What's Up with the New W-4?

If you are now or ever have been a W-2 employee, you know that one of the many documents that you’re required to submit to HR in your first couple of weeks is the W-4. But do you know why?

What is the W-4?

The W-4 is a document used by your employer to estimate the amount of tax that should be taken out of each paycheck to meet your tax due by the end of the year. What you are submitting is a very brief overview of your tax situation to get that estimate as accurate as possible. Thing is, it used to be a much more simple form.

Why did it change?

While the old form used to be simple, many taxpayers found it hard to use the accompanying worksheets to figure out how much to withhold (remember withholding allowances?) The IRS says the new design “reduces the form’s complexity and increases the transparency and accuracy of the withholding system”. The new worksheets ask straightforward questions about your situation to help you more easily determine what to report.

Do you have to submit a new W-4?

Nope! Employees who have submitted a W-4 before 2020 are not required to submit a new form just because of the redesign, but since employers will continue to compute withholding based on the information from your most recently submitted W-4, you’ll want to update if you think adjustments need to be made.

So what should you do next?

The IRS has built a tax withholding estimator to help you calculate where you stand and what you’ll owe at the end of the tax year. Grab your most recent pay stub and tax return and get to it. Happy estimating!

Hiring 101 - Contractor v. Employee

Congratulations! Your team is growing. Now you have moved beyond working alone (or with the free help of family and friends) and into the realm of becoming an employer. One of the first questions that arises is how to know the difference between an employee and a contractor, and I’m here to help you stay on the right side of the IRS definition.

Hiring 101 - Contractor v. Employee

Why does it matter?

In the tax world, the distinction between employees and independent contractors generally lies in how much control you have over the worker. You can determine the level of control by asking a few questions about the position:

  • Does your company control or have the right to control over when and how the worker does the job?

  • Does the company require that the worker show up to perform the work at a specific site or office location?

  • Will the worker receive benefits?

  • Is the work engaged for a specific time period?

  • Is the worker an individual or a business (including LLCs)?

  • Can the worker take on other work outside of the work your company is requesting?

Per the IRS, “The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”

How to Handle an Employee

If you determine that the worker is an employee position, you will need to register with your state as an employer, in order to properly set up your company to withhold payroll taxes and . This is required for each state that your worker lives in, so keep this in mind for those employees who work remotely or outside the state that your business operates in.

All employees should meet the Federal and legal requirements for your state in order to be hired, but the first thing they will all need is a W-4, where the worker will provide their legal name, address, SSN, and tax filing status. This information will be included in your payroll system of choice in order to properly withhold appropriate Federal and state taxes. The employee will be paid an hourly rate or salary, which must be established and stay the same unless formally changed. All wages paid and taxes withheld will be reported on a W-2 that you must provide to the employee and the IRS at the beginning of each tax year.

Keep in mind that you will also be held to the employment laws of your state and the state of the employee. Obtain legal advice to be prepared for all of the expectations and requirements of being an employer.

What about Independent Contractors?

Independent contractor positions are generally expected to be a self-employed individual who performs a professional service for a specified period of time. No Federal or state tax registration is needed when hiring independent contractors, since payroll withholdings are not withheld from their payments.

The first step in hiring an independent contractor is to provide a W-9, where the worker will provide name, address, Taxpayer Identification Number (SSN or EIN), and certification about back up withholding. The W-9 should be kept in your records in case of request by the IRS. Payments to independent contractors that exceed $600 for the year must be reported on a 1099-MISC, which is to be provided to the worker and the IRS by January 31 of the following tax year. Per the IRS, note that independent contractors may have their own employees or may hire other independent contractors (subcontractors). In either case, they should be aware of their tax responsibilities, including filing and reporting requirements, for these workers.

There are pros and cons to hiring independent contractors v. employees, but either way, know which is applicable in your situation.

For more information, use the IRS Small Business and Self-Employed Tax Center as a resource.

DISCLAIMER: I am an accountant, not your accountant. Please speak with a professional about your specific accounting and tax needs before putting any of the aforementioned tips into practice.

You Owe. Now What?

Tax season is over, but for some that’s the beginning of a new process: that of preparing for payments for tax due to Federal and state agencies. So what now? See below for the next four steps you should take to get a handle on it.


The IRS imposes penalties for both late filing AND late payment. You can avoid one of these by filing your tax return on time.


Since penalties on late payments are assessed based on the amount remaining due, you can decrease the amount of interest you'll pay on the unpaid amount by sending something towards your bill. Remember, even if you choose to file an extension, any taxes owed are still due on the filing deadline. Therefore if you don’t pay by the deadline, you are subject to those extra penalties and fees.


If you are not able to pay the amount due in full by the tax deadline, the IRS offers methods by which to pay over a period of time.

• You may qualify for extra time to pay your taxes if you can pay in full in 120 days or less. You can apply online at There is usually no setup fee for a short-term extension.

• If you owe $50,000 or less and need more time to pay, you can apply for an Online Payment Agreement on A direct debit payment plan is your best option. This plan is the lower-cost, hassle-free way to pay. The set-up fee is less than other plans. There are no reminders, no missed payments and no checks to write and mail. You can also use Form 9465, Installment Agreement Request, to apply.


Now is the perfect time to review your withholdings and estimated tax amounts. Are you on track to be in a similar income situation next year? You may want to update how taxes are withheld from your paycheck, or if you’re self-employed, how much you send to the IRS throughout the year so that you aren’t in for a surprise next April. Take advantage of the IRS paycheck checkup tool to be proactive about your tax planning before it’s time to file.

DISCLAIMER: I am an accountant, not your accountant. Please speak with a professional about your specific accounting and tax needs before putting any of the aforementioned tips into practice.

File Your Taxes Early! Three Reasons Why

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We are fully in the throes of tax season, but time after time, I hear clients tell me how they generally wait until the last minute to file. Even though many taxpayers file their tax returns on or about April 15, you don’t have to.  In fact, filing an early tax return makes sense for a variety of reasons:


The normal wait for a federal tax refund is less than 21 calendar days from when the IRS accepts your return. Filing sooner means a faster refund because the IRS won’t be as busy early in tax season as it will be in April. You could also potentially receive your state refund faster.  State refunds vary by state, but you normally must file your federal return first.  When you file electronically, the IRS's system acknowledges receipt of your state tax return and passes it to the state for processing. If you have money coming to you there’s no reason letting the government keep it longer than necessary and puts the money in your hands sooner.


The IRS recommends filing your taxes as early as possible as a security measure.  Tax return receipt and processing is a first come-first serve process. In the event a thief gets hold of your social security number and files a false tax return to claim your refund, having that corrected can take months. This is especially important when dealing with children, for which fraud occurs frequently because of the benefits of claiming dependents.


When you file early, you avoid procrastination by giving yourself peace of mind from being able to check this off things-to-do list.  Filing early also gives you time to fully understand changes to tax law or deal with changes in your life that alter your filing status.  Rushing at the last minute can lead to mistakes that trigger audits, potentially leading to penalties and interest. In addition, if you find that you owe for Federal or state tax due, you give yourself time to pay since payment isn’t due until tax deadline. This gives you more time to plan how you will pay, or set up a payment arrangement as needed.

When Should You Hire a Tax Preparer v. DIY?

Let’s start with a disclaimer of sorts: While preparing taxes is part of our practice, I don’t necessarily think that people can’t ever do their own taxes. But for many, it’s a task better left to professionals. So for those who have been using Turbo Tax or the like to DIY their annual tax prep and filing, when should a switch be made to hand this process over to an accountant or tax preparer?

When you don’t have time.

It’s a relatively obvious place to begin, but tax preparation is not an easy or quick task for most of us. According to the IRS, the average taxpayer spends 13 hours preparing their tax return. Thirteen hours! From determining whether you have all of the documentation needed to including all info needed without errors into their proper spaces and schedules, it can often take days to push through the completion of your annual tax return and still handle other life duties. If it’s not the best use of your time, give it to someone for whom it is their job to take care of it.

When you’re not sure about the tax law.

Many people think that self-service tax preparation automatically covers you if errors are made, but that’s not true. The software depends on the information you input, and additional coverage like audit assistance is generally an additional cost for the taxpayer. If you make an error, or are missing information on items you should have claimed or deducted, the responsibility falls on you to find out how to correct and resubmit the necessary information. The reality is that most taxpayers are only mildly aware of how tax changes affect their particular circumstances, and would benefit by having an expert not only prepare the return, but also act as a resource to educate you on what might differ from prior years.

When your taxes are complicated.

Do you even know if your taxes are complicated? Even items that seem routine or simple can get complex when you consider life status changes, freelancing or owning your own business, or rental properties. If you are not confident all bases are covered, or if you have updates to your life that may require additional reporting and forms, it could be in your best interest to hire someone. It may be your first time seeing these situations, but it shouldn’t be your tax preparer’s. Having someone who knows how to handle them reduces the chances of mistakes, which could result in costly penalties or fines. In addition, you could be missing out on credit or deductions that you are entitled to, which would ultimately leave money to you that would otherwise be erroneously owed to the IRS,

For many taxpayers, the peace of mind in knowing that their returns were accurately prepared is worth the cost of paying a professional. Since you can be sure that you are in compliance with tax laws, you can rest easy without the anxiety or fear of an audit. And even if the IRS reviews your return, you know that you have an expert on your side to help with any requests.

Ready to get started? Click here to schedule a free discovery call to review your tax needs for the upcoming year.

DISCLAIMER: I am an accountant, not your accountant. Please speak with a professional about your specific accounting and tax needs before putting any of the aforementioned tips into practice.

Tax Season Approaches!

Four Year-End Tax Tips

Tax returns for individuals (and tiny businesses who file a Schedule C) aren’t due until April, but as the end of the year approaches, many are preparing their files and financials so that the tax season can flow a little easier. The upcoming tax season is going to be a bit different for many taxpayers, and whether you plan to enlist the services of an expert or do them yourself, there are a few ways you can start getting ready before the new year begins.

  1. Get Your Receipts Together

We’ve all seen or heard about the “boxes of receipts” that clients hold onto to support expenses, and even in the age of everything digital, some things don’t change. Many people keep tens or even hundreds of emails or pdfs to accompany their other tax documents, but the reality is, many couldn’t pick out the appropriate one to match an expense if they tried. I recommend choosing a cloud storage option (i.e. Google Drive, Dropbox, etc) and create folders to categorize the receipts by date (month/year) or expense type (i.e. advertising, office supplies, equipment, etc). Generally you want to do this process as you incur the costs, but the end of the year is the perfect time to gather all of your receipts and classify them in a way that allows you actually find them when you need them.

2. Prepare Formal (or Informal) Financial Statements

Do you know how much you earned and spent this year? And on what? Well… you need to. The first step I often give new clients is to track everything. EVERYTHING. Any money that goes in and out of your business should have a category assigned, since this information will ultimately be included on your 1040 Schedule C. If you have an accounting system, congratulations - this step should be pretty straightforward. But if you don’t, start with a basic spreadsheet, pull out your bank statements, and get to categorizing. Not only will this make your net profit clearer to you (which is the number that you will be taxed on for self-employment), this process might also jog your memory for those items that you might have otherwise forgotten.

3. Save All of Your Tax Documents In One Place

Between the W-2 you receive from your job, your student loan docs that you can download online, and the 1099-MISC that comes in the mail, it’s easy to have all of your tax documents available without knowing where they all stand at one time. But in order to have everything you need in time to prepare your tax return, you want to keep all of your docs together, whether hardcopy or in a digital folder. Some of the items you should have at hand are:

  • Prior year tax returns

  • W-2 (if you have an employer) or 1099-MISC (if you freelance)

  • A 1098 from your mortgage company to reflect interest and other mortgage related expenses

  • A 1098-T if you had tuition expenses

  • An interest statement from your student loan company

  • Documentation of charitable deductions

4. Get help if you need it.

As stated before, this year has changes that may provide challenges to even the most dedicated of DIY tax preparers and that might mean you need assistance. Be sure to reach out in advance to properly interview anyone you might want to use for your tax preparation and filing services. If you would like help from Little Fish, please click here to get started. No matter who you choose, make sure to make your selection in enough time to ask all the questions you need to in order to feel comfortable putting your tax needs in someone else’s hands.

DISCLAIMER: I am an accountant, not your accountant. Please speak with a professional about your specific accounting and tax needs before putting any of the aforementioned tips into practice.