountant’s help during an audit, it can greatly reduce your stress because you can feel confident in the accuracy of your financial data.

4. Ask About Fees

Accounting firms have different payment structures. Some charge flat fees for each task performed while others charge by the minute. You will want to understand your accountant’s fee structure so that you will know whether your accountant’s bill will increase each time you make a phone call or whether it will be calculated by task.

5. Ask for References

It is a good idea to ask other law firms about their experiences working with the accounting firm you are considering. Word-of-mouth referrals can help you determine which firms are known to provide good specialized services to law firms. You can also ask the firm you are considering to provide you with references from law firms that have used or currently use their services. Follow up with any references you are provided to ask about their experiences.

Talk to an Accountant for My Small Business

As an attorney, it is critical for you to carefully track your firm’s and your clients’ money. Working with an experienced accountant at TMD Accounting can help to ensure you meet your regulatory requirements and grow your practice. Contact us today for a consultation by calling 1-856-228-2205.

Cash vs. Accrual Basis of Accounting – What’s Best For Small Business?

Choosing the right accounting type for your small business can be a challenge. Cash and accrual accounting might seem similar, but choosing the wrong one can hurt your financial reports. When you know which one works for your purposes, you can keep all your books in order. Here are the differences between cash and accrual accounting.

What Is Cash Basis Accounting?

Before choosing the right accounting method, you need to know the basics. Let’s start with cash basis accounting. When you use these methods, you will record the income as it is received. All expenses are recorded when paid as well. With cash basis accounting, you only record the money when it enters or leaves the account. For example, if you have a restaurant that purchased supplies on credit for June but will not pay the bill until July, it is recorded as a July expense. With these accounting methods, you will not have any accounts payable or accounts receivable.

Since cash basis accounting is a simple way to track your financial records, many small businesses and sole proprietors use this method. If you make less than $25 million in annual sales with no direct-to-consumer merchandise, then cash basis accounting could be a good option. Cash basis accounting has a shorter learning curve than accrual accounting. There are a few items to record, making tracking your revenue and expenses more manageable.

Unfortunately, cash basis accounting does not provide you with the most accurate financial picture. You might think you have a high cash flow when it is just the result of your previous month’s work. Cash basis accounting does not conform to the GAAP standards. If you think your business will grow in the future, you might not want to choose this method.

What Is the Accrual Method?

With the accrual accounting methods, all expenses and incomes are recorded when earned and billed. This method abides by the generally accepted accounting principles (GAAP). With these methods, you will have a clearer picture of your finances. For example, if your business bills a client for $1,000 in March, you record that income for the month, even if the funds don’t reach your account until April. The same is done for expenses.

Some small businesses use accrual accounting as their primary method. However, if your company produces over $25 million in sales revenue during a three-year period, you must use the accrual method.

Many small business owners avoid accrual basis accounting because it is resource-intensive. There will be plenty of extra steps and paperwork associated with this method. You will need to have an adequate cash flow to ensure all bills are covered from month to month. Unfortunately, this method does not provide an accurate short-term view of your financial health.

Accrual Vs. Cash Basis: Which Is Better for Small Business?

Now that you know the basics of these accounting methods, it is time to choose the right one for your small business. If you have a small business that primarily takes cash transactions and does not have a large inventory of products, then the cash basis method might be the right choice for you. This method is a reliable, convenient, and easy way to track your expenses and revenue without knowing much about bookkeeping.

Accrual accounting is definitely the better option if you want an updated and accurate accounting of your company’s financial health. For the most part, accrual accounting can be a little intimidating. You can always hire small business accounting services to help with your finances. Here are some other factors to consider when choosing your accounting method.

Sales Revenue

You should take a look at your sales revenue. If you have more than $25 million in annual revenue, you must use the accrual methods according to GAAP. Many small businesses might not have hit that amount, but it could be a possibility in the future. Keep that in mind for your business.

Complexity of Your Business

Depending on the complexity of your books and industry, one accounting method might be the better choice. For example, you should avoid the cash-based accounting method if your business has multiple accounts, various LLCs, and hundreds of employees. With those methods, you will not be able to gather information about your financial picture from the balance sheets, cash flow statements, or income statements.

Public Company

According to the GAAP guidelines, if you have a public company or one that will go public in the future, you need to use the accrual basis. These types of businesses have to report an accurate view of their financial health to shareholders.

Final Word

Before choosing the right small business accounting method, you must thoroughly examine your company. While you can always switch the methods later, it can be a hassle and disrupt business. Many accounting tools and professional services help you accurately account for your financials. Whether you choose accrual or cash basis accounting, you always want to select the right option that will work for your business. Plus, you must make sure to stay compliant with those GAAP standards.

Do you need an accountant for my small business? Reach out to TMD Accounting. Whether you choose the cash basis or accrual accounting method, we will make sure you have an accurate record of your financial health. We have helped small businesses throughout Gloucester County for over 40 years. Schedule your consultation by calling 1-856-228-2205.

How to Change Accountants 

As a small business owner, you likely understand the importance of working with an accountant who understands your business and works to help you meet your goals. If your current accountant is not the right fit, you might wonder about how to go about switching to a new accounting firm. At TMD Accounting, we have provided small business accounting services to many companies over the past four decades. When we meet with new clients, many express they were frustrated with their former accountants because of poor communication. We always maintain strong communication with our clients to ensure they understand their finances and where they are at. Here is some information about steps you can take to change accountants with minimal disruption to your business’s operations.

1. Know Why You Want to Change Accountants

If you feel dissatisfied with your current accountant but are hesitant about switching, think about the reasons why you are considering a change. Business owners choose to change accountants for many reasons, including poor performance, lack of communication, or failure to provide good advice. Some businesses hesitate to change accountants because of fear. However, it doesn’t have to be difficult to switch to a new accounting firm. Small issues you are currently experiencing with your accountant can grow if you put off changing to a new firm. Understand why you want to switch and move forward with the process. You will likely feel relieved once you do so.

2. Find a New Accountant

Once you understand your reasons for wanting to change accountants, you will want to find a new firm before you end your relationship with your old one. Some of the characteristics you should look for in a new accounting firm include good communication skills, experience in your industry, the right credentials, excellent reviews, and the right types of services for your business.

A good accountant should allow you to contact them as often as you need without charging extra. Quality accountants understand that allowing their clients to ask questions means that they will not have to fix as many things later. Other firms charge clients by the minute for asking questions. Schedule a consultation with a prospective firm to help you determine whether the accountant is a good match for you.

You will also want to find an accountant who has experience working with companies in your industry. This helps you to ensure your regulatory compliance. Working with an accountant who understands your business and your industry also helps them to provide strong business advice.

The firm you choose should also have the right credentials. Look for a firm with accountants who are certified public accountants or enrolled agents. Ask the firm about the continuing education their accountants attend and what they do to remain current with changes in the tax laws.

Looking at reviews of a prospective accountant is also a good idea. However, make sure the reviews you read are authentic by checking whether they are provided by people with real profiles, are specific, and are posted over time instead of bulk reviews that suddenly appear all at once.

Finally, make sure the accounting firm you are considering offers all of the types of accounting services your business needs. If you are outsourcing multiple services, choosing a firm that offers all of them can help to simplify how many companies you have to regularly contact.

3. Notify Your Current Firm

It might be difficult for you to notify your current firm that you are moving on. While it might seem awkward, you still need to have the conversation. Your new accounting firm might assist with the process by helping you choose the service end date with your current firm, settling unpaid bills, and facilitating the exchange of records. Some businesses avoid this step because of its awkwardness, but you must notify your current firm of your planned move to ensure your records are transferred smoothly without any problems for your business.

4. Set Expectations With your New Firm

When you first start working with your new firm, you should make certain your accountant understands your reasons for switching to them and the expectations and goals you have for your business and your partnership. Establishing your goals and expectations at the outset can help to ensure that both you and your accountant will be able to focus on growth opportunities and stability for your company. You should expect to have meetings with your accountant to make sure that you are set up to succeed. Your accountant will want to understand your business completely to help you create a goal plan and establish best practices.

Find an Accountant for My Small Business

While realizing that you need to change accountants might feel intimidating, you should trust your instincts and move forward. Working with an accounting firm that is a better match for your business can make a world of difference in your business’s success and growth. It is not as difficult as you might think to change accounting firms. When you approach the process professionally, it can be fairly smooth. TMD Accounting provides a full menu of services for businesses in numerous industries and can help you determine whether we might be the right fit for you. To learn more about the benefits of switching from your current firm to us, contact us to schedule a consultation at (856) 228-2205.

Bookkeeping vs Accounting: Which is Right for Your Business?

Is there a difference between bookkeeping and accounting? If you have a small business, you know it can be challenging to keep an accurate record of your financial information. There are key differences in the roles that an accountant and a bookkeeper play for your business. You can better view your financial health, prepare for the future, and get a handle on those day-to-day finances with help from these professionals. Here is what you need to know about bookkeeping and accounting for your business.

Bookkeeping and Accounting Differences

Bookkeepers and accountants have different roles. While they have a common goal and similar tasks, these skill sets are used for various purposes. Take a look at these differences.

A bookkeeper will help to answer your day-to-day financial questions. These professionals can produce financial statements, such as a balance sheet. A bookkeeper will balance your ledger, record daily transactions, maintain expenditures and income records, and enter your credits and debits.

An accountant works a little differently. These professionals will analyze your business costs, provide macro-financial advice, and adjust the ledger entries. An accountant also prepares your taxes and helps you with in-depth budgeting. Plus, you can get assistance with strategic planning. Sometimes, you don’t have to find a separate bookkeeper or accountant. Some small business accounting services will handle all of these tasks for your company.

Maintaining Your Books

You should find a reliable bookkeeper if you need someone to manage the books. These individuals will maintain a ledger. Mostly, they use a software program to track those finances and ensure the books stay balanced. They record every transaction to an account for your expenses and income. You will want a reliable bookkeeper when you need a day-to-day picture of your financial health. When your books are maintained daily or weekly, you will never have to pay “catch up” when it comes time for taxes.

When it comes to your ledger, your accountant usually determines the accounting method, whether it is the cash basis or accrual method. The accountant will use these books to assess your business and help you make plans. All that information on the ledger will assist your accountant in preparing your tax documents.

Offering Business Advice

You can count on your accountant and bookkeeper to be key advisors for your business. When your bookkeeper works on your ledger, they can detect potential red flags if any issues arise. Since a bookkeeper has a more micro view of your books, they can help provide advice about budgeting and spending for the short term.

On the other hand, your accountant is an invaluable resource when it comes time to understand your larger financial picture. Every quarter, your accountant assesses your company’s financial statements to understand your profit, losses, and cash flow. Additionally, they can provide you with updates about the potential financial issues with your business. An accountant helps you understand how certain decisions will affect your financial goals.

Creating a Financial Strategy

When you have accurate records, you can see how your money flows on a short-term basis. With that information, you can decide where to take your business in the future. While the bookkeeper works hard to strengthen your company’s foundation, you need an accountant’s help with those future plans.

A skilled accountant will help you scale and plan for the future. They will analyze the books to see what works or needs to change. In most cases, they can help your business move into the next phase of your plans. Accountants can assist with other tasks, such as strategic tax planning, calculating growth, analyzing investments, and acquiring assets.

Bookkeeper vs. Accountant: Which Is the Right Choice for You?

If you want someone to handle the day-to-day finances of your business, choose an experienced bookkeeper. Accurate record-keeping is an essential aspect of your business. With help from a trusted bookkeeper, you can make that process more manageable and straightforward.

When you need to have a big picture outlook and assistance with strategic planning, an accountant can help. For example, if you want to acquire real estate, an accountant can incorporate your ideas and analyze your finances so that you can make the right choice for your business.

All businesses need to keep track of their expenses, transactions, and income. Do not think that you have to choose one professional over the other. These professionals can work together to give you a better overview of your short-term financial health and long-term financial goals. Some accounting services can handle all these responsibilities so that you can get the best of both worlds.

The Bottom Line

Every business owner needs to understand the financial side of their company. Bookkeepers and accountants can help make the process easier when it comes to your records. These professionals will work together to help with your finances.

You will want an experienced bookkeeper to set up your books and maintain them for your business. A skilled accountant understands your business beyond those day-to-day activities so that you can make smarter financial decisions. A bookkeeper and accountant can set up your business for success, allowing you more free time to focus on other matters.

Need an Accountant for My Small Business?

At TMD Accounting, we helped small businesses plan for the future and manage those day-to-day financial duties. We are a flexible, affordable, and reliable option in the area. Whether you need help with tax preparation or payroll, our team will assist your business. Schedule a consultation by calling 1-856-228-2205.

Smart Accounting Practices for Independent Contractors

Smart Accounting Practices for Independent Contractors

Under current tax law, an independent contractor is classified as a business. Independent contractors need to pay taxes and keep accurate bookkeeping records. While you probably become an independent contractor to get away from the typical workday, it doesn’t mean that there are no responsibilities. Keeping track of your finances can help grow your business. Here are a few smart accounting practices you should use as an independent contractor.

 

How Independent Contractors Differ from Employees

Anyone who works a traditional job for a company is classified as an employee. The company will withhold and report a portion of its employees’ wages. Social Security, Medicare, unemployment, and tax liabilities are withheld from the employees’ checks. At the end of the year, all the taxable income is documented on a W-2 form filed with the IRS.

 

As an independent contractor, you are not classified as an employee. The opposite is true. Yes, there is a lot more freedom with this type of work, but you are responsible for keeping track of expenses, paying quarterly taxes, and maintaining all bookkeeping. Most employers will pay workers’ compensation, unemployment taxes, and payroll taxes. In addition to that, the company contributes to a 401(K) and pays some health insurance premiums. When you are an independent contractor, you must cover all those costs.

 

Why Bookkeeping Is Essential for Independent Contractors

As you can tell, you have a big obligation as an independent contractor. That is why you need to keep up-to-date and accurate records for your business. It can be easy to fall behind on these duties. You could get involved in a project or forget to add an entry.

 

However, you must properly record every expense and payment in your books. Otherwise, you will have difficulty determining your payments during tax season. Proper bookkeeping will allow you to set up financial reports so that you can plan for the future. Organized books ensure that every invoice is sent and all bills are paid.

 

If you need help with bookkeeping, consider hiring a company specializing in small business accounting services. These professionals can help manage your bookkeeping and assist with other accounting responsibilities. With that, you can save time and prevent any problems with incorrect entries in the future.

 

Smart Accounting Practices

Now that you know the importance of good bookkeeping and accounting, here are a few smart accounting practices to incorporate into your business.

 

Choose Your Accounting Method Wisely

As an independent contractor, you have two accounting methods: cash-based or accrual-based accounting. A cash-based method is simple. It tracks your income when you receive it and documents those expenses as they are paid. Accrual-based accounting records your income when earned but not received. With that, you can account for the money when a project is finished, giving you a better look at your future finances. If you want to know which accounting methods will work for your business, reach out to a trusted accountant. They can help you find the process that will work for your independent company.

 

Pay Estimated Taxes

As an independent contractor, you need to pay self-employment taxes to the IRS for Medicare and Social Security. These taxes are paid when you file a Schedule SE. The schedules are included with your Form 1040. Before filling out the SE, you need to calculate the total income/loss with a Schedule C.

 

When you complete more than $600 of work from a client, they need to file and send a copy of Form 1099-MISC. The client should also send all of that information to the IRS. Independent contractors are responsible for saving money to pay taxes on a quarterly basis. Paying those estimated taxes can help you avoid any unexpected tax liabilities. You should save between 30% to 40% of your income for taxes.

 

Track Expenses

If you don’t want to deal with financial surprises, you need to track everything. You must document all the money sent in and out of your account. All that documentation can protect you in the event of an audit. Today, there are many ways to track your expenses and income. You can hire someone or use a software program. Whatever method you choose, select one that you can use on a daily basis. It is vital to record everything, including:

  • Equipment purchases
  • Hours spent working on a project
  • Hours billed to a client
  • Invoices paid to you
  • Phone and internet bills
  • Bank transfers
  • Office supplies
  • Accounting software and other costs
  • Web hosting and design costs

 

Don’t Mix Personal with Business

Remember to keep those finances separate. You should open a bank account specifically for your business. With that, you can separate your finances from your personal accounts. Along with helping to ease the bookkeeping duties, a business banking account can help prove that your expenses are tied to the business.

 

Ask for Help

You might want to handle these duties by yourself, but it is okay to ask for a bit of assistance. A professional bookkeeper or accountant can help manage those books and finances. With their help, you will have the most accurate data for your records. All of that goes a long way to help with your taxes and plan for a brighter future.

 

Bookkeeping and accounting can be overwhelming, especially when you have other responsibilities. These services will ensure that all invoices are sent, and you are paid. Most importantly, they can maintain order and accuracy in your books. Yes, you could try to keep up-to-date on these records, but it can be a time-consuming task. With help from a professional service, you can benefit from their expertise whenever you need it.

 

Need an Accountant For Your Small Business?

At TMD Accounting, we understand it can be challenging for small businesses to take care of those accounting and bookkeeping responsibilities. For over 40 years, small and large companies have trusted us for their payroll, taxes, and bookkeeping services. We are a reliable and affordable way to manage your financial health. Schedule a consultation by calling 856-228-2205.

 

How to Find the Right CPA for Your Small Business in South Jersey

How to Find the Right CPA for Your Small Business in South Jersey

When you operate a small business in South Jersey, you have plenty of things on your mind. However, you might not be thinking about the accounting side of operations. Your business needs money to thrive so that you can offer services and products to those customers. You need a professional to help keep track of that money, and a Certified Public Accountant (CPA) is the person for that task. Finding a qualified CPA for your small business can be challenging. We have some tips for finding the best CPA for your South Jersey small business.

 

Why You Need a CPA for Your SMB

You already know that you need to maintain your small company’s finances. While you could handle those responsibilities by yourself, consider hiring an accountant for your small business. A professional accountant will take care of those little financial details. They can help with bookkeeping, prepare profit-and-loss statements, and file tax returns.

 

A CPA is an accountant who has met all the experience and educational requirements for the state of New Jersey. They have also passed the Certified Public Accountant exam.

 

When you work with a CPA, your finances are in good hands. Remember that a CPA does not make your business decisions, but they can provide you with the best advice to make an informed one.

CPAs can help with:

  • Tax audits and assistance
  • Financial planning and tax advice
  • Consulting and management
  • Forensic accounting
  • Payroll administration
  • Bookkeeping

 

Keep in mind that a CPA can do more than file taxes or update your books. Running a small business is complicated. You have many responsibilities on your plate. While you might want to handle the financial side by yourself, it can be overwhelming. A CPA will ensure that all of your records are up-to-date and accurate. With their help, you can take some of those duties off your list.

 

What To Look for in a Small Business CPA

Before you start searching for a CPA, you need to decide what duties you want them to handle. Will you need a full-time financial advisor or just want them to take care of payroll? Once you have decided what you need for your small business, you can begin the search.

 

Many people turn to the internet for a reputable CPA. With an online search, you will have a list of CPAs in the area. Make sure to check all of their credentials. Online searches are notorious for having inaccurate information. You may think you are working with an experienced accountant, but they might not be an official CPA.

 

It is crucial to find a person who has passed the exam for a Certified Public Accountant. You need to know that they have met all the requirements and are licensed. Along with the exam, CPAs must continue to fulfill their education requirements to stay up-to-date with local, state, and federal tax laws. If you hire them to prepare your taxes, they must have a Preparer Tax Identification Number (PTIN).

 

After that, make sure the CPA is someone you can trust. Remember, you are counting on them for financial help and guidance. A trusted CPA will have established an excellent reputation in the community. These small business accounting services are the ones that have helped local businesses with their accounting needs. Find someone with a stellar record to assist with your taxes, payroll, or bookkeeping.

 

Once you have narrowed down your search, don’t be afraid to meet in person, especially since they will handle your money. If the accountant does not want to meet, you might want to find someone else for the job. CPAs know it is a big responsibility to manage someone’s financial records. They want you to feel confident in their abilities and will gladly meet to discuss your needs.

 

Some small business owners are hesitant to schedule a meeting. Bring a trusted friend or mentor to get an unbiased opinion about the CPA if you don’t want to meet alone. You can determine if you want to proceed with a working relationship by scheduling a consultation.

When you have found a CPA, always bring a few questions to the meeting.

 

Questions To Ask a CPA Before Hiring

For the meeting, you will want to have some questions on hand. Ask about the size of the team, their accounting services or specialties, and their experience. Here are a few other questions to get you started.

 

“How Long Have You Been a CPA?”
This answer should be straightforward. While you may want to give someone a start in their career, you should hire a CPA with at least two years of experience.

 

“Are You Available Year-Round?”
If you need a CPA for a one-time job, this answer might not seem like a big deal. You should hire someone who works as a CPA as a full-time job. When you have a question, you want to know that they are only a phone call away.

 

“Can You Represent Me in an Audit?”
Most CPAs are called Enrolled Agents. If you get in trouble with the IRS, they have the authority to speak for your business and represent you. In the event of an audit, you will want someone in your corner.

 

“How Many Employees on Staff?”
Many CPAs will have staff members who assist them. You will want to know who will handle your account, learn about their qualifications, and find the best ways to communicate with them.

 

“How Much Do You Charge?”
Always ask about how they bill and the fees associated with those services. Some CPAs might bill hourly, while others charge a straight fee for their services.

 

Looking for a CPA for Your Small Business?

Now that you have all this information, it is time to find a qualified CPA for your small business. At TMD Accounting, we are a family-owned business that has served Gloucester County for over 40 years. We are an affordable, flexible, and reliable option for your accounting needs. Schedule a consultation by calling 856-228-2205.

 

What Are The 5 Types Of Accounts In Accounting?

What Are The 5 Types Of Accounts In Accounting?

Documenting the financial information for your business can help you understand your profits, costs, and overall value. By reviewing your accounts, you will know your company’s financial health and make plans for the future. There are several types of accounts that can help with this task. If you are ready to have a clearer outlook on your financial picture, let’s look at the five types of accounts found in accounting.

 

What Is an Account?

In basic terms, an account is a specific record in your balance sheet or financial ledger. These reports will document the financial activity in your business, such as verifying cash on hand or reporting daily transactions. Companies will use several accounts to keep track of their financial records. Some of the most common accounts include assets, expenses, liabilities, equity, and income. These accounts are used for different purposes, and you must update them daily or weekly.

 

Five Types of Accounts in Accounting

Now that you know about the most common account types, let’s take a deeper look at them.

 

1 – Assets

You must include your company’s tangible and intangible items in the asset account. For example, if you have business laptops, those are known as tangible assets. These are physical items. Design patents would fall into the intangible category. Intangible items do not take a physical form. Other tangible and intangible assets could include:

  • Vehicles
  • Equipment or machinery
  • Property or office buildings
  • Trademarks or copyrights

If you want to find the asset value of these items, gather a few pieces of information. First, you need to know the current value of your assets. For example, an antique store could have:

  • $30,000 in cash
  • $200,000 in property
  • $400,000 in antiques

To find the value, use this simple formula:

  • $30,000 + $200,000 + $400,000 = $630,000

By adding these values together, the antique store has an asset value of $630,000.

 

2 – Expenses

Another vital account focuses on those expenses. The expense account can include purchased services or products that helped generate income for the company. For example, some of these purchases may have helped boost the productivity of distribution or manufacturing operations. Common expenses can include:

  • Marketing costs
  • Employees salaries
  • Facility costs

If your company sends employees on a business trip, you must document those costs in the expense account. However, you never want to include personal expenses in these accounts. Otherwise, you will need to separate these expenses, which can turn into a bookkeeping nightmare. Use this example to find your expenses:

 

A pet grooming company wants to calculate the value of its costs. First, the company needs to look at all of the expenses from the past year, including:

  • $12,000 in pet shampoo and conditioner
  • $1,000 in other grooming supplies
  • $350,000 in employee salaries
  • $1,000 marketing costs
  • $24,000 facility costs

Add all those expenses together to find the value:

  • $12,000 + $1,000 + $350,000 + $1,000 + $24,000 = $388,000

By looking at these values, the pet grooming company had $388,000 in expenses for the past year.

 

3 – Income

If you want to know whether you have a successful business or not, you must record your income. An income account records all of your company’s money from selling services or products. Some income accounts will even include business dividends from investments. Keep in mind that you should record actual investments in the asset account. An income account is a place where you will maintain all the data about the company’s profits. If you want to find the income value of a business, take a look at this example:

 

An industrial roofing company wants to calculate the income from the recent quarter. The sales are:

  • $150,000 in roof installations
  • $350,000 in new roof sales
  • $79,000 in roof repairs

By adding all of those values together, they can find out the income value:

  • $150,000 + $350,000 + $79,000 = $579,000

The most recent income from the quarter is listed at $579,000.

 

4 – Liabilities

The liabilities account will include payment obligations, outstanding debts, and other scheduled payments. Some examples of liabilities include:

  • Account overdrafts
  • Late utility bills
  • Business loans
  • Outstanding maintenance costs

Make sure to document all liability costs that apply to your business. When you record them, you need to account for any interest costs that can accompany these current liabilities. Take a look at this example:

 

A property management company wants to find its liabilities over the year. They owe:

  • $500,000 in property mortgages
  • $77,000 in business loans
  • $600 in late utility bills

Once again, add these values to get the liabilities:

  • $500,000 + $77,000 + $600 = $577,600

As you can see, the property management company has $577,600 in liabilities.

 

5 – Equity

Finally, we can look at equity accounts. These accounts show the value of your assets after you have deducted liabilities. The value can represent the current worth of your business. If you want to find the equity account’s value, you need to create a balance sheet with an itemized list of the assets and liabilities. Take the total costs of the liabilities and subtract that from the total assets. Once you have that figure, you can understand the current equity level of your business. Look at this example:

 

A delivery company wants to calculate its equity. Their liabilities and assets are listed as:

  • $865,000 in assets
  • $411,000 in liabilities

Subtract the liabilities from the assets to find the equity value:

  • $865,000 – $411,000 = $454,000

The current equity value for this company is $454,000.

 

Keeping These Accounts Can Be Challenging

Even with the above examples, it can be hard to keep track of all accounts. Consider using small business accounting services. You will not have to figure out complicated formulas or try to manage records. All of that is handled for your business. Plus, you will know that these accounts are up-to-date with accurate records.

At TMD Accounting, our team has helped small and large businesses in Gloucester County with their accounting, bookkeeping, and tax needs. If you need an accountant for your small business, schedule a consultation by calling 856-228-2205.

 

Understanding Healthcare Accounting Practices

Understanding Healthcare Accounting Practices

Knowing the fundamentals of hospital accounting is important for several reasons. First, it can help the accounting team understand what systems are needed for record-keeping purposes. Secondly, accounting allows executives to invest in their facilities’ tools, equipment, and staff. As a result, accounting can help provide better healthcare for patients in the community.

 

Why Is Accounting Important in Healthcare?

There are many reasons why healthcare accounting is vital for the medical industry and the community. Accounting practices can impact the day-to-day operations of hospitals, medical offices, and healthcare facilities. Without the proper staffing or supplies, it can affect the staff’s ability to do their jobs.

 

How does accounting play into this scenario? With the proper accounting methods, administrators can set a budget to ensure that the medical staff can help their patients. The facility will have enough supplies and equipment to give proper medical treatment to their patients. Plus, there will be enough nurses, doctors, and other medical personnel on staff.

 

A healthcare budget goes beyond the necessary supplies, equipment, and staffing. When there is no budget in place, it can impact all aspects of healthcare. Patient satisfaction can be affected by poor accounting. If you cannot offer the proper services, they will go elsewhere for their healthcare needs.

 

Proper accounting can also impact the facility’s life. Any healthcare facility that doesn’t adequately monitor its money flow or set a budget will not be in business for long. Accounting helps to bill clients, process claims, and manage revenue cycles. Healthcare managers need to understand their accounting practices so that the facility can bring in revenue to support a long-term operation.

 

Accounting practices can also maintain compliance with regulatory agencies. Healthcare facilities need to follow strict guidelines and regulations, including specific tax laws. For example, the Internal Revenue Service specifies that Form 990 must be filed for each tax year. If the forms are not filed or have incorrect information, the facility could face fines.

 

Generally Accepted Accounting Principles (GAAP)

When establishing an accounting system for a hospital, that system must adhere to the Generally Accepted Accounting Principles (GAAP). There are universal rules of accounting that are used in many industries, including hospitals. All of these procedures and standards help maintain consistency in reports and statements. GAAP covers balance sheet classification, materiality, and revenue recognition. The goal of GAAP is to ensure financial statements are comparable, complete, and consistent. For seamless management, a few essential elements need to be followed. These principles include:

  • Principle of Regularity – adhering to GAAP regulations and rules
  • Principle of Consistency – applying the same standards for the reporting process
  • Principle of Sincerity – providing an accurate and impartial depiction of a financial situation
  • Principle of Permanence of Methods – giving consistent financial reporting
  • Principle of Non-Compensation – reporting both positives and negatives without compensation
  • Principle of Prudence – emphasizing fact-based financial data representation not clouded by speculation
  • Principle of Continuity – assuming the business will continue to operate while valuing assets
  • Principle of Periodicity – reporting revenue in its relevant accounting period
  • Principle of Materiality – fully disclosing all accounting information and financial data in reports
  • Principle of Utmost Good Faith – remaining honest in all transactions

 

Now that you understand GAAP, it is time to find the best accounting method. GAAP can help the medical facility’s planning, controlling, organizing, and decision-making processes. You can handle these accounting measures by yourself or hire a company specializing in small business accounting services to adhere to these principles.

 

In the healthcare industry, accrual accounting is the standard. With that, all expenses and incomes are recognized when they happen rather than when the funds change hands. Accrual accounting can accurately reflect the current financial health of the facility.

 

Medical Offices and Accounting

A proper accounting system is essential for the success of any medical office or healthcare faculty. When all of the guidelines by GAAP are followed, it can save money by eliminating any fines or charges. In addition to that, it can help boost the reputation of the medical office. The number one goal of a medical office is to treat the patient and deliver care that meets specific standards. A medical office needs to provide cost-effective treatment for the patients. Accounting helps patients receive exceptional care without breaking their budgets.

 

Accounting can help manage payments, income, expenses, and taxes with revenue cycle management. Without these funds, the medical office could not treat their patients. Revenue cycle management looks at payments, medical claims, and revenue generation. In other words, it manages the patient’s revenue cycle in the medical office. Accounting for medical offices focuses on:

  • Collecting the co-pay
  • Determining patient financial eligibility
  • Collecting all payments
  • Tracking claims
  • Following up on denied claims
  • Coding all billing correctly

You might think that all healthcare accounting is the same, but medical offices and hospitals have unique financial considerations.

 

Hospitals and Accounting

Hospitals have a few special considerations for their accounting needs, especially their accounts receivable. They can be paid by private insurers, patients, charitable organizations, or government programs. Payment terms can vary, and there are numerous ways to bill for services. All hospitals must track this money and allocate the payments to the proper accounts.

 

These hospitals also need to handle credits that can occur on an account. In some cases, the patient may have a credit due to a billing error, insurance claim adjustment, or overpayment of the bills. Hospitals must also use allowances to keep track of their accounting statements. An allowance is a separate line that adjusts revenue to what the hospital expects to collect from the bill. Accounting can organize all of the hospital’s revenue streams, credits, and billing.

 

Healthcare Accounting Is Complicated

While healthcare accounting is necessary, it can be challenging to do without the proper help. At TMD Accounting, we have been in business for over 40 years. Our accounting firm is a family-owned company that understands the needs of small and big businesses. If you are a healthcare facility, medical office, or hospital needing accounting, payroll, or tax help, we are there for you.

Need an accountant for your small business? Schedule a consultation at 856-228-2205.