As a business owner, you know first-hand that running and growing your company is a daily challenge. The same thing can be said about your tax situation.



This article gives a brief overview of the primary types of business taxes you’ll likely encounter as a business owner: Income taxes, self-employment taxes, payroll taxes, and excise &amp; sales taxes.



<h2 class="wp-block-heading">Why Understanding Business Taxes is Important</h2>



All businesses need cash to survive. If you fall behind paying your business’s taxes, you’ll need to divert a lot of this cash to get current on your tax obligation. And much of this cash was supposed to be used to sustain the business’s day-to-day operations.



This is why understanding business taxes and <a class="link" href="https://1800accountant.com/blog/calculate-small-business-taxes">how to calculate them</a> is so important - failing to pay business taxes can potentially cause your company to go <a class="link" href="https://1800accountant.com/blog/what-happens-if-you-dont-file-taxes">out of business</a>!



With that said, let’s take a look at the primary types of business taxes.



<h2 class="wp-block-heading">Business Tax #1: Income Taxes</h2>



Definition: Taxes paid on your business’s profit after all business expenses are paid and qualifying individual income tax deductions are applied.



Filing your income taxes: Sole proprietors, shareholders of S corporations, partners of a partnership, and members of limited liability companies report their business’s taxable income on their <a class="link" href="https://1800accountant.com/services/income-taxes">individual tax return (Form 1040)</a>. Shareholders of C corporations only pay income taxes on wages or dividends they receive, not their business’s entire taxable income.



In addition to federal income taxes, don’t forget about state and local income taxes if applicable.



Tax rate: Federal income tax rates can be as high as 37%. Higher incomes may also be subject to a 0.9% surtax.



Tax planning tip: To minimize income taxes, you’ll want to reduce your business’s net profit. To lower your business’s taxable income, consider purchasing a major piece of equipment or asking a customer to postpone an end-of-the-year payment to the following year. Certain individual deductions can also reduce your business’s net profit, such as qualified contributions to a retirement account, the standard deduction, or itemized deductions.



<h2 class="wp-block-heading">Business Tax #2: Self-Employment Taxes</h2>



Definition: Taxes paid on your business’s profit after all business expenses are paid <a class="link" href="https://www.ssa.gov/pubs/EN-05-10022.pdf" target="_blank" rel="noreferrer noopener">is  self-employment tax</a>. Government revenue generated from self-employment taxes goes to fund Social Security and Medicare. Unlike income taxes, you can’t use the standard or itemized deductions to reduce your taxable income subject to self-employment taxes.



Filing your self-employment taxes: Fill out Form SE and attach it to your individual tax return (Form 1040).



Tax rate: 12.4% for Social Security taxes is due on your first $160,200 of taxable income, and 2.9% for Medicare taxes on all your taxable income, for a total of 15.3%.



Tax planning tip: Consider becoming an S corporation. As an S corp shareholder, you’ll only pay self-employment taxes on the wages you pay yourself from the business. The remaining profits from the S corporation are not subject to self-employment taxes.



<h2 class="wp-block-heading">Business Tax #3: Capital Gains Taxes</h2>



Definition: When you sell an asset for more than what you originally paid for that asset, you have to pay capital gains taxes.



Filing your capital gains taxes: When you sell a business asset such as a vehicle, equipment, or a building, you must report this transaction on Form 4797 and attach it to your Form 1040.



Tax rate: If you owned the recently sold business asset for more than 12 months, the maximum tax rate you’ll pay is 20%. If you owned the asset for less than 12 months, the tax rate can be as high as 37%.



Tax planning tip: Consider having the party who bought your asset pay in installments. Instead of receiving one large lump sum of money all at once, spreading payments across several years can also help spread out the taxes you owe over the same number of years.



<h2 class="wp-block-heading">Business Tax #4: Payroll Taxes</h2>



Definition: Payroll taxes are taxes paid on the wages and salaries of employees. Similar to self-employment taxes, <a class="link" href="https://www.cbpp.org/research/federal-tax/federal-payroll-taxes" target="_blank" rel="noreferrer noopener">payroll taxes are used to fund Social Security and Medicare</a>. A state’s unemployment tax, which covers that state’s unemployment compensation fund, is also considered a payroll tax and is paid by the employer. However, several states require some contribution from employees. The federal unemployment tax is paid only by the employer.



Filing your payroll taxes: Here’s a quick look at the various forms used to file payroll taxes:



<ul>
<li>Form 940 - Federal unemployment tax return, filed annually (there’s also a corresponding state unemployment tax return)</li>



<li>Form 941 - Tax return to report income, Social Security, and Medicare taxes withheld from employees’ paychecks and filed quarterly.</li>



<li>Form W-2 - The information report provided to employees that shows total wages earned for a particular year</li>



<li>Form W-3 - Information report filed with the Social Security Administration summarizes all W-2s issued by an employer. Copies of all W-2s are also included with the W-3.</li>
</ul>



Tax rate: Similar to the self-employment tax, 12.4% of employees’ wages are taxed to fund Social Security, while 2.9% of wages are taxed to fund Medicare, for a total tax rate of 15.3%. The employer pays half of these taxes (7.65%), while the employee pays the other half (7.65%).



Tax planning tip: Many employers take the 7.65% payroll taxes they are responsible for paying and bake it into an employee’s overall compensation package. So, while technically responsible for paying its 7.65% of payroll taxes, the employer passed this cost to the employee.



<h2 class="wp-block-heading">Business Tax #5: Excise &amp; Sales Taxes</h2>



Definition: Sales taxes are normally collected as a percentage of the overall selling price of goods or services, such as an 8% sales tax on all clothing, while excise taxes are imposed on very specific goods and services, such as a $2 excise tax on a 20-pack of cigarettes.



Filing your excise and sales taxes: <a class="link" href="https://www.taxpolicycenter.org/briefing-book/what-are-major-federal-excise-taxes-and-how-much-money-do-they-raise" target="_blank" rel="noreferrer noopener">Federal excise taxes</a> are filed quarterly using Form 720. State filing requirements for sales taxes can vary depending on the amount of tax you owe. Businesses that collect a high amount of sales tax must usually file a return once a month; a business that collects a small amount of sales tax may only need to file an annual return.



Tax rate: Check with your state or local tax authority <a class="link" href="https://taxfoundation.org/data/all/state/2023-sales-tax-rates-midyear/" target="_blank" rel="noreferrer noopener">to determine your sales tax rate</a>. Federal excise rates also vary depending on the product being taxed.



Tax planning tip: While businesses are responsible for paying sales and excise taxes, many pass this cost to their customers.



<h2 class="wp-block-heading">Partner With a Tax Expert to Ensure Business Success</h2>



As you can see, you need to understand many types of business taxes if you want to comply with all of your tax obligations.



The good news is that while many of these taxes can be extremely complicated, help is only a phone call or email away.



Partner with a 1-800Accountant <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business tax expert</a> to stay compliant while minimizing the total amount of taxes you owe.

As a business owner, you know first-hand that running and growing your company is a daily challenge. The same thing can be said about your tax situation. This article gives a brief overview of the primary types of business taxes you’ll likely encounter as a business owner: Income taxes, self-employment taxes, payroll taxes, and excise [&hellip;]

types-of-taxes-for-small-businesses_blog-header

The Primary Types of Business Taxes

The legal entity type you select will have significant tax implications for you and your small business. That's why it's so important to understand the strengths and weaknesses of each entity before making a selection. In this blog, we'll tell you everything you need to know about C corporations, including what it is, the steps you would take to form a C corp, the benefits of that entity type for your small business, potential downsides, and more.&nbsp;



<h2 class="wp-block-heading">What is a C Corporation?</h2>



You may have heard of partnerships or a limited liability company and their tax advantages, but a C corp is a different type of corporation. A C corporation is a type of corporate structure taxed separately from its owners and shareholders. While other entities, such as S corporation, share similarities, there are some key differences between the two entities. S corporation or C corporation business structure? Here are the differences, including the taxation of a C corporation, that you should know about when evaluating a <a class="link" href="https://1800accountant.com/blog/s-corp-vs-c-corp">C corp vs. S corp</a>:&nbsp;



<ul>
<li>C corp taxes are applied at both the corporate income tax and personal income tax levels, called double taxation, while S corporations pay taxes at an individual level.</li>



<li>C corporations must issue stock and can have an infinite number of shareholders. S corporations are limited to 100 stockholders.</li>



<li>C corporations are required to make quarterly estimated income tax payments, while S corporations only do it once a year.</li>



<li>Unlike S corporations, owners and shareholders of C corporations do not have to be U.S. citizens or residents. Other businesses rather than individuals can own C corporations.</li>



<li>As a C corporation, there’s no deduction for corporate losses, so shareholders cannot deduct losses on their personal tax returns.</li>
</ul>



<h2 class="wp-block-heading">How to Form a C Corporation&nbsp;</h2>



The steps you'll take for forming your business as a C corporation are reasonably straightforward and similar to the formation process for other entities.



<ol>
<li>Select a business name. The name you select must be unique. You’ll want to check with your state and local business authorities to ensure no other company uses a similar or identical name. </li>



<li>Articles of incorporation. You’ll need to develop your business's articles of incorporation and submit them to your Secretary of State to form your business legally. It's essential to include your unique business name, address, registered agent information, and details about the type of stock you'll be issuing. </li>



<li>Stock. The stock highlighted in your articles of incorporation is distributed to shareholders who comprise the ownership of your business. </li>



<li><a class="link" href="https://1800accountant.com/blog/ein">Employer Identification Number (EIN)</a>. An EIN, also known as a Federal Tax ID, is like a Social Security number for your business, which the IRS uses to identify you for tax purposes. If you intend to hire employees, open a business bank account, or file business taxes, you must obtain an EIN. </li>



<li>Board of Directors. You must establish a board of directors who will oversee your C corporation's operations.&nbsp;</li>
</ol>



<h2 class="wp-block-heading">C Corporation Taxes</h2>



C corporations are subject to double taxation at the corporate and individual levels. The current <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">corporate tax rate</a> is 28%. Here's what to know about the taxation of a C corporation.



To prepare your C corporation taxes, you must use <a class="link" href="https://1800accountant.com/blog/1120-tax-form">Form 1120</a> to report your business’s financial information, including taxable income, gains, losses, deductions, and credits. If your assets surpass $10 million and you file over 250 returns annually, you must file this form online.



C corporations must also pay employment taxes, which include FICA (Social Security and Medicare) and unemployment taxes. You must use Forms 940 and 941 to report these taxes.



Sections you'll need to complete in Form 1120:



<ul>
<li>Basic Information About Your C corporation: This consists of your business’s legal name, address, EIN, date of incorporation, and total assets.</li>



<li>Corporate Income: This is your gross receipts or sales, returns and allowances, cost of goods sold, gross profit, dividends, interest, gross rents, gross royalties, and capital gains.</li>



<li>Tax-Deductible Expenses: These expenses include advertising, charitable contributions, repairs and maintenance, employee benefit programs, etc. You do not need to attach documentation, but keep your records in case of an IRS audit.</li>



<li>Tax, Refundable Credits, and Payments: This section aims to determine if you need to receive a tax refund or owe taxes to the IRS.</li>



<li>Schedule A – Cost of Goods Sold: If your business deducts the cost of goods from gross income, you must report this information in this section.</li>



<li>Schedule C – Dividends and Special Deductions: If dividends or special deductions have been claimed, you must record this information here.</li>



<li>Schedule E – Compensation of Officers: Document the compensation amounts of your corporate officers in this section.</li>



<li>Schedules J and K: These sections indicate your business's accounting method and information that can affect your corporate tax rate.</li>



<li>Schedules L, M-1, and M-2: In these sections, you need to attach your business’s balance sheet, document the reconciliation of income loss, and analyze unappropriated retained earnings.</li>
</ul>



<h2 class="wp-block-heading">Benefits of forming a C Corporation</h2>



There are numerous advantages of a C corporation,&nbsp; including the following popular features.&nbsp;



<h3 class="wp-block-heading">Limited liability protection&nbsp;</h3>



C corporation shareholders/owners enjoy limited liability protection, which protects their personal assets. This means they aren't personally responsible for their C corporation's liabilities and debt.&nbsp;



<h3 class="wp-block-heading">Unlimited number of shareholders</h3>



Unlike S corporations, which must limit their shareholders, C corporations can offer shares to an unlimited number of shareholders, including both private individuals and public entities.&nbsp;



<h3 class="wp-block-heading">Perpetual existence</h3>



C corporations feature perpetual existence, meaning they will continue to exist even after ownership departs.&nbsp;



<h3 class="wp-block-heading">Increased credibility&nbsp;</h3>



C corporations often have greater credibility than other entities in the eyes of third parties, including suppliers, vendors, and potential investors.&nbsp;&nbsp;



<h2 class="wp-block-heading">Potential downsides&nbsp;</h2>



If your business would benefit from forming as a C corporation, there aren't many downsides. However, two issues often give prospective C corporation ownership pause.&nbsp;



<ul>
<li>C corp double taxation. C corporations are subject to double taxation at the corporate and individual levels. This differs from other business entity types, where ownership is only taxed on the individual level.</li>
</ul>



<ul>
<li>Complex. It is much more challenging to run a C corporation than other entities. There are many more requirements to comply with as a C corporation, while entities such as sole proprietorships or single-owner LLCs are less formal.&nbsp;&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Role of Shareholders, Directors, and Officers in a C Corporation</h2>



While these roles are unique in certain ways, they might also intersect. For instance, a person appointed to a director role might also own shares in the corporation. Shareholders are the owners of the corporation and appoint directors. Directors are typically appointed to oversee management and will appoint officers. Officers are usually involved in the day-to-day happenings of the corporation.&nbsp;



<h2 class="wp-block-heading">Partner with C Corporation Experts to ensure a path to success</h2>



Complying with the various C corp requirements can be difficult. That's why so many small business owners and entrepreneurs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their corporate needs. Whether it's <a class="link" href="https://1800accountant.com/services/entity-formation">C corp formation</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the affordable solution you need to help your C corporation stay compliant. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;

The legal entity type you select will have significant tax implications for you and your small business. That&#8217;s why it&#8217;s so important to understand the strengths and weaknesses of each entity before making a selection. In this blog, we&#8217;ll tell you everything you need to know about C corporations, including what it is, the steps [&hellip;]

everything-you-need-to-know-about-a-c-corporation_blog-header

Everything You Need to Know About Your C Corporation

You may be wondering: "Why create a chart of accounts?" Even a basic chart of accounts is an excellent way to view your <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-keep-good-financial-records">business's finances</a>. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format. In this blog, we'll go into detail about what a chart of accounts is, how to create one for your business, critical real-world examples, and other helpful information that provides you with a comprehensive picture. 



<h2 class="wp-block-heading">Understanding the small business chart of accounts</h2>



<h3 class="wp-block-heading">What is a chart of accounts?</h3>



Your chart of accounts allows you to view multiple <a class="link" href="https://1800accountant.com/blog/common-bookkeeping-terms">financial transactions</a> along with a description, identification number, and name of each. You're able to view the chart of accounts categories within a general ledger, which includes:&nbsp;



<ul>
<li>Assets</li>



<li>Liabilities</li>



<li>Shareholder’s equity</li>



<li>Revenue</li>



<li>Expenses</li>
</ul>



<h3 class="wp-block-heading">Main chart of accounts components</h3>



Assets What your business owns are called assets, and you'll track two types: current and noncurrent. The assets section in your chart of accounts will begin with the account number "1000." Current assets include assets your business will use in the next year, such as:



<ul>
<li>Accounts receivable&nbsp;</li>



<li>Cash</li>



<li>Inventory</li>



<li>Prepaid expenses</li>
</ul>



Noncurrent assets or long-term assets are assets that will be used for longer than one year, including the following: 



<ul>
<li>Accumulated depreciation</li>



<li>Buildings</li>



<li>Furniture and fixtures</li>



<li>Leases&nbsp;</li>



<li>Plant and equipment</li>



<li>Vehicles</li>
</ul>



Liabilities Your business owes liabilities. This section begins with the account number "2000," and like your assets, you'll track both current and noncurrent liabilities.



Current liabilities, or short-term liabilities, include liabilities that your business will use next year. Current liabilities include:&nbsp;



<ul>
<li>Loans and mortgages payable</li>



<li>Payroll taxes payable</li>



<li>Sales taxes payable</li>
</ul>



Noncurrent liabilities or long-term liabilities are liabilities that will be used for longer than one year, including:&nbsp;



<ul>
<li>Loans payable</li>



<li>Mortgages payable</li>
</ul>



Equity Equity refers to shareholder equity in your chart of accounts and will begin with the account number "3000." Common examples of equity found in your chart of accounts include: 



<ul>
<li>Common stock</li>



<li>Preferred stock</li>



<li>Retained earnings</li>
</ul>



Revenue Revenue is the income your business makes, primarily or secondarily. There are two revenue types that begin with the account number "4000" in your chart of accounts: operating revenue and non-operating revenue.



Operating income is the income that your business primarily makes. Non-operating revenue is revenue that your company makes indirectly. This form of revenue can come from:&nbsp;



<ul>
<li>Asset write-downs</li>



<li>Dividend income&nbsp;</li>



<li>Foreign exchange gains or losses</li>



<li>Interest income</li>



<li>Profits or losses from investments</li>



<li>Rental income from property</li>
</ul>



Expenses There are two expense types: operating expenses and non-operating expenses, which will begin with the account number "5000."



Operating expenses are expenses that occur to cover operational costs. You may have expenses from the following:&nbsp;



<ul>
<li>Equipment&nbsp;</li>



<li>Insurance</li>



<li>Inventory costs&nbsp;</li>



<li>Marketing</li>



<li>Payroll</li>



<li>Step costs</li>
</ul>



Non-operating expenses are expenses unrelated to business operations. These include:&nbsp;



<ul>
<li>Amortization&nbsp;</li>



<li>Depreciation</li>



<li>Interest charges</li>
</ul>



<h3 class="wp-block-heading">Importance of structure and organization&nbsp;</h3>



There are two critical areas where your chart of accounts is vital for your business. 1) Structure. How your chart of accounts is structured allows you to view all of your business's financial transactions based on the general ledger. This allows you to search transactions swiftly. 2) Organization. A second benefit to the organization of a chart of accounts is that you can use this information for investment opportunities. This lets prospective investors or shareholders determine your business's financial health via the financial information provided. 



<h2 class="wp-block-heading">Components of a chart of accounts</h2>



The information you record in your chart of accounts provides the data necessary to create your business's financial statements. All of your accounts will appear in these statements, with the chart of accounts determining which statement they should appear in. If your chart of accounts is outdated or incorrectly structured or organized, your statements won't be correct, either. The financial statements include the following:&nbsp;



<ul>
<li>Income Statement. Also known as a profit and loss statement, this statement focuses on your business's revenue and expenses.&nbsp;</li>



<li>Cash Flow Statement. This statement records the total cash from various sources, including petty cash, and cash going out of your business in support of your operations.&nbsp;</li>



<li>Balance Sheet. This sheet records your business's assets, liabilities, shareholder equity, and debt.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">How to create a chart of accounts</h2>



To set up your chart of accounts, you'll create three columns to help you categorize: an Account Name, Type of Account, and Description.



<ul>
<li>Account Name. You’ll list your account names in this column.&nbsp;</li>



<li>Type of Account. This column, to the right of Account Name, will list the account that you’re adding. You can select from an asset, cost of goods sold, equity, expense, income, or liability.</li>



<li>Description. The final column, to the Type of Account's right, describes the transaction that occurred.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Real-world examples of standard chart of accounts</h2>



Medical practice chart of accounts (chart of accounts example 1)



<figure class="wp-block-table"><table><tbody><tr><td>Account Type</td><td>Account Code</td><td>Account Name</td></tr><tr><td>Assets</td><td>1010</td><td>Cash - Operating Account</td></tr><tr><td>Assets</td><td>1020</td><td>Cash - Savings Account</td></tr><tr><td>Assets</td><td>1030</td><td>Medical Supplies Inventory</td></tr><tr><td>Assets</td><td>2010</td><td>Medical Equipment</td></tr><tr><td>Assets</td><td>2020</td><td>Office Furniture</td></tr><tr><td>Assets</td><td>2030</td><td>Accumulated Depreciation - Equipment</td></tr><tr><td>Assets</td><td>2040</td><td>Accumulated Depreciation - Furniture</td></tr><tr><td>Liabilities</td><td>3010</td><td>Accounts Payable</td></tr><tr><td>Liabilities</td><td>3020</td><td>Payroll Liabilities</td></tr><tr><td>Liabilities</td><td>3030</td><td>Unearned Revenue</td></tr><tr><td>Equity</td><td>4010</td><td>Owner's Capital</td></tr><tr><td>Equity</td><td>4020</td><td>Retained Earnings</td></tr><tr><td>Revenue</td><td>5010</td><td>Patient Service Revenue</td></tr><tr><td>Revenue</td><td>5020</td><td>Miscellaneous Revenue</td></tr><tr><td>Cost of Goods Sold</td><td>6010</td><td>Medical Supplies Expense</td></tr><tr><td>Expenses</td><td>7010</td><td>Salaries &amp; Wages</td></tr><tr><td>Expenses</td><td>7020</td><td>Rent or Mortgage Expenses</td></tr><tr><td>Expenses</td><td>7030</td><td>Utilities</td></tr></tbody></table></figure>



Restaurant chart of accounts (chart of accounts example 2)



<figure class="wp-block-table"><table><tbody><tr><td>Account Type</td><td>Account Code</td><td>Account Name</td></tr><tr><td>Assets</td><td>1010</td><td>Beverage Supply Inventory</td></tr><tr><td>Assets</td><td>1020</td><td>Food Supply Inventory</td></tr><tr><td>Assets</td><td>1030</td><td>Prepaid Expenses</td></tr><tr><td>Assets</td><td>2010</td><td>Kitchen Equipment</td></tr><tr><td>Assets</td><td>2020</td><td>Dining Furniture</td></tr><tr><td>Assets</td><td>2030</td><td>Accumulated Depreciation - Kitchen Equipment</td></tr><tr><td>Assets</td><td>2040</td><td>Accumulated Depreciation - Dining Furniture</td></tr><tr><td>Liabilities</td><td>3010</td><td>Accounts Payable</td></tr><tr><td>Liabilities</td><td>3020</td><td>Payroll Liabilities</td></tr><tr><td>Liabilities</td><td>3030</td><td>Loans</td></tr><tr><td>Equity</td><td>4010</td><td>Owner's Capital</td></tr><tr><td>Equity</td><td>4020</td><td>Retained Earnings</td></tr><tr><td>Revenue</td><td>5010</td><td>Dining Revenue</td></tr><tr><td>Revenue</td><td>5020</td><td>Miscellaneous Revenue</td></tr><tr><td>Cost of Goods Sold</td><td>6010</td><td>Food, beverage, and employee Expense</td></tr><tr><td>Expenses</td><td>7010</td><td>Salaries &amp; Wages</td></tr><tr><td>Expenses</td><td>7020</td><td>Insurance</td></tr><tr><td>Expenses</td><td>7030</td><td>Depreciation Expense</td></tr></tbody></table></figure>



<h2 class="wp-block-heading">Maintaining and updating a chart of accounts</h2>



You will make adjustments to your chart of accounts as time goes on. But before you start, here are a couple of things to keep in mind.&nbsp;



<ul>
<li>First, if you want to add an account to your chart of accounts, you should do so before it becomes a problem. While you can add transactions at any point in the year, you don’t want to delay adding transactions and their accompanying information. If you wait, then you may need to adjust other entries in related categories or subcategories, causing more issues.</li>
</ul>



<ul>
<li>Second, if you add an account, it is helpful to designate a name for it. The name most commonly used for newly added accounts is Miscellaneous Expenses. You should use this name whether you have one uncategorized transaction out of the year or multiple uncategorized transactions.&nbsp;</li>
</ul>



<ul>
<li>Third, if you add a Miscellaneous Expense to your account, provide a more detailed explanation than usual. Even though you’ve already added a description, you want to explain how and why this expense differs. As you add accounts to this category, make adjustments as needed.</li>
</ul>



<ul>
<li>Finally, and most importantly, you shouldn’t delete any accounts until the end of the year. If you delete the accounts earlier, that can create additional disruptions.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Partner with professionals who understand the chart of accounts</h2>



Financial data and financial reporting are an important addition to any small business and can be harvested from many areas, including the following: 



<ul>
<li>Expense accounts</li>



<li>Asset accounts</li>



<li>Balance sheet accounts</li>



<li>Equity accounts</li>



<li>Financial accounts</li>



<li>Liability accounts</li>



<li>Revenue accounts</li>



<li>Sub-accounts</li>
</ul>



A chart of accounts isn't required, but the valuable insights it provides can contribute to critical data-backed decision-making for your small business. However, creating and managing a chart of accounts is often too much for many busy owners and entrepreneurs to handle, which is why so many of them trust 1-800Accountant, America's leading virtual accounting firm for small businesses, <a class="link" href="https://1800accountant.com/blog/outsourced-bookkeeping-guide">for their needs</a>.



Whether it's <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping for the chart of accounts</a>, robust <a class="link" href="https://1800accountant.com/blog/catch-up-bookkeeping">educational content</a>, or any of our professional accounting services, we have the solution you need at a price that fits within your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;

You may be wondering: &#8220;Why create a chart of accounts?&#8221; Even a basic chart of accounts is an excellent way to view your business&#8217;s finances. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format. In this [&hellip;]

chart-of-accounts-a-comprehensive-guide_blog-header

Chart of Accounts: A Comprehensive Guide with Real-World Examples

Independent contractors, freelancers, sole proprietors, self-employed individuals, and gig workers.



No matter what you call it, earning an income from something other than a full-time job is booming in the United States. According to <a class="link" href="https://www.statista.com/statistics/921593/gig-economy-number-of-freelancers-us/" target="_blank" rel="noreferrer noopener">statistia.com</a>, 73.3 million Americans call themselves freelancers, up from 57.3 million in 2017.



While freelancing offers significant benefits not available for full-time employees, such as&nbsp; greater schedule flexibility, working for yourself also comes with new responsibilities. One of the most eye-opening responsibilities for new (and current) freelancers is being completely responsible for your tax situation.



The first place you should start when trying to understand taxes for independent contractors, freelancers, and gig workers is learning about the tax forms you'll need, including Internal Revenue Service (IRS) Form 1099-NEC.



<h2 class="wp-block-heading">What is a 1099-NEC Form?</h2>



If you work as a contractor or freelancer, you’ll likely receive a 1099-NEC form come tax time. This 1099-NEC form shows the total amount of money you received from this business in the 2023 tax year.



Form 1099-NEC is one of three different types of 1099 tax forms you’re likely to see as a contractor or freelancer:



<ul>
<li>IRS Form 1099-NEC</li>
</ul>



NEC is an acronym for “nonemployee compensation,” which is exactly what it sounds like. If you receive more than $600 in compensation from a business but aren’t an employee, you’ll receive a 1099-NEC showing how much you made during that calendar year.



<ul>
<li>IRS Form 1099-MISC</li>
</ul>



MISC stands for “miscellaneous.” Think of a <a class="link" href="https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/what-is-the-irs-form-1099-nec-and-form-1099-misc.aspx" target="_blank" rel="noreferrer noopener">1099-MISC</a> as a hodgepodge of all the other types of income you could receive from a business or an organization: rental income, prizes or awards, medical or health care payments, crop insurance proceeds, and certain legal proceeds such as settlements are all reported on a 1099-MISC. If you receive over $600 in any of these miscellaneous categories, you should receive a 1099-MISC.



<ul>
<li>IRS Form 1099-K</li>
</ul>



A 1099-K shows the payments you receive from third-party payment platforms such as PayPal, Venmo, and credit card companies. Prior to 2023, you would only receive a 1099-K if you were paid more than $20,000 AND had a total of 200 or more transactions from one of the payment processors. Starting this year, this $20,000 threshold has been lowered to $600, while the transaction requirement has been eliminated. So, if you accept any form of electronic payment, there’s a good chance you’ll receive at least one 1099-K when it comes time to file your return for the 2023 tax year.



A reminder about the $600 threshold: Just because you don’t receive a Form 1099-NEC doesn’t mean you don’t have to include this income on your federal income tax return! Blank forms may be found on the IRS website.



You’re required to report ALL income you receive, from whatever source derived, on your tax return.



<h2 class="wp-block-heading">1099-NEC form: Background</h2>



As mentioned in this article’s introduction, you’re now responsible for your entire tax universe as a freelancer, Form 1099-NEC included. But what does this exactly mean?



To answer this question, let’s start by reviewing the tax situation for a full-time or part-time employee, and <a class="link" href="https://1800accountant.com/blog/1099-vs-w2">then we’ll compare it to the tax situation for a freelancer</a>.



<h3 class="wp-block-heading">Tax Situation for an Employee</h3>



An employee never has to make a payment to the IRS to pay taxes.



Each time an employee receives a paycheck, the employer withholds a certain amount of money representing the income tax, Social Security tax, Medicare tax, and state &amp; local taxes (if applicable) for that employee.



Having withheld the employee’s taxes from their paycheck, the employer - not the employee - sends this money to the IRS on behalf of the employee.



<h3 class="wp-block-heading">Filing a tax return for an employee</h3>



Every January, an employee receives a Form W-2 from their employer showing the total amount of all the paychecks received during the previous year. The employee fills out their tax return using information from their Form W-2 and other tax documents.



After filing their tax return, an employee - in theory - shouldn’t owe the IRS any additional money, nor should they receive a refund. The amount of money withheld from the employee’s paycheck should be equal - or pretty close - to the actual amount of taxes owed for that year.



Now, let’s compare what an employee goes through with their taxes to what a freelancer must deal with.



<h2 class="wp-block-heading">1099-NEC form: Tax Situation for a Freelancer</h2>



There are many moving parts to a freelancer’s tax situation. Here are the most important areas you should know about:



<h3 class="wp-block-heading">Estimated tax payments</h3>



A freelancer must calculate the estimated tax owed to the IRS four times per year. The filing deadline may vary from year to year. Here are the due dates for these estimated tax payments:



<ul>
<li>April 15 - Due date to pay taxes on taxable income earned in January, February and March</li>



<li>June 15 - Payment due date for April and May estimated taxes</li>



<li>September 15 - Payment due date for June, July, and August estimated taxes</li>



<li>January 15 - Payment due date for September, October, November, and December estimated taxes</li>



<li>NOTE: If a due date falls on a weekend or a holiday, your payment is considered on time if it is made no later than the next business day.</li>
</ul>



<h3 class="wp-block-heading">Common types of taxes paid</h3>



The estimated tax payments a freelance taxpayer must make cover four main types of taxes:



<ul>
<li>Income tax. An income tax of up to 37% is due on your taxable profit.</li>



<li>Social Security tax. A tax of 12.4% is due on your first $160,200 of taxable profit in 2023.</li>



<li>Medicare tax. A tax of 2.9% is due on all your taxable profits.</li>



<li>State and local taxes. Don’t forget about state and local taxes, if applicable. Many states follow the federal estimated tax payment due dates, but do double-check to confirm your specific payment deadlines.</li>
</ul>



<h3 class="wp-block-heading">Other types of taxes</h3>



If your income is high enough, you’ll owe an additional 0.9% Medicare surtax and a 3.8% tax on certain investment income. If you sell an asset at a gain, you’ll owe a capital gains tax of up to 25%. Payments may be made in person, by mail, or electronically.



<h2 class="wp-block-heading">How a freelancer can stay out of tax trouble</h2>



With so many types of taxes and deadlines to meet, <a class="link" href="https://1800accountant.com/blog/5-tax-issues-that-cause-irs-trouble-for-1099-workers">it may seem a bit overwhelming</a> to understand your responsibilities as a taxpayer. If you follow these 3 tips, though, you’ll be in great shape.



<ol>
<li>Set aside money every week to pay taxes. Hopefully, you budget for everything else you spend on…taxes should be no different. Consider setting aside a flat percentage of every payment you receive, for example, 20% or 30%, to cover all the taxes you must pay.</li>



<li>Know your deadlines. Now that you’re setting aside money on a regular basis to pay your taxes, make sure you don’t miss the payment deadlines. Consider putting your tax payment due dates on your calendar for the next 12 months. If you’re late with a payment, you may be required to pay penalties and interest in addition to the tax you owe.</li>



<li>Ask for help. Remember that you’re never alone if keeping up with your taxes starts to become overwhelming. Asking for help is just an email or phone call away.</li>
</ol>



<h2 class="wp-block-heading">Work With the Small Business CPA Experts to File Form 1099-NEC</h2>



Whether you need to fill out and file Form 1099-NEC, file taxes, obtain an EIN (your business's taxpayer identification number), or prepare a tax return, the CPA experts at 1-800Accountant, America's leading virtual accounting firm for small businesses, can help. We offer services with affordable pricing for most independent contractors, freelancers, and all other types of gig and self-employed workers. Schedule a short consultation to learn how we can help with your accounting and tax needs so you can focus on your work!

Independent contractors, freelancers, sole proprietors, self-employed individuals, and gig workers. No matter what you call it, earning an income from something other than a full-time job is booming in the United States. According to statistia.com, 73.3 million Americans call themselves freelancers, up from 57.3 million in 2017. While freelancing offers significant benefits not available for [&hellip;]

What-is-a-1099-nec_blog-header

Freelancing and Form 1099-NEC: Everything You Need to Know

You’re finally ready to dive into your passion and create an organization for your cause.&nbsp;Do you dream of supporting an underrepresented group, improving social welfare, or starting a sports club? After you decide on a goal, you should determine whether a non-profit or a not-for-profit organization is best for your mission.&nbsp;You may wonder: What is the difference between non-profit vs. not-for-profit? This article will compare the two organization types. You’ll learn the key considerations and how to choose the organization type for your cause.<h2>Understanding Non-Profit Organizations</h2><h3>What Is a Non-Profit?&nbsp;</h3>A <a class="link" href="https://1800accountant.com/blog/non-profit-business-entities" target="_self">non-profit organization</a> is a business established for a specific public benefit.&nbsp;Your non-profit’s purpose could be <a class="link" href="https://1800accountant.com/blog/4-types-of-non-profit-organizations">charitable, religious, or educational</a>. For example, many hospitals, churches, and public universities are non-profit organizations.&nbsp;Despite its name, a non-profit organization may generate profits.&nbsp;However, the entity’s earnings must funnel back to the non-profit to support its business activities. Non-profit organizations may not distribute profits to their members, directors, or officers.&nbsp;The non-profit supports a social cause, so donations and business receipts should benefit the cause.1-800Accountant can help you <a class="link" href="https://1800accountant.com/services/entity-formation">determine whether your organization is eligible</a> for non-profit status.&nbsp;<h3>Benefits of Non-Profit Organizations</h3><h4>Tax-Exempt Status</h4>Non-profit organizations enjoy several tax benefits.&nbsp;Non-profits often qualify for <a class="link" href="https://www.irs.gov/charities-non-profits/applying-for-tax-exempt-status" target="_blank" rel="noreferrer noopener">exemption from federal income tax</a>, known as 501(c)(3) status. Non-profit organizations may also gain exemption from state and local taxes such as income, sales, and property tax. (If your non-profit hires employees, your organization is still responsible for payroll taxes.)Further, donors can take tax deductions for charitable contributions to 501(c)(3) non-profit organizations. The IRS incentivizes donations to social causes by allowing tax benefits for people who support your mission.&nbsp;To obtain 501(c)(3) status, the organization must form a legal entity separate from its owners. Eligible entity types include corporations, trusts, or associations.&nbsp;Before applying for tax-exempt status, review the <a class="link" href="https://www.irs.gov/charities-non-profits/before-applying-for-tax-exempt-status" target="_blank" rel="noreferrer noopener">IRS application process</a> and <a class="link" href="https://www.irs.gov/pub/irs-pdf/p557.pdf" target="_blank" rel="noreferrer noopener">filing requirements</a>.&nbsp;You can check your organization’s eligibility with the <a class="link" href="https://www.irs.gov/charities-non-profits/application-process" target="_blank" rel="noreferrer noopener">IRS tax-exemption eligibility questions</a>. The IRS also provides links to <a class="link" href="https://www.irs.gov/charities-non-profits/state-links" target="_blank" rel="noreferrer noopener">state websites containing resources</a> for tax-exempt organizations.&nbsp;We know the terminology can get confusing. <a class="link" href="https://1800accountant.com/services/entity-formation">Let us support you</a> through your application process.&nbsp;<h4>Eligibility for Public and Private Grants</h4>Many public and private programs set aside annual funding to support charitable causes. Your non-profit can apply for grants to support your organizational purpose.&nbsp;Many <a class="link" href="https://www.grants.gov/web/grants/learn-grants/grant-making-agencies.html" target="_blank" rel="noreferrer noopener">federal agencies</a> award grants to non-profit organizations. Eligible causes include educational access and heritage protection. You can <a class="link" href="https://www.grants.gov/web/grants/search-grants.html" target="_blank" rel="noreferrer noopener">search for available grants</a> and review the eligibility requirements.<h4>Lower Postal Rates</h4>Non-profit organizations may qualify for reduced postage prices from the US Postal Service. Educational, religious, and other organizations can <a class="link" href="https://faq.usps.com/s/article/What-is-Nonprofit-Mail" target="_blank" rel="noreferrer noopener">apply for non-profit postage rates</a>.&nbsp;<h4>Limited Liability Protection</h4>As mentioned, non-profits must organize as corporations, trusts, or associations. Each entity type is legally separate from its owners. Non-profit owners gain limited liability protection from potential claims against the organization.&nbsp;<h3>Disadvantages of Non-Profit Organizations</h3><h4>Public Scrutiny</h4>Non-profits must publicize their annual income statements and balance sheets.&nbsp;Organizations can face scrutiny over amounts spent on salaries or administrative costs. The public could question how the spending directly supports the non-profit’s mission.&nbsp;&nbsp;<h4>Restrictions on Political Activities</h4>Non-profits can maintain social stances but cannot participate in certain political activities.&nbsp;For example, non-profit organizations <a class="link" href="https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-political-campaign-intervention-by-section-501c3-tax-exempt-organizations" target="_blank" rel="noreferrer noopener">cannot publicly support or oppose political candidates</a>. Non-profits must not donate to political parties or campaigns.&nbsp;&nbsp;&nbsp;<h4>Compliance Requirements</h4><a class="link" href="https://1800accountant.com/blog/nonprofit-taxes">Non-profit organizations must comply</a> with IRS annual reporting requirements. State and local authorities may impose additional compliance rules.&nbsp;The <a class="link" href="https://www.irs.gov/charities-non-profits/annual-filing-and-forms" target="_blank" rel="noreferrer noopener">IRS requires the following</a> annual filings:<ul><li>Form 990 Series informational returns, which include the organization’s annual financial statements.</li><li>Employment tax forms report employment taxes for organizations with employees.</li><li>Unrelated business income tax forms report revenue from activities unrelated to the non-profit purpose.&nbsp;</li></ul>Review your state and local tax authority websites for additional reporting requirements. We can help you <a class="link" href="https://1800accountant.com/services/small-business-taxes">maintain non-profit compliance</a>.<h3>Examples of Non-Profit Organizations</h3>Non-profit organizations may include churches, public schools, hospitals, research organizations, and museums.&nbsp;You may be familiar with some of the following non-profit organizations:<ul><li>American Heart Association</li><li>American Red Cross</li><li>ASPCA</li><li>Goodwill Industries</li><li>Habitat for Humanity</li><li>United Way</li></ul><h2>Understanding Not-for-Profit Organizations</h2><h3>What Is a Not-for-Profit?&nbsp;</h3>A not-for-profit organization is a group that supports a specific mission.Not-for-profit organizations aren’t required to benefit the public. For example, not-for-profits can include sports clubs, business affiliations, and social organizations.&nbsp;Like non-profit organizations, not-for-profit organizations must not distribute profits to members, owners, or directors. Earnings must further the not-for-profit’s purpose.&nbsp;<h3>Benefits of Not-for-Profit Organizations</h3><h4>Flexibility in Organizational Goals</h4>Your not-for-profit organization can choose one of many activities to support, including recreation, business, and other community-based interests. The not-for-profit owners can choose a goal that aligns with their interests.&nbsp;<h4>Tax Advantages</h4>Like non-profits, not-for-profit organizations may be eligible for exemption from federal income tax.&nbsp;Your not-for-profit may not be eligible for 501(c)(3) status, but the IRS provides income tax exemptions for <a class="link" href="https://www.irs.gov/charities-non-profits/other-tax-exempt-organizations" target="_blank" rel="noreferrer noopener">numerous organizations</a>. For example, certain business leagues may qualify for federal income tax exemption under Internal Revenue Code Section 501(c)(7).&nbsp;We recommend reviewing the <a class="link" href="https://www.irs.gov/charities-non-profits/other-non-profits/requirements-for-exemption" target="_blank" rel="noreferrer noopener">list of requirements for tax exemption</a> to understand whether your not-for-profit should apply.&nbsp;Consult <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business professionals</a> who can walk you through the rules.&nbsp;<h4>Access to Grants and Other Funding Sources</h4>Not-for-profit organizations have many of the same funding opportunities as non-profit organizations.&nbsp;Depending on your not-for-profit’s mission, your organization can apply for public and private grants to help keep the business running. Welfare organizations often qualify for more opportunities than social clubs and sports leagues.&nbsp;<h3>Disadvantages of Not-for-Profit Organizations</h3><h4>Public Scrutiny</h4>Like non-profits, not-for-profits can face public scrutiny over spending decisions. The public could question whether spending supports the not-for-profit’s goals.<h4>Limited Tax Deductibility for Donors</h4>Donors can only take tax deductions for charitable contributions to 501(c)(3) tax-exempt organizations. If your not-for-profit does not qualify for 501(c)(3) status, your donors cannot deduct their contributions to your organization.&nbsp;For example, local employee associations may qualify for tax-exempt status under 501(c)(4) but could not offer tax deductibility for donors.&nbsp;You can <a class="link" href="https://www.irs.gov/charities-non-profits/common-tax-law-restrictions-on-activities-of-exempt-organizations" target="_blank" rel="noreferrer noopener">review the restrictions on tax-exempt organizations</a> to understand the rules that apply to your not-for-profit.&nbsp;<h4>Compliance Requirements</h4>Like non-profit organizations, not-for-profits must file annual financial statements and informational returns.&nbsp;Tax-exempt organizations should follow the <a class="link" href="https://www.irs.gov/charities-non-profits/annual-filing-and-forms" target="_blank" rel="noreferrer noopener">IRS annual reporting requirements</a> or risk losing tax advantages. Your not-for-profit should follow federal, state, and local compliance requirements.&nbsp;<a class="link" href="https://1800accountant.com/services/small-business-taxes">Consult with a tax professional</a> to understand which forms to submit.&nbsp;<h3>Examples of Not-for-Profit Organizations</h3>Not-for-profit organizations may include athletic leagues, business affiliations, and social welfare organizations.&nbsp;The following not-for-profit examples illustrate a range of organizational purposes:&nbsp;<ul><li>American Federation of Teachers</li><li>American Legion</li><li>Greater Rochester Chamber of Commerce</li><li>Jules Weber Foundation</li><li>Laborers' International Union of North America</li><li>Noyac Golf Club</li></ul><h2>Non-Profit vs. Not-for-Profit Organizations: Key Similarities and Differences</h2><h3>Key Similarities</h3>Non-profit organizations and not-for-profit organizations share several characteristics.Similarities between non-profit vs. not-for-profit include the following:&nbsp;<ul><li>Use of profits: Both non-profit and not-for-profit organizations must not distribute profits to owners, members, or directors.</li><li>Public scrutiny: Both organizations face potential financial scrutiny and should ensure spending aligns with their stated purpose.</li><li>Eligibility for private and public funding: Non-profit and not-for-profit organizations can apply for grants and private funding.</li><li>Stringent compliance requirements: Tax-exempt organizations must file annual informational returns and comply with compliance requirements.&nbsp;</li></ul><h3>Key Differences&nbsp;</h3>What are the differences between non-profits and not-for-profits? The following characteristics differ between non-profit vs. not-for-profit:&nbsp;<ul><li>Organizational goals: While non-profit organizations must support the public benefit, not-for-profit organizations may exist to further their owners’ interests.</li><li>Deductibility of charitable contributions: Donations to non-profit organizations are generally tax-deductible for the donor, but not all contributions to not-for-profit organizations qualify for deductibility.</li><li>Tax-exempt status: 501(c)(3) tax-exempt status applies to specific activities, and many not-for-profit organizations cannot qualify for the same tax advantages that non-profits can obtain.&nbsp;</li></ul><h2>How to Choose: Non-Profit vs. Not-for-Profit</h2>Now you know the key characteristics of non-profits vs. not-for-profits. How do you choose the best organization type?Consider your goals and imagine your mission’s beneficiaries. For example, think through the following key considerations:&nbsp;<ul><li>Organizational purpose: Non-profit organizations must benefit the public, while not-for-profit organizations can align with owners’ interests.</li><li>Fundraising needs: Non-profit organizations can solicit donations by providing tax deductions for donors. In contrast, not-for-profit organizations might not secure large private donations.</li><li>Compliance requirements: Non-profit organizations typically follow stricter reporting requirements than not-for-profits, depending on their tax-exempt status.&nbsp;</li></ul>Don’t hesitate to consult <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation professionals</a> for help with your situation.&nbsp;<h2>Partner with Small Business Experts to Understand Non-Profits</h2>Now you understand the non-profit vs. not-for-profit differences, and you’re one step closer to choosing the best organization to support your cause.&nbsp;As you navigate the complexities of your decision, consider your goals, beneficiaries, and fundraising needs. Be sure to seek guidance from legal and accounting experts.&nbsp;1-800Accountant professionals can help you understand the entity formation intricacies. <a class="link" href="https://1800accountant.com/services/entity-formation">Consult entity formation experts</a> for support in pursuing your mission.

You’re finally ready to dive into your passion and create an organization for your cause.&nbsp; Do you dream of supporting an underrepresented group, improving social welfare, or starting a sports club? After you decide on a goal, you should determine whether a non-profit or a not-for-profit organization is best for your mission.&nbsp; You may wonder: [&hellip;]

non-profit-vs-not-for-profit_blog-header

Non-Profit vs. Not-for-Profit: Key Considerations and How to Choose the Best Organization Type

Owning and operating a small business can be a gratifying experience. You&#8217;re your own boss, and you call the shots! But you also take on numerous responsibilities, including the calculation and timely submission of small business quarterly taxes. This ongoing responsibility may seem intimidating, but once addressed, it will help support your business&#8217;s long-term tax [&hellip;]

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Why Small Businesses Should Pay Attention to Quarterly Tax Payments

A non-profit's mission is to further a public good that benefits society. Investors and private citizens make charitable donations to fund non-profits not for a return on investment but for the benefits they hope to see provided to others in need. Running a non-profit is a noble venture, but it can be difficult, especially if you're new to the space. Whether you're readying the launch of your non-profit or in the middle of discovery, use this blog to learn about various non-profit entities, the formation process, and the challenges these organizations face.&nbsp;



<h2>What is a non-profit business entity?</h2>



Non-profit business entities are organizations that do not operate for profit. Instead of focusing on producing profit for shareholders, the money earned by a non-profit is used for paying staff, supporting business operations, and promoting the public good. Broadly speaking, this is what qualifies as a non-profit.



Legal non-profit status makes those organizations tax-exempt. Social service agencies, churches, philanthropic foundations, public schools, charities, and museums illustrate the diversity of non-profits. While there are different categories of non-profits with specific restrictions, all non-profits must follow rigid rules governing their organization and management, which helps to ensure they're politically nonpartisan.&nbsp; &nbsp; 



Non-profits enjoy a status that exempts them from federal income taxes and most state taxes. This also means most donations an individual or business makes to a non-profit can also be claimed as a deduction on their tax return.&nbsp;



Non-profits must prove they're worthy of public trust to qualify for tax-exempt status. They must file their taxes as a non-profit and submit annual informational returns about their finances.&nbsp;



<h2>Different types of non-profit business entities</h2>



There are <a class="link" href="https://1800accountant.com/blog/4-types-of-non-profit-organizations">many types of non-profit organizations</a>, with the most common non-profit business structure being a 501(c)(3), which includes most charitable organizations, foundations, and beneficiary organizations. Other common types of non-profits include:&nbsp;



<ul>
<li>501(c)(1): Corporations organized by the federal government to serve a public purpose.&nbsp;</li>



<li>501(c)(4): Labor unions and other employee associations that promote employee welfare.</li>



<li>Beneficiary associations falling under 501(c)(11) or 501(c)(12). </li>
</ul>



<h2>The process of forming a non-profit organization</h2>



Use this as your step-by-step <a class="link" href="https://1800accountant.com/blog/complete-guide-start-business">guide to starting a business</a> and applying for non-profit status.&nbsp;



<h3>1. Research Your Issue and the Needs of Your Area</h3>



What is the need you’re trying to address? Find out what the problem is and study the issue. What are the root causes? Are there other organizations in your area doing similar work? You want to understand the subject well enough to make a difference.



You also want to avoid duplicate efforts if someone else already meets your area's needs.&nbsp;



<h3>2. Develop a Business Plan</h3>



What will your non-profit do, and what will it be called? How exactly will you fulfill your purpose, and how will you raise funds?&nbsp;



Your business plan should reflect the wealth of research you’ve conducted. You want to show grant providers and investors that you have the passion and understanding to make good use of their funds to make a difference.&nbsp;



<h3>3. Recruit a Board of Directors</h3>



As a publicly-owned organization, your non-profit will need a volunteer board of directors to oversee management and help with long-term decisions and planning. The board should comprise people who care about the social issue and the non-profit’s mission. 



Ideally, your board should include community leaders from the area and members of the organization’s affected target population.&nbsp;&nbsp;&nbsp;



<h3>4. File Articles of Incorporation</h3>



Now that you’ve drafted your initial plan, you can prepare and file your paperwork and begin operating.&nbsp;



You may need to file articles of incorporation and pay a paperwork fee in every state you plan to operate in. You’ll only need to file with one state for most non-profits concerned with a single area.&nbsp;



<h3>5. Request 501(c)(3) Status</h3>



<a class="link" href="https://www.irs.gov/charities-non-profits/application-process">Follow the IRS 501(c)(3) non-profit application process</a> and apply with the accompanying fee. Without it, you won't be able to solicit donations or qualify for tax-exempt purchases.&nbsp;



<h2>Funding for non-profits&nbsp;</h2>



While numerous avenues exist to gain financial support, the two most common ways non-profits receive funding are through grants and charitable donations. Whichever you choose to pursue, there's a lot of work involved. You'll have to research the various grants offered by governments, corporations, and foundations to identify those relevant to your non-profit. Grant applications often ask for a lot of information and may have requirements your non-profit has yet to meet.&nbsp;&nbsp;



Charitable donations can be secured in a variety of ways. You could approach members of your community individually who are aligned with your vision, throw a fundraising event, or network with relevant donor organizations.&nbsp;



Fundraising can be a full-time job and require someone extroverted to gain support, especially early on as your non-profit develops.



<h2>Benefits of tax-exempt status</h2>



The tax-exempt status of your non-profit is critical, and it can be a catastrophic blow if revoked. Without this status, your non-profit must pay taxes on donations, while donors can no longer write off contributions. Losing tax-exempt status will also close the door to future grants and donations. Luckily, it isn't difficult to maintain non-profit, tax-exempt status when you adhere to the following:&nbsp;



<ul>
<li>The non-profit must operate exclusively for <a class="link" href="https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501c3">exempt purposes as described in the IRS code</a>. These can be charitable, religious, educational, scientific, literary, or other causes concerned with public safety.</li>



<li>Non-profits cannot advocate for or against specific political candidates.&nbsp;</li>



<li>Non-profits cannot contribute to political campaigns.</li>



<li>Non-profits cannot benefit from private interests, and private shareholders should collect no part of their earnings.&nbsp;&nbsp;</li>
</ul>



<h2>Challenges and considerations in running a non-profit organization</h2>



There are numerous challenges facing non-profit companies, with staying organized and maintaining healthy funding levels being the most complex and persistent. Thousands of non-profits are vying for grants and donor dollars, with more mature organizations hiring dedicated personnel to go after and secure funding. Due to the intense competition, your non-profit can do everything right and still walk away empty-handed. While there's no secret recipe to securing the funding your non-profit needs, being persistent and ensuring paperwork and other areas of scrutiny are engaging, and error-free helps. Keeping your records organized and financial statements accurate is a difficult challenge for non-profits. Prospective donors, the public, and the media will scrutinize these materials, so your ducks must be in a row. A lack of organization is usually a sign of a troubled non-profit, which more experienced donors will notice immediately and avoid.&nbsp;&nbsp;



<h2>Partner with non-profit accounting professionals</h2>



Running a non-profit organization is a wonderful societal good and helps people who are in need. But you can't do it all on your own. Whether you need to know <a class="link" href="https://1800accountant.com/blog/how-to-incorporate-a-business">how to start a non-profit organization</a> or require help completing a <a class="link" href="https://1800accountant.com/blog/how-to-file-501a">501(c)(3) tax-exempt form</a>, the non-profit experts at 1-800Accountant, America's leading virtual accounting firm for small businesses, can help.  Whether it's <a class="link" href="https://1800accountant.com/services/industry/nonprofit">non-profit taxes</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the affordable solution you need to help your <a class="link" href="https://1800accountant.com/blog/nonprofit-taxes">non-profit stay compliant</a>. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.

A non-profit&#8217;s mission is to further a public good that benefits society. Investors and private citizens make charitable donations to fund non-profits not for a return on investment but for the benefits they hope to see provided to others in need. Running a non-profit is a noble venture, but it can be difficult, especially if [&hellip;]

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Non-Profit Organizations Explained

You’re probably thinking to yourself, “Accounting is accounting, right? How many different types of accounting can there be?”



Here’s a look at what accounting is, the different types of accounting, and why each type is essential in ensuring your business is profitable and growing.



<h2>What is accounting?</h2>



Accounting is the <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-crash-course-record-keeping-small-businesses">recording of an individual’s or an organization’s financial transactions</a>. Just like statisticians record statistics during a sporting event, accountants record transactions during a business’s (or individual’s) day-to-day operations.



There are five different types of accounting transactions:



<ul>
<li>Revenue</li>



<li>Expenses</li>



<li>Assets</li>



<li>Liabilities</li>



<li>Owner’s Equity</li>
</ul>



Every accounting transaction affects at least two of these accounts. Here are several examples:



<ol>
<li>A customer pays cash for providing a product or service. This transaction increases both revenue and assets (cash).</li>



<li>You make a monthly payment on a vehicle loan. This transaction decreases assets (cash), decreases liabilities (the loan balance gets smaller), and increases expenses (a portion of the payment is interest expense).</li>



<li>As a business owner, you reward yourself with a bonus at the end of the year. This transaction decreases both assets (cash) and owners’ equity.</li>
</ol>



<h3>Why is accounting important for businesses?</h3>



At its most basic level, accounting helps monitor the health of your business.



After <a class="link" href="https://1800accountant.com/blog/accounting-basics-small-businesses">recording all transactions for a certain period</a>, accounting reports can be created showing how much (or little!) profit your business has generated. You can then use these reports to make strategic decisions. For example:



<ul>
<li>If your business has recently been extremely profitable, you may decide to expand locations or hire additional employees.</li>



<li>If your business has recently been losing money, you may decide to ramp up your sales efforts or look for ways to trim expenses.</li>
</ul>



<h2>Different Types of Accounting for Different Situations</h2>



There are different types of accounting depending on which report you’re trying to create or what you’re trying to accomplish. We will look at the five most common types of accounting, the role each can play in your business, and how each type can help your business identify inefficiencies and increase profitability.



<h3>1.) Financial Accounting - The Backbone of Business Transparency</h3>



Financial accounting is the process of creating the following three primary financial statements for use by people outside of your business, such as investors and lenders:



<ul>
<li>Balance Sheet - Reports a business’s assets, liabilities, and equity at a specific time (e.g., Balance Sheet as of December 31, 2023). Total assets will always equal total liabilities plus total equity.</li>



<li>Income Statement - Reports a business’s income, expenses, and net income (or loss) for a specified period (e.g., Income Statement for the 12 months ending December 31, 2023)</li>



<li>Statement of Cash Flows - Reports a business’s total cash and cash equivalents entering and leaving that business.</li>
</ul>



All other types of accounting are an outgrowth of financial accounting, which is why this type of accounting is often referred to as the foundation, or backbone, of accounting.



The financial accounting process starts with properly recording and classifying <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-keep-good-financial-records">transactions</a> in your business’s accounting system. These transactions are then used to create the aforementioned financial statements using <a class="link" href="https://1800accountant.com/blog/generally-accepted-accounting-principles">Generally Accepted Accounting Principles</a> or other financial reports, which will be detailed later in this article.



<h3>2.) Management Accounting - Strategic Decision Making</h3>



Management accounting is the process of creating financial reports to help people within your business make better management decisions. These reports focus on all aspects of your business, including revenue and expenses.



Here are some examples of financial management reports and how each report can be used:



<ul>
<li>Accounts Receivable Aging - Lists a business’s outstanding payments from customers and how long these payments are past due.</li>
</ul>



Planning for the future: This report can be used to spot trends in the percentage of customers that pay on time and to update or revise your company’s customer credit policies.



<ul>
<li>Accounts Payable Aging - Lists a business’s outstanding payments to vendors and suppliers and how long these payments are past due.</li>
</ul>



Planning for the future: This report can help you identify vendors and suppliers who may give you favorable payment terms if you pay early and those who may be ok if you pay late. The goal is to hang on to your cash as long as possible and prioritize when to pay each of your bills.



<ul>
<li>Cash Flow Forecast - Estimates your business’s cash inflows and outflows for a specified period.</li>
</ul>



Planning for the future: This report can help you decide when you have enough cash to add a new piece of machinery or create a new full-time employee position. It can also help ensure you have enough cash to pay your recurring monthly bills.



<ul>
<li>Variance Reports - Compares planned financial outcomes with what actually happened on balance sheets, income statements, or cash flow statements.</li>
</ul>



Planning for the future: This report can help you identify an area that is not trending in its supposed direction. For example, let’s say your net profit remains the same in 2022 and 2023. No cause for alarm, right? Well, maybe. What if your revenue significantly increased, but so did your salary and wage expenses? An increase in expenses could potentially hide an increase in revenue. Were you expecting an increase in salary and wage expenses?



<h3>3.) Cost Accounting - Optimizing Operational Efficiency</h3>



Cost accounting is the process of creating financial reports for use within your business that focus exclusively on costs and expenses. It tracks a business’s costs associated with making and providing its products and services and allocates them to specific products and services.



Example: You purchase a widget-making machine for $100,000 in 2023, anticipating that this machine will last for five years and make a total of 500,000 widgets. For each widget you sell in 2023, you would allocate a cost of 20 cents ($100,000 cost of the machine divided by 500,000 widgets).



<h3>4.) Tax Accounting - Legally Minimizing Your Tax Obligation</h3>



Tax accounting is the process of calculating, preparing, and filing a business’s income and expenses to taxing authorities. Many businesses spend a significant amount of time on this type of accounting to ensure they aren’t paying any more taxes than they are legally required to.



Keep in mind that the profit or loss you report on your income statement will often be different from the profit or loss you report on your tax return because of the following reasons:



<ul>
<li>Income is included on your income statement but not on your tax return. Tax-exempt interest income, for example, from a municipal bond you may have invested in, is income you would include on your business’s income statement. But because it’s tax-exempt, you wouldn’t have to report this on your tax return.</li>



<li>Deductions are included on your income statement but not on your tax return. If you paid to take a client or customer out to dinner, you would record the entire meal cost on your income statement. On your tax return, however, you can only deduct 50% of the meal’s cost.</li>



<li>Deductions are included on your tax return but not on your income statement. The U.S. tax code is very generous with how much depreciation you can deduct in the year you purchase an asset such as machinery or a vehicle. You may encounter a situation where your tax return’s depreciation deduction is larger than your income statement’s depreciation deduction.</li>
</ul>



<h2>Partner With Accounting Experts to Ensure Business Success</h2>



Your business may not have each of these different types of accounting by name, but the essence of each type can play a vital role in making sure your business is profitable and growing:



<ul>
<li>Financial accounting: Telling outside parties how well your business is financially doing.</li>



<li>Management accounting: Analyzing your past transactions to make important decisions about the future.</li>



<li>Cost accounting: Understanding every cost and expense in your business.</li>



<li>Tax accounting: Accurately preparing tax returns so you don’t pay a penny more than you’re legally required to pay.</li>
</ul>



Partner with a 1-800Accountant <a class="link" href="https://1800accountant.com/blog/entrepreneurs-need-to-know-accounting">small business accounting expert</a> to help get the most out of each type of accounting in your business.

You’re probably thinking to yourself, “Accounting is accounting, right? How many different types of accounting can there be?” Here’s a look at what accounting is, the different types of accounting, and why each type is essential in ensuring your business is profitable and growing. What is accounting? Accounting is the recording of an individual’s or [&hellip;]

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Different Types of Accounting That Boost Business Success

If you’re self-employed or own a small business, you already know getting paid isn’t as simple as collecting a bi-weekly paycheck.&nbsp;



Did you also know you need to file a Schedule C tax form with your income tax return?&nbsp;



Schedule C reports your self-employment income to the IRS. If you <a class="link" href="https://1800accountant.com/blog/taxes-sole-proprietorships">run a business</a> or you’re self-employed, you’ll need to file a Schedule C tax form with your IRS Form 1040 each April. Correctly preparing and filing your Schedule C is crucial to staying compliant and avoiding tax notices or fines.&nbsp;



Keep reading to learn how to fill out a Schedule C form.



<h2>What is a Schedule C Tax Form?&nbsp;</h2>



If you recently started your business venture, you may wonder: What is a Schedule C tax form?&nbsp;



<h3>Explanation and Function of Schedule C</h3>



<a class="link" href="https://1800accountant.com/blog/business-entity-sole-proprietorship">Sole proprietors</a> use Schedule C to report their business income and expenses. Schedule C calculates business taxable income for the business owner’s Form 1040.&nbsp;



<h3>Who Needs to File a Schedule C Tax Form?&nbsp;</h3>



Self-employed individuals and owners of sole proprietorships should file a Schedule C tax form.&nbsp;



How do you know if you should file a Schedule C? Consider whether your business fits one of the following descriptions:



<ul>
<li>Sole proprietorship: The sole proprietorship is the default entity type for small businesses. Independent contractors and gig workers are typically sole proprietors. Your venture is generally a sole proprietorship unless you file an LLC registration or entity election. </li>



<li>Single-member LLC: The small business owner must file LLC formation documents to establish a single-member LLC. If you’re the sole owner of your business and you organized an LLC in your state, your business is a single-member LLC.&nbsp;</li>
</ul>



<h2>How to Fill out a Schedule C Form in 4 Steps</h2>



Ready to complete your Schedule C? You can <a class="link" href="https://www.irs.gov/pub/irs-pdf/f1040sc.pdf" target="_blank" rel="noreferrer noopener">download a fillable Schedule C tax form</a> from the IRS website. We recommend referring to the <a class="link" href="https://www.irs.gov/instructions/i1040sc" target="_blank" rel="noreferrer noopener">IRS Schedule C instructions</a>.



Follow these steps so you don’t miss important details.&nbsp;



<h3>Step 1: Gather Documents and Information&nbsp;</h3>



First, collect your records; gather your business information and bookkeeping documents.&nbsp;



You’ll need the following information to fill out your Schedule C tax form:&nbsp;



<ul>
<li>Financial records and receipts: Collect your bank statements, sales reports, and vendor receipts. </li>



<li>Income and expense statements: Have you updated your bookkeeping? Gather your <a class="link" href="https://1800accountant.com/services/business-tax-advisory">annual business income and expense schedules</a>. </li>



<li>Tax ID number: If you <a class="link" href="https://1800accountant.com/blog/ein">applied for an EIN</a>, find your confirmation letter from the IRS. </li>



<li>Payroll reports: Total the employee and contractor wages (if any) you paid during the year. </li>



<li>1099 Forms: If you work as an independent contractor, you should have received a Form 1099 from every US-based client.&nbsp; </li>



<li>Inventory reports: If your business sells physical goods, gather your records of inventory on hand at the end of the year.&nbsp;</li>
</ul>



<h3>Step 2: Understand the Schedule C Sections</h3>



Before getting started, familiarize yourself with the various sections of the Schedule C tax form.&nbsp;



<h4>Taxpayer Information</h4>



You’ll need to provide business information such as the business’s name, EIN, and address. If you don’t have an EIN, don’t worry – sole proprietorships don’t necessarily need one.



<h4>Part I: Income</h4>



Schedule C, Part I captures your business income earned during the year. You should expect to review your records and gather all 1099 forms you received.&nbsp;



<h4>Part II: Expenses</h4>



Part II details the costs of running your business. Consider the expenses you incurred, the equipment you purchased, and the employees you hired during the year.



<h4>Part III: Cost of Goods Sold</h4>



The Cost of Goods Sold section determines the deduction for materials and inputs you use to make and sell physical goods. For example, if your business sells cakes, you should report the amount you spent on ingredients, baking tools, and employees’ wages.&nbsp;



If you run a service-only business, feel free to skip Part III.&nbsp;



<h4>Part IV: Information on Your Vehicle</h4>



Part IV reports information about vehicles used in your business. You may need to provide vehicle information if you drive a company car or use your vehicle for your work.&nbsp;



<h4>Part V: Other Expenses</h4>



Do you have business expenses that don’t fit the categories listed in Part II? Use Part V to detail your other business costs.&nbsp;



Need help with some of the terms on Schedule C? <a class="link" href="https://1800accountant.com/services/small-business-taxes">We can help</a>.



<h3>Step 3: Prepare Schedule C and Compute Net Profit (or Loss)</h3>



After gathering support for Schedule C, you can fill out the form. The line descriptions will walk you through the taxable income calculation.&nbsp;



Be sure to answer all informational questions to avoid a return rejection.&nbsp;



<h4>Determine Your Schedule C Income</h4>



Review your bookkeeping schedules, bank statements, and 1099 forms. Check your bank accounts for any transfers from outside the US.&nbsp;



Use Line 1 to report the income you earned (before refunds and discounts) during the year. (Exclude W-2 wages, which you should generally report on Form 1040, not Schedule C.)



Use Line 2 to subtract any refunds you issued and discounts you granted.&nbsp;



If you sell physical items, complete Part III to calculate your cost of goods sold; include the total on Schedule C, Line 4. Carefully review your records and ensure you don’t duplicate your cost of goods sold as Schedule C expenses.



Your remaining income after returns and cost of goods sold (plus other income items, if applicable) represents your gross income.&nbsp;



<h4>Determine Your Schedule C Expenses</h4>



After totaling your income and cost of goods sold, move on to your Schedule C deductions.&nbsp;



Carefully review each line description and categorize your business expenses accordingly. If you weren’t diligent about keeping your personal and business accounts separate, check your bank statements for business purchases you made.&nbsp;



Remember, business expenses that don’t fit the categories in Part II should be itemized and listed separately in Part V: Other Expenses.&nbsp;



Maximize your Schedule C deductions by reviewing business tax deductions. Examples of Schedule C expenses to report in Part V include the following:&nbsp;



<ul>
<li>Software and website costs, including security and hosting fees. </li>



<li>Education and training related to your business. </li>



<li>Bad debts you will never receive from customers. </li>



<li>Mileage you drove for activities such as ridesharing or delivering products to customers.</li>
</ul>



Consider <a class="link" href="https://1800accountant.com/services/business-tax-advisory">consulting with tax professionals</a> who can help maximize your Schedule C deductions.



<h4>Compute Net Profit or Loss</h4>



Subtract your total Schedule C deductions from your total Schedule C income.&nbsp;



If the result is positive, you have a net profit for the year. Otherwise, your business generated a net loss.&nbsp;



<h3>Step 4: Attach Your Schedule C to Your Form 1040</h3>



Lastly, report your business taxable income or loss on Form 1040 and Schedule SE (self-employment tax calculation).&nbsp;



Attach your completed Schedule C to your Form 1040. You should include the Schedule C tax form when you file your income tax return.&nbsp;



<h4>Methods Available for Filing Your Schedule C</h4>



Your Schedule C tax form will be attached to Form 1040, which has multiple filing options. Each method has pros and cons:&nbsp;



<ul>
<li>Mail your Schedule C to the IRS.
<ul>
<li>Pro:
<ul>
<li>Filing is free (you’ll only pay for postage).</li>
</ul>
</li>



<li>Cons:
<ul>
<li>Processing times can be slow.</li>



<li>Manual preparation leaves room for error.&nbsp;</li>



<li>Paper mail can cause security concerns. </li>
</ul>
</li>
</ul>
</li>



<li>File your Schedule C electronically using tax preparation software.
<ul>
<li>Pros:
<ul>
<li>E-filed returns are typically processed quickly, and you’ll receive a filing confirmation.&nbsp;</li>



<li>Tax software will help you think through tricky form questions.&nbsp;</li>
</ul>
</li>



<li>Cons:
<ul>
<li>Tax preparation software can be costly.&nbsp;</li>



<li>Submitting returns online presents security risks. </li>
</ul>
</li>
</ul>
</li>



<li>Partner with a tax professional who can file your Schedule C.
<ul>
<li>Pros:
<ul>
<li>You’ll have access to technical expertise.&nbsp;</li>



<li>Tax professionals help you avoid mistakes and maximize deductions.&nbsp;</li>



<li>Tax services extend year-round beyond your return filing.&nbsp;</li>
</ul>
</li>



<li>Cons:
<ul>
<li>Not all service providers offer accurate, low-cost services. Avoid overpaying for <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business tax services</a> by partnering with 1-800Accountant.&nbsp;</li>
</ul>
</li>
</ul>
</li>
</ul>



<h2>Deadlines and Requesting Extensions</h2>



Federal income tax returns, including the Schedule C tax form, are generally due on April 15th each year.&nbsp;



Do you need more time to file?&nbsp;



You can request a six-month extension by filing an extension request before the original due date of your return. Use IRS Form 4868 to request an extension to file your Form 1040.&nbsp;



<h2>How to Make Amendments to a Schedule C Tax Form</h2>



If you made a mistake on your Schedule C, you can file an amended tax return to correct the errors.&nbsp;



You can amend Schedule C by preparing a new, corrected form. You should submit the amended Schedule C and Form 1040 with any other pages you adjusted.&nbsp;



<h2>1-800Accountant Tax Experts Can Help You Navigate the Nuances of Schedule C</h2>



The Schedule C tax form requires diligence and planning to ensure accurate reporting.&nbsp;



Stay organized throughout the year to prepare for a smooth filing process. Avoid mistakes by <a class="link" href="https://1800accountant.com/services/business-tax-advisory">working with tax professionals</a> who can assist you with filling out your Schedule C.&nbsp;



The tax professionals at 1-800Accountant specialize in <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business tax preparation</a>. We can help you understand the forms and maximize your deductions. Partner with 1-800Accountant for your Schedule C tax form so you can file with minimal hassle.&nbsp;

If you’re self-employed or own a small business, you already know getting paid isn’t as simple as collecting a bi-weekly paycheck.&nbsp; Did you also know you need to file a Schedule C tax form with your income tax return?&nbsp; Schedule C reports your self-employment income to the IRS. If you run a business or you’re [&hellip;]

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Understanding the Schedule C Tax Form: Everything You Need to Know

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