Category: General

When to Use a Power of Attorney?

A Power of Attorney (POA) is a legal document giving one individual the power to act on behalf of another individual under certain circumstances. A POA ensures that administration of your financial or personal affairs continues, even if you are incapacitated or unavailable. You should recognize when they may require a power of attorney, understand how POA’s work and know-how to go about getting one. 

What is a Power of Attorney? 

A power of attorney is a legal document whereby one individual (the principal) designates another individual to act on their behalf. The term may also refer to the designated individual. 

The principal may indicate to what capacity the agent may act and make decisions on their behalf, whether in a limited or broader scope. If you have a power of attorney and become incapable of acting on your own behalf, your POA may be called to make financial decisions for you. Financial decisions a POA may be authorized to carry out include: 

• Banking transactions 
• Financial matters 
• Healthcare billing 
• Real estate tasks and transactions 
• Managing government and/or retirement benefits 

Reasons to Create a Power of Attorney 

Anyone over the age of 18 can create a power of attorney, although younger people rarely think to create one, except in special circumstances. A POA is used for individuals who become incapacitated or in the absence of that individual. 

Many circumstances may trigger a power of attorney, including: 

• An individual in the military who is deploying overseas 
• The development of an illness or other serious health-related issues 
• Expatriate workers working overseas who still have their affairs in America 
• Young people who are traveling a lot 
• Overall peace of mind 

How to Set up a Power of Attorney 

Anyone can set up a power of attorney, but you will have to look at your state’s guidelines to ensure that you satisfy the requirements, as there are different requirements in each state for setting up a POA. It is recommended that you use an attorney to draft a POA that will accurately reflect the responsibilities you want to give to the agent you choose.  

The individual seeking to set up a POA must have the mental capacity to understand the process. Someone who is already incapacitated cannot have a POA drawn up. 

The first step in setting up a power of attorney is to choose someone to be your POA. Remember that your POA has the legal authority to handle your affairs when you are incapable of doing it, so you must select someone you trust. You may choose more than one individual to be your agent and ask that they work together, although complications may arise from this scenario. Likewise, you may designate several different individuals to act on your behalf under different circumstances. 

You have control over some of the additional details of your power of attorney. For example, the timing of your POA going into effect. You can establish a POA that goes into effect once you are no longer able to handle your affairs yourself or one that goes into effect immediately. 

You may also limit the power of attorney. For example, a POA can allow someone to represent you on a deal when you are out of the city or in another jurisdiction.  

The POA can be voided at any time by destroying the original document then drawing up a new one. You may also prepare a formal document informing all parties concerned that the POA is invalid. FormPros offers a Revocation of Power of Attorney Form to make this process easy. 

Types of Power of Attorney 

There are four main types of power of attorney: 

• Conventional POA: This is one of the most common types of POAs. The POA agent has power from the moment it is signed until the principal becomes incapacitated. It can be very specific, like a money manager making investment decisions on behalf of their clients – which would be a limited POA. A POA that grants a broader range of power, such as access to all bank accounts, is considered a general POA. 
• Durable POA: Durable power of attorney gives the agent the power to decide on the principal’s behalf if the principal becomes incapacitated. Your POA must explicitly indicated that it is durable for your agent to act on your behalf when you’re incapacitated; otherwise, they can only act once you are in a sufficient mental state. 
• Medical POA: This type of POA allows the principal to designate a POA agent to make healthcare decisions when you cannot do so yourself. A medical POA comes into effect as soon as it is signed but can only be used if you are declared to be in a mentally incompetent state. 
• Springing POA: A springing POA only comes into effect after a certain event or medical condition occurs. It may end at a specified time or upon death.  

Things to Remember 

• Even if you are married, you may need a power of attorney to enable your spouse to act on your behalf if you are incapacitated. For example, if you have real estate under only your name, your spouse would need a POA to make legal or financial decisions for that property.  
• A will is not a POA. A will deals with your property after your death, not decision-making.  
• The person you appoint as your POA for personal care (i.e., medical) cannot be someone who is paid to work for you unless they are also a family member.  

How to Create a Power of Attorney 

It’s never too early to create a power of attorney–you never know when you will need it. A POA can help protect your assets and ensure that you are taken care of even when you are incapacitated or physically unavailable. As long as you designate someone you trust as an agent, rest assured that your affairs will remain in order, no matter what happens. 

Thinking that now is the time to create a power of attorney? Form Pros can easily help you create a durable power of attorney, a durable power of attorney for healthcare, or even a living will to help ensure that your future is set, no matter what.  

Ways Renters Can Show Proof of Income

If you’re looking for a new place to rent, you will most likely be required to show proof of income to your potential landlords. There are many ways that you can show proof of income. Your landlord may request a specific method for proving your income before accepting you as a tenant, so you must stay aware of the different ways that you can show proof of income to potential landlords. 

How Renters Can Show Proof of Income 

There are several ways that renters can show proof of income to landlords. Be aware that some landlords may ask for more than one proof of income documentation to verify your income. Generally, you should expect to show that you make at least two to three times the monthly rent. 

1. W-2 Income Forms 

W-2 forms are reliable documents as they provide the applicant’s income from the previous year. However, a W-2 may not be sufficient as proof of income as they do not give an up-to-date view of the renter’s income. A renter may have changed jobs in the past year or had a change in income, which the W-2 would not reflect.  

If you submit a W-2 form, your landlord may also request recent paystubs or a letter of employment.  

Another alternative to a W-2 form is to present a federal tax return (1040). This option is great for those who have multiple jobs, as it provides a comprehensive view of all of your income earned throughout the year.  

2. Pay Stubs 

Pay stubs are probably the most common way that renters show proof of income to potential landlords, as it is the most reliable method. Pay stubs generally show the applicant’s full name, the employer’s name, and relevant contact information.  

Most renters already have access to their pay stubs, so it is a quick way to verify income. Renters should expect to provide two months of pay stubs to show the landlord how frequently they are paid and how much they get per month. Landlords typically check the pay stub for the amount of income per pay period and the employee’s year-to-date earnings. 

People can create fake pay stubs online; therefore your landlord may request a second document for proof of income. 

3. Bank Statements 

Self-employed people do not receive traditional pay stubs (although they may be able to create pay stubs) and may likewise not receive pay in regular intervals. Providing bank statements from at least the past two months is a good way to show landlords that they have a regular income. Landlords may request more than two months’ worth on bank statements to not only show proof of income but steady income. 

Bank statements also give landlords an idea of the applicant’s financial position and help them understand if the applicant can afford the rent. However, if you are a landlord, be aware that some applicants may be hesitant about providing bank statements because of the personal nature of the documentation.  

Another alternative for self-employed individuals is to provide a 1099 form. As it is a tax document, it is easily verified; however, you may need to provide more than one 1099 form to prove stable income. 

4. Letter of Employment 

A landlord may request a letter of employment or employment agreement to confirm your employment status. Some companies generate generic letters to detail your length of employment and salary. You may approach your manager for a formal, more personal letter which may also provide that landlord with proof of your character and serve as a positive reference.  

Likewise, letters of employment are easily forged, so be aware that landlords may call your employer to verify the letter. Furthermore, letters of employment may take longer to obtain than other forms of proof of income.  

Letters of employment may be requested in addition to W-2 forms. 

5. Social Security Benefits 

If you are unemployed and your income comes from Social Security, that generally looks good to landlords as it means that your income is stable. For further verification, you may also have to provide a Social Security proof of income letter to verify your income, which you can download online. 

6. Pension Statement 

If you are retired, a landlord may request a 1099-R form to verify your pension distribution. This document is considered generally reliable; however, your pension distribution may change, and some landlords may be wary of that fact. 

7. Unemployment Statement 

Renters who get unemployment benefits may be less desirable to landlords; however, through unemployment statements, they have a way to prove steady income. The only concern is that unemployment benefits may run out, in which case the tenant may no longer be able to pay rent, presenting a form of risk to the landlord.  

8. Worker’s Compensation Letter 

If you have been injured at work and are receiving worker’s compensation, you can use it to show proof of income. Your insurance company can provide you with a letter to submit to your landlord to prove that you have been awarded compensation that can act as consistent income. 

Other less common methods of verifying income include: 

• Court-ordered awards letter 
• Severance statement  
• Incentive payments 

Tips for Verifying Proof of Income 

• If you are a landlord, and potential tenants present your proof of income, you must verify the information that you are given. Contact the applicant’s employer to ensure that they are indeed still employed. 
• If you are a renter, have your proof of income ready in advance (before seeking a new residence) to avoid delays in the rental application. 

Understanding How to Show Proof of Income 

Proving proof of income as a renter is important to give your landlord peace of mind and trust that you will be able to make your monthly rent payments on time. As a renter, you have several options when it comes to proving your income. However, landlords are wary about the way a renter may prove their income, so it is best to have multiple methods and documents prepared, if possible.  

Renters are always asked to show at least one document as proof of income. FormPros can help you easily put together multiple tax forms, such as a W-2, as well as pay stubs and employment agreements to save you time and help ensure that you have the right documents ready. 

What Is an IRS 1099-NEC Form?

If you own a small business or are a freelancer, you are probably familiar with IRS 1099 forms. In 2020, the IRS released a new 1099-NEC based on adjustments to the 1099-MISC form, which is now used to report miscellaneous income, such as rent or legal settlements. Small business owners who employ independent contractors must be informed on how to fill out a 1099-NEC. 

Even though the employer fills out this form, if you are a freelancer, gig worker, self-employed or independent contractor, this form may be relevant and important for you to understand. If you are a business that pays these workers, you must understand and fill out the 1099-NEC form. 

Who Uses a 1099-NEC Form? 

The following conditions must be met to file a 1099-NEC form: 

• You are a business 
• You have independent contractors who are not employees 
• The service provider is a pass-through legal entity (i.e., Incorporated business) 

Businesses must file a 1099-NEC form for non-employee compensation–for example, independent contractor compensation, meaning that the form is required if your business uses independent contractors in addition to or as opposed to employees who would be on regular payroll. A business must submit a 1099-NEC form for each independent contractor that they paid. 

The IRS defines someone as an employee if they meet the following conditions: 

• The company has the right to control how the worker performs the job 
• The company decides which expenses are reimbursed 
• The company is contractually obligated to supply the worker with benefits such as pension and sick days. 

If the worker meets the above criteria, the IRS classifies them as an employee, not an independent contractor, and as an employer you must fill out a W-2 form instead of a 1099-NEC form. 

A 1099-NEC form is for business-related expenses; therefore, you may not need to fill out a form for every independent contractor that you pay. 

Do not try and forego documenting payments to independent contractors. 1099-NEC forms are necessary forms required to protect your business in the event of an IRS audit. 

Generally, you must report payments on a 1099-NEC form for: 

• Professional services: Accountants, lawyers, graphic designers, etc. 
• Payments for services, including materials used for the services 
• Commission paid to non-employee salespeople 

When to Use a 1099-NEC Form 

If your business paid a contractor more than $600 in any tax year, you must fill out a 1099-NEC form for that contractor come tax season, unless they are a C corporation or B corporation, then you are not required to file a 1099-NEC form. As the payer, it is your responsibility to file the form, not the contractor.  

Although independent contractors who receive less than $600 may still be required to pay taxes on that income, as a business, you do not have to provide this information to the IRS for them. 

You must also file a 1099-NEC form for any non-employee for whom you’ve withheld federal income tax for any amount, even if you paid them under $600. This is uncommon with independent contractors as businesses usually do not withhold income taxes for contractors.  

The deadline to file a 1099-NEC form is January 31 in the year following the income tax year. Be sure to file the form on time to avoid any penalties or delays. You must also have given a copy of the form to the respective independent contractor by January 31–they will need it to file their income tax. 

What You Need to File a 1099-NEC Form 

To complete a 1099-NEC Form, you will need the following information: 

• Payer’s Information (Name, address, taxpayer ID) 
• Recipient’s Information (Name, address, taxpayer ID) 
• The amount paid to the recipient in the given tax year 
• Federal income tax withheld, if applicable 

When you fill out the 1099-NEC form, you will notice that there are three copies. Copy A goes to the IRS, Copy B goes to the independent contractor, and Copy C is for your records. You are responsible for the IRS and the contractor receiving their copies on time.  

Things to Remember 

• If you are a business owner, do not fill out 1099-NEC forms for your employees. There are serious penalties for misclassifying employees as contractors. You must use a W-2 form for your employees. 
• Be sure to track your business expenses throughout the year and keep all appropriate payment records to make filling out the 1099-NEC form more manageable. Even if you do file a 1099-NEC form, you must keep all appropriate records as you may have to provide them during an audit, including any contractor agreements. 
• If you are an independent contractor, you are not required to submit a copy of the 1099-NEC form. However, you should request a copy from your client if they haven’t sent it by the January 31st deadline, as you will need it to file your personal income tax.  
• Some states require you to file a 1099-NEC form with the state. Review the required tax documents for your state before submitting them. 
• Make sure to count expenses accurately and avoid counting the same expense more than once, as this may present problems in the future. 
• Be sure that it is indeed a 1099-NEC form that must be filed and not another type of 1099 form.  

Understanding the IRS 1099-NEC Form 

A 1099-NEC form is essential if you are a business that pays non-employees. It may be tempting to overlook payments to independent contractors, but this could put you and your business in danger. As the business that paid non-employees, you are responsible for filling out the 1099-NEC form and supplying a copy to the contractor and the IRS. Make sure that you are filing the 1099-NEC form on time every year to avoid penalties or delays.  

You do not need to hire a professional to help you fill out a 1099-NEC form; the process is quite simple and can easily be done online with FormPros. Use our Form 1099-NEC generator to fill out the online form and save you money.

How to Easily Get a Copy of Your W-2

As an employee, you can expect your employer to provide you with your W-2 form at the beginning of every year, which will detail the income from your previous year’s employment. However, there may be times when you need a copy of an old W-2 form from a previous job. As much as we know that we should keep copies of all of our tax documents, it does not always happen. Luckily, there are a few options to retrieve a copy of a W-2 form. 

The following information also applies to 1099 forms that independent contractors receive; however, you may not need this type of form under the same circumstances that you would need a W2 form. 

Reasons to Retrieve an Old W-2 Form 

There are many reasons to retrieve an old W-2 form. These reasons include: 

• Filing Back Tax Returns: The IRS keeps a record of taxpayers that are required to file their taxes but don’t, which may result in the IRS coming after you for back tax returns. Back tax returns may result in consequences like hefty penalty fees, so you will need to get back in good standing with the IRS by reviewing your previous tax documents to prepare your return. 
• Applying for Loans: When applying for loans, you may be required to prove that you have had stable income for the past few years, meaning they may request previous years’ W-2 forms. 

• Legal Reasons: You may need to document transactions or income for many different types of legal proceedings, for example, to determine child support payments.  
• Tracing Income History: You may have to provide your income history for different reasons, and your W-2 forms are the most reliable way to trace your income history. You can also see details such as how much your employer contributed paid for your health insurance and how much you contributed to your retirement plan. 

You don’t necessarily need a reason to request a copy of an old W-2 tax form; if you find that you are missing one, don’t hesitate to proceed to retrieve a copy–you never know when you may need it.  

How to Get a Copy of Your Old W-2 

You have a couple of options for getting a copy of your old W-2 form, before you request it, you have to figure out which year you need or whether you need W-2 forms from multiple years. If you are in contact with your old employer, you may contact them and request a copy of your W-2 from payroll. Employers are obligated to keep copies of W-2 forms for four years, but some may keep them for longer. Be aware that some employers may charge a fee for administering a copy of your W-2. 

If you’re unable to contact your former employer, fortunately, there’s an even easier way to retrieve old W-2 forms: through the IRS. The IRS has W-2s for the past ten years, so they are likely to have what you need.  

The IRS keeps records of several types of information statements from third parties, including your employer, financial institutions, and others who may have paid you. The documents from the previous year become available to you after the April filing deadline. 

Getting a Copy of Your W-2 From the IRS 

If you are requesting a copy of your W-2 form from the IRS, there are four ways that you can make the request. 

By Mail 

You can make the request for an old W-2 form by mail by filling out a 4506-T “Request for Transcript of Tax Return” form to the IRS. You will only receive a copy of your W-2 from the IRS if you filled it out in paper copy; if not, you will receive a transcript from the IRS, which will have the relevant information. 

This form allows you to request the wage and income transcript, as well as a transcript of your tax return or tax account activity, which is the slowest method, accounting for the time it may take the IRS to receive your request: your W-2 transcript form will arrive in about three weeks. 

By Phone 

You can request your W-2 form by phone by calling (800) 908-9946. With this method, your W-2 will typically arrive in 10 days. 

Online (Get Transcript By Mail) 

Go to Get Transcript By Mail and fill out the form to request your W-2. As with the phone method, your W-2 will arrive in 10 days.  

Use IRS Get Transcript  

If you don’t already have an IRS account, set one up and immediately download your transcripts online. You will need to provide extra documentation to verify your identity for securing access to an IRS online account.

Use Your Tax Preparation Professional 

If you use a tax preparation professional such as an accountant, you may authorize them to contact the IRS and get your transcripts for you. They have online accounts with the IRS and may be able to contact them quickly. 

Tips for Getting a Copy of W-2 Form 

• To avoid the hassle of trying to contact the IRS, save all copies of W-2 forms in a safe space so that you can refer to them when you need them. Always make a copy of the forms you send to the IRS every tax season. 

• If you use a tax professional to complete your taxes, you can also try contacting them for copies of your W-2.  

How to Get Your W-2 

Keep copies of all of your W-2 forms in case you need them in the future, whether for records of your income or to track other deductions such as benefits or retirement. Luckily, if you find out that you are missing one of your W-2 forms and you need it, you can request a copy of a transcript from the IRS through several different methods. Nonetheless, it is much easier to have the forms ready when you need them, so consider creating a more comprehensive filing system for your documents. 

FormPros can help users save time by instantly generating W-2 forms as well as many other important tax forms. 

What Is an LLC Operating Agreement and Do I Need One?

Starting a business is exciting, but it can also be confusing and daunting. If you’re unsure if you should create an operating agreement for your limited liability company (LLC), the answer is yes. Do you need one? 100%. Absolutely. Every business that registers an LLC should create the operating agreement while in the very early stages, typically while writing the business plan.

What is an LLC?

An LLC is a limited liability company, a type of business registration that reduces tax liability for the registrants. By registering as a limited liability company, you protect yourself from assuming business debt, should you acquire it. If the business becomes insolvent, the registrants of the company aren’t responsible for paying the debt from their resources. Instead, that debt belongs to the business. In essence, the LLC isn’t a separate entity from its owners but protects its members against personal financial liability.

What is an LLC Operating Agreement?

Also known as an LLC agreement, limited liability company agreement, or operating agreement, this is an important document that governs an LLC’s workings or the way the business will conduct itself. An operating agreement is a legal document with comparisons between stockholder agreements, corporate bylaws, and similar documents. The completed articles are filed with the government, usually when filing for incorporation. These articles outline the rights, powers, duties, liabilities, and other obligations of every member of the LLC. It also includes the demographic information of the LLC’s members, the LLC’s registered agent, and a purpose statement.

The operating agreement of your limited liability company is vital to your business. While the agreement isn’t mandatory in all areas, it serves as a record of how the business will run, elevating the professionalism in the eyes of customers, clients, and members.

Sections of an LLC Operating Agreement

The LLC operating agreement is a lengthy legal document that can be upwards of fifteen pages. Due to the comprehensive nature of the agreement, there isn’t a generic template that fits all business types. The focus of the document comes down to this: how will the business behave and who is responsible?

You should draft an LLC operating agreement even for LLCs that have a single guiding member. This type of operating agreement is called a single member LLC operating agreement. When more than one person shares the membership, a multi-member LLC operating agreement is created. In both cases, the agreement is essential for guiding business direction, governance of the members, dissolution of the LLC, and many more legally binding operations.

Here is an overview of the vital parts of the LLC operating agreement and what information to include in each part.

Section One: Information about your LLC

• Formation: Describe when the LLC was formed and by whom.
• Name: This may seem obvious, but you must include the operating name of your LLC.
• Purpose: This can be general or detailed. Generally, this section covers the type of business you will conduct. For example, you might write: The purpose of the X Company is to buy and sell real estate and engage in any lawful activity relating to real estate permitted to limited liability companies in This City.
• Office/Location: This is the address where the business operates.
• Registered Agent: Every LLC should have a registered agent whose role it is to accept tax and business documents on behalf of the company. The registered agent is responsible for keeping the operating agreement and articles of incorporation. Note the registered agent’s information is public. Choosing a suitable representative for your business is highly recommended.
• Names and addresses of members: With a single-member LLC operating agreement, the membership includes only your name and demographics. A multi-member LLC operating agreement covers all members and their information.
• Additional Members: Include how your LLC will proceed to adopt new members. Including protections for yourself make sense. For example, this section might include a sentence specifying that the LLC cannot admit new members without a unanimous vote from existing members.

Section Two: Information about your LLC’s Capital

• There are many ways to word this section, but it must include the origin of any capital and the terms connected with those dollars.

Section Three: Information about your LLC’s distribution of profit and loses

• Profit/Losses: How are profits divided? When is the calculation made? Who is responsible, and how are the profit/losses distributed?

Section Four: Information about your LLC’s management responsibilities and authorities.

• Even if you, as the single member in your LLC operating agreement, plan to manage your company, the operating agreement should have a section that addresses your roles and responsibilities in the business.

After this point, the bulk of the operating agreement focuses on the articles governing accounting, banking, dissolving the business, and special provisions. Each operating agreement tailors to the business it complements. While editing or working with a legal document, be thorough, honest, and have someone else review the work for you.

LLC Operating Agreement…Do I Need One?

Yes, you need one. The LLC operating agreement is an important part of any business. This professional, legally-binding document governs how your limited liability company conducts business and includes information on roles, responsibilities, and authorities of the people involved with creating the company. Every limited liability company should have an LLC operating agreement. 

When to Use a Loan Agreement Letter

Most people borrow money or take out a loan at some point in their life. A car loan, a mortgage to finance a home purchase, a student loan to cover tuition and other education fees, or a short-term bank loan to cover any number of planned or unexpected expenses, we all borrow money at some point.

The truth is loans are everywhere, and so are loan repayment agreements. While most people are familiar with more detailed loan contracts, such as mortgages, credit card agreements, and auto loans, there is some confusion when it comes to basic loan agreement letters.

To help clear things up, we are going to explain when you should use a loan agreement letter and describe how they work.

What is a Loan Agreement Letter

A loan agreement, also referred to as a loan contract, is a binding contract documenting a financial agreement between two or more parties. The party who writes the loan agreement letter is the lender, and the other party is the borrower. Both parties must agree to the terms and sign the letter for it to be binding.

The loan agreement letter doesn’t only act as binding proof of the arrangement, but it also details the terms of the loan. When written correctly, a loan agreement letter specifies the interest rate, repayment plan, and payment dates. The agreement spells out this information, detailing the conditions of the loan and making sure that both the lender and the borrower understand the arrangement.

A loan agreement letter complies with both state and federal regulations to ensure that the lender and borrower are both protected should either party fail to honor the agreement.

Once the loan agreement is written and agreed upon by the lender and the borrower, both parties sign it. A signed loan agreement letter is proof that the borrower and lender have committed to the exchange of funds and repayment of the loan term.

Using a Loan Agreement Letter for a Specific Type of Loan

Most loan agreement letters specify the purpose of the loan to make sure that the borrower borrowed the money in good faith. If the borrower does not use the loan for the pre-defined purpose, they should pay back the lender immediately.

When to Use a Loan Agreement Letter

As mentioned, many loan agreements involve detailed contracts written by financial institutions and professional lenders. Mortgages, auto loans, student loans, and credit cards usually involve signing a lengthy written contract, but many types of agreements fall outside of the boundaries of these more recognized agreements.

Borrowing money can be a messy process, even when it is amongst family and friends. Not only can the amount represent a large financial commitment, but outstanding loan payments can also quickly wear on relationships and eventually lead to legal disputes.

A formal loan agreement is necessary for both parties that ensure that the terms are agreed upon before any money changes hands.

Loan agreement letters are useful in the following situations:

1. Business to Business Loans – When one business lends money to another, there a loan agreement protects both parties. For example, if a bank wants to loan
   • A loan agreement letter protects both parties if the matter ends up in court. The signed loan agreement can resolve legal issues quickly and decisively.
   • Loan agreement letters detail repayment dates, so one party can not falsely accuse the other of not living up to the agreed-upon terms of the loan.

As you can see, writing and signing a loan agreement letter protects both the lender and the borrower. Remember, you do not have to hire a lawyer to have a legally binding loan agreement letter. Save yourself time and frustration by always using a loan agreement letter when lending or borrowing money to a small business or startup company, both parties are legally and financially protected if they sign a loan agreement first.

2. Business to Individual Loans – When a business loans money to an individual borrower, a loan agreement is imperative. Whether an individual takes out a personal loan from a bank or borrows money to purchase a property from a real estate lender, a loan agreement must be signed ahead of time.
3. Individual to Individual Loans – When someone agrees to privately loan money to another person, both parties should sign a loan agreement. While financial transactions between family members and close friends might seem informal, they can lead to serious legal disputes if one party feels they have been wronged. This is why it’s important to sign a loan agreement letter when money is loaned instead of gifted.

Other Reasons Why You Should Use a Loan Agreement Letter

Borrowing money is a financial commitment that strains the relationship between two parties if one feels the other is not living up to their side of the arrangement. Loan agreement letters clarify the nature of the loan and the conditions that go with it, helping to prevent either party from feeling aggrieved.

While most of the terms and conditions in a loan agreement letter are fairly straightforward – amount, interest, repayment plan, collateral, late fees, and default penalties – here are some other reasons why lenders and borrowers should sign a loan agreement letter:

• It is legal proof that the money was a loan, not a gift. It is essential to clarify this with a loan agreement for tax purposes, and it helps prevent confusion in the future if the borrower later claims they did not realize they had to pay the money back. This is particularly important when the loan is between family members.
• A loan agreement letter protects both parties if the matter ends up in court. The signed loan agreement can resolve legal issues quickly and decisively.
• Loan agreement letters detail repayment dates, so one party can not falsely accuse the other of not living up to the agreed-upon terms of the loan.

As you can see, writing and signing a loan agreement letter protects both the lender and the borrower. Remember, you do not have to hire a lawyer to have a legally binding loan agreement letter. Save yourself time and frustration by always using a loan agreement letter when lending or borrowing money.

W-4 vs W-2 Forms: A Definitive Guide for Employers

To avoid unwanted Internal Revenue Service (IRS) penalties, it’s important that employers complete W-4 and W-2 forms at the end of each tax year. 

However, knowing what each form’s requirements are and the differences between them can be challenging. This is especially true for a small business without a large payroll department. 

This article will explain why W-4 and W-2 forms are necessary, how to identify and complete each one, and what the options are for submitting them on time. 

The basics of W-4 and W-2 forms

Once business owners know what W-4 and W-2 forms are, understanding their differences and filling them out becomes much easier. 

Let’s take a closer look at the basics of each of these tax forms. 

Form W-4 

Also known as the Employee’s Withholding Allowance Certificate, the W-4 is a form that the federal government requires employees to fill out when starting a new job. 

For an employer’s purposes, an IRS Form W-4 is used to determine the amount of income tax to withhold from an employee’s paycheck. 

This amount will be based on the employee’s wage and the number of withholding allowances they qualify for. 

It’s important that the information on the Form W-4 is accurate. 

If the incorrect amount is withheld from your employee’s paycheck, they could face expensive tax bills or penalties at the end of the tax year. 

Form W-2

This IRS form is also known as a Wage and Tax Statement. Employers are required to complete and distribute this form to their employees by the end of the tax year.

The W-2 form is a document that outlines how much an employee was paid during the year and how much income and federal tax was withheld. 

For each employee that is paid at least $600 in wages, employers must file a copy of the Form W-2 with the Social Security Administration (SSA). This is the case even if no income, Social Security or Medicare taxes were withheld from the employee. 

We’ll go into more detail about what these withholding allowances are later in the article. 

This form should be submitted with your employee’s tax return. Otherwise, the IRS will not accept the tax return as valid.

W-2 vs W-4 forms: Knowing the differences  

Now that you know what these IRS forms are, we can outline the key difference between Forms W-2 and W-4 and how they relate to business owners.  

It’s crucial to remember that the main difference between these tax forms lies in their purpose and who fills them out. 

What are the purposes of these forms?

Although W-4 forms are filled out by employees, they also have important implications for employers. 

This is because the form outlines the necessary amount to withhold from an employee’s paycheck for tax purposes. 

Employees must fill out a new Form W-4 whenever their financial situation changes. In addition to starting a new job, this could include a change in marital status, having a child or a pay raise. 

All of this information is relevant to an employer because it could indicate a change in the employee’s payroll taxes at year-end. 

An employer is only required to complete certain sections of the Form W-4 if their state has new hire reporting requirements. 

Once the Form W-4 is complete, employers should keep this document in case the IRS requests a copy of it.

On the other hand, employers have the sole responsibility of completing Form W-2. 

Not only is the W-2 form used to inform the government of how much tax has been withheld from each employee, but it can also be used for staff record-keeping purposes. 

The W-2 form should outline the following information: 

• The employee’s gross pay 
• Any bonuses or tips the employee received 
• Federal income tax contributions such as Medicare taxes
• Additional withholdings, such as contributions to retirement plans

All of this information needs to be collected by the employer to give the SSA and the IRS an indication of each employee’s income tax returns. 

What is the deadline for submitting W-4 and W-2 forms?

Another difference between the W-4 and W-2 forms is their submission deadlines. 

A general rule of thumb is that a W-2 form is to be completed at the end of the tax year and the W-4 form is filled out once by employees at the beginning of their employment. 

Employers must complete and distribute the Form W-2 to their employees by January 31. 

If this date falls on a weekend or a national holiday, the deadline will be shifted to the following business day. 

Moreover, employers must also ensure that another copy of the W-2 form is filed with the SSA by the end of February. 

An employee should ideally complete their Form W-4 during their onboarding process when starting a new job. This is because the form determines how much tax is withheld from their pay. 

If an employee fills out a new W-4 form because their financial situation changes, this document should be submitted to the employer within 10 days. 

The table below summarizes the differences between Forms W-4 and W-2: 

W-4 Form	W-2 Form
Employees fill out Form W-4.	Employers complete the form on behalf of their staff.
The purpose of this form is to inform employers of how much income tax to withhold from employees.	The W-2 form is used to report how much an employer-paid each employee and the amount of income tax withheld during the tax year.
W-4 forms should be submitted to employers within the first month of starting a new job.	Employers must complete and distribute a copy of the Form W-2 to their staff by January 31 of each calendar year.
Employers are recipients of W-4 forms.	W-2 forms are intended for employees and the IRS and SSA.
The Form W-4 is submitted each time an employee starts a new job or needs to report changes to their financial situation.	The Form W-2 is submitted only once, at the end of the tax year.

How do employers fill out W-4 and W-2 forms?

IRS forms can be lengthy and intimidating at first glance. 

However, if you know what information is needed to complete W-4 and W-2 forms, the process is much easier. 

Form W-4

Employees that are single (or married to an unemployed spouse), have no dependents and claim only one income, only need to include the following information on an IRS Form W-4:

• Full name and address 
• Social Security number 
• Marital status 
• The employment commencement date 

The employer will then need to enter their full name, address and their Employer Identification Number (EIN). 

Employees can also expect an additional three pages on the Form W-4. These include: 

• The Personal Allowances Worksheet 
• Deductions, Adjustments and Additional Income Worksheet 
• Multiple Jobs Worksheet

If the employee has more than one job, a working spouse or dependents, filling out a W-4 form can be slightly more complicated. 

Multiple jobs or a working spouse 

Employees that have more than one job or whose filing status is “Married filing jointly” can complete their IRS Form W-4 in a few different ways. 

If the employee has two jobs, or if the spouse and the employee each have one job, the first line of the “Multiple Jobs Worksheet” must be completed.

Both the employee and their spouse must ensure that they both fill out a W-4 form with their respective employers. 

Employees with more than two jobs between themselves and their spouse have to complete sections 2 to 4(b) on the W-4 form for the highest paying job. 

The W-4 form also comes with a worksheet to guide employees on how to use the salaries from their lower and higher-paying jobs to calculate the amounts to add to each line on the document. 

Dependents 

It’s important for employers to note that if their employees have dependents they may be eligible for the Child Tax Credit. 

The eligibility requirements are that a single taxpayer must either be earning less than $200,000 or making less than $400,000 as a married couple filing jointly.

Employees would then multiply the number of dependents they have by the Child Tax Credit amount and add the amount to line three on Form W-4. 

If the employee has other dependents, it’s their responsibility to review who the IRS considers as dependents to ensure this section is completed accurately. 

Additional Withholdings

After employees fill out the essential information on their W-4 form, they can also specify if they want any other money withheld from their paycheck. 

A good example is when an employee expects to earn income that is not subject to tax deductions. On the IRS Form W-4, these sections are:

• 4(a): This section should be completed if the employee expects to earn “non-job” income that is not subject to tax withholdings. 
• 4(b): Employees should fill out this section if they expect to claim deductions and want to reduce their withholdings. 
• 4(c): This section must be filled out to specify whether the employee has any other additional income they want to be withheld from each paycheck.

Before the employee can submit their W-4 form, they must sign and include the date to ensure the document is valid.

Form W-2

When employers fill out W-2 forms, they need to include the company’s name, address and state-specific tax number. 

Additionally, the Form W-2 requires the following basic information about the employee: 

• Full name, address, Social Security number 
• Gross pay
• Federal Income Tax
• Social Security Tax 
• Other compensation such as bonuses or tips

Although W-2 forms are fairly straightforward to complete, there are a few common mistakes which employers should avoid. 

Not only can errors on the W-2 form cause confusion for employers and employees, but these mistakes can also be penalized. 

Here are some of the most common mistakes to avoid:

• Filling out a W-2 form that is outdated and from the previous year 
• Completing the form with incorrect employee name and Taxpayer Identification Number 
• Using titles and abbreviations in the name fields of a Form W-2
• Missing the IRS filing deadline 
• Not using black ink to fill in the form 
• Omitting your EIN
• Failing to complete the employee’s “Retirement plan or Medicare wage” section. 

Both employers and employees should ensure that the income tax withholdings on the Form W-2 are accurate to avoid expensive tax bills. 

Taking a closer look at penalties 

In the event a taxpayer does not fulfil their tax obligations, they could be subject to a penalty with the IRS. 

This means it’s important for both employers and employees to be aware of the different types of penalties and how to avoid them. 

There are a few reasons why penalties might be owed. Here are some of them: 

• The taxpayer does not file their tax return on time 
• Information on the tax return is incorrect 
• The individual pays their tax return in the wrong way

The IRS may also charge interest on a penalty if the taxpayer does not pay the total amount. Additionally, it may charge some penalties every month until the full amount is paid. 

When the IRS issues a penalty, they will inform the individual by letter or mail. This notice will outline the penalty, the reason for it and how to resolve it.

What happens after the W-4 and W-2 forms are filled out?

Once these IRS forms have been completed, the next step is to file them electronically or send physical copies by mail.

Let’s take a closer look at what each of these options entails and their pros and cons. 

E-filing 

This process involves filing tax returns over the internet via the Electronic Federal Tax Payment System (EFTPS). 

One of the main benefits of e-filing is that it processes returns much faster than mail submissions.

Not only are returns processed within a day or two, but the IRS also sends people instant confirmation when their forms have been received. 

With e-filing, there is also less chance of human error. This is because the IRS does not have to manually enter your return into the system. 

The tax software used by the IRS completes the calculations, flags errors and will let taxpayers know if they have missed any important information. 

Although e-filing is efficient, there are a few limitations. Individuals cannot use the e-filing system if: 

• Additional statements or images are attached to the return
• The return is for someone who has passed away 
• The IRS has not opened the filing system for the year 

Paper filing 

For those who prefer not to use technology, paper filing works just as well as electronic submissions. 

This method also allows taxpayers to be much more thorough when completing their tax returns. 

The paper filing gives the individual the opportunity to review all the details of their tax return and see the calculations first-hand. 

Many taxpayers also find paper filing more secure because they do not have to upload any of their personal information onto the internet. 

Although the IRS has security measures to prevent data breaches, paper filing has less chance of ending up in the wrong hands. 

On the other hand, mail submissions take longer to process. Taxpayers can wait up to six weeks to receive refunds after their returns have been processed. 

There is also a greater chance of errors in processing paper tax returns because the IRS manually transcribes data in the system. 

Paper filing can also be quite daunting for beginners because various forms need to be gathered and submitted with the return. 

Filing extensions

Whichever submission method you choose to use, it’s important to request a filing extension if you are unable to meet the deadline to avoid late penalties. 

To request an automatic extension, taxpayers must use Form 4868.

The extension allows you more time to file your tax returns, but keep in mind that the tax payment is still due by April 18. 

Say goodbye to W-4 and W-2 form guesswork 

We know that the process of creating and filling out IRS forms can be overwhelming. That’s why our forms generator has been designed to be simple and easy to use. 

This means that employers can easily produce, fill out and print W-4 and W-2 forms in a matter of minutes.   

Using Form Pros also gives employers peace of mind that all IRS forms are filled with the correct calculations. 

With our affordable subscription plan, employers can create unlimited W-4 and W-2 forms at a low cost.   Click here to find out how to create tax forms in three easy steps with Form Pros.

How to get pay stubs for a new apartment

If you’re looking for a new place to rent, you will most likely be required to show proof of income to your potential landlords. There are many ways you can demonstrate this proof of income, pay stubs being the most common.  

Keep reading to learn how to get pay stubs as proof of income for a new apartment. You will also learn about other options that you may have to prove your income before signing a lease. 

Why use pay stubs as proof of income? 

Landlords typically want to see that your rent will not exceed 30% of your monthly income, which is why they always ask you for proof of income in advance.  

Pay stubs are the most common way that renters show proof of income to potential landlords, as it is the most reliable method. Not only do they prove that you are currently employed, but they also show how much money you’re making.  

Pay stubs and other forms of income verification generally show the applicant’s full name, the employer’s name, as well as relevant contact information. They are also usually the most up-to-date form concerning income that many employed people have. 

Although reliable, people can create fake pay stubs online; therefore, your landlord may request a second document for proof of income. 

How to get pay stubs for a new apartment 

Most renters already have access to their pay stubs, so it is a quick way to verify income. If you have direct deposit, you most likely still have access to your pay stub online; otherwise, you can ask HR for a copy. If you get a physical paycheck, make sure that you only present your landlord with a copy, not the original.   

Renters should expect to provide up to two months worth of pay stubs. By producing pay stubs for this period, you show the landlord how frequently you are paid and how much you make per month. Landlords typically check the pay stub for the total income per pay period and the employee’s year-to-date earnings. 

If you’re a freelancer, gig worker, or independent contractor, you may not have a pay stub to present to your landlord. Don’t worry. Depending on your landlord’s request, you have other options when it comes to showing proof of income.  

Other forms of proof of income 

Although pay stubs are the most requested and reliable method for showing proof of income for a new apartment, there are other methods that a landlord may accept. 

Bank Statements 

Self-employed people do not receive traditional pay stubs (although they may be able to create pay stubs) and may likewise not receive pay in regular intervals.  

Providing bank statements from at least the past two months is a good way to show landlords that they have a regular income. However, be aware that landlords may request more than two months’ worth of bank statements to not only show proof of income but steady income. 

Bank statements also give landlords an idea of the applicant’s overall financial position and help them understand if the applicant can afford the rent. However, if you are a landlord, be aware that some applicants may be hesitant about providing bank statements as they contain very personal information.  

Another alternative for self-employed individuals is to provide a 1099 form. As it is a tax document, it is easily verified; however, you may need to provide more than one 1099 form to prove a stable income. 

W-2 income forms 

W-2 forms are reliable documents as they provide the applicant’s income from the previous year. However, many landlords prefer W-2 forms as supplemental to pay stubs. 

A W-2 may not always be sufficient as proof of income as they do not give an up-to-date view of the renter’s income. A renter may have changed jobs in the past year or had a change in income, which the W-2 would not reflect.  

If you submit a W-2 form, your landlord may also request recent pay stubs or a letter of employment.  

Another alternative to a W-2 form is to present a federal tax return (1040). This option is great for those who have multiple jobs, as it provides a comprehensive view of all of your income earned throughout the year.  

Letter of employment 

A landlord may request a letter of employment or employment agreement to confirm your employment status.  

Some companies generate generic letters to detail your length of employment and salary. You may approach your manager for a formal, more personal letter which may also provide that landlord with proof of your character and serve as a positive reference.  

Likewise, letters of employment or contractor agreements are easily forged, so be aware that landlords may call our employer to verify the letter. Furthermore, letters of employment may take longer to obtain than other forms of proof of income, as your employer may need to create one.  

Letters of employment may be requested in addition to W-2 forms. 

Pay stubs for a new apartment 

Having proof of income as a renter is important to give your landlord peace of mind and trust that you will be able to make your monthly rent payments on time. As a renter, you have several options when it comes to proving your income, and pay stubs are the most common and reliable form. 

However, sometimes pay stubs are not enough, so it is best to have multiple methods and documents prepared, if possible. Your landlord may request a secondary method to prove your income before accepting you as a tenant, so you must stay aware of the different ways that you can show proof of income to potential landlords. You should also be prepared for your landlord to pull your credit history to determine if you have bad credit. 

Landlords always ask renters to show at least one document as proof of income. Form Pros can help you put together pay stubs as well as other tax forms, such as a W-2, and save you time and help ensure that you have the right documents ready. 

Create Your Pay Stubs with FormPros

What You Shouldn’t Do For Your Small Business Payroll

As a small business owner, calculating payroll yourself can be challenging and complex. Payroll not only involves paying your employees, but it also requires you to keep up with the latest labor and tax laws. To prevent serious problems when running payroll, you must understand how to set up an accurate payroll system and the things that you shouldn’t do for your small business payroll.  

How to Calculate Payroll 

To set up payroll for your small business, you will need the following information: 

• Employer Identification Number 
• State Tax Information  
• Employee Information (including pay rate) 
• Records Keeping System (reliable storage) 

Your first step should be to make sure that your business has an Employer Identification Number (EIN) so that the IRS may identify your business. You will need it to set up payroll, so if you don’t already have one, you can easily apply for one on the IRS website. 

Next, you will need to collect all of the necessary information from your employees by having them fill out a W-4 form. This form will give you the filing status and personal allowance for each employee and is essential to processing payroll.  

Once you have the relevant information for all of your employees, you will want to choose a payroll schedule. Most businesses choose a biweekly or semi-weekly schedule, but you may also choose a weekly or monthly date, depending on how you want to approach your business’s yearly schedule. Generally, the fewer pay periods, the easier payroll is to complete. Some states require employers to pay their employees according to a certain schedule, though, so be sure to double-check with your state’s labor laws. 

The most difficult part of payroll is calculating an employee’s net pay. To do this, you must first calculate gross pay by multiplying the number of hours the employee worked and dividing it by their hourly rate. From there, you will have to calculate each employee’s deductions and allowances, as specified on their W-4. You must also factor in payroll tax and benefits.  

Once you’ve calculated what will be withheld from the employee’s gross pay, you must subtract that amount to determine the employee’s net pay. You are then ready to pay your employees and don’t forget to keep records. 

What Not to Do When Calculating Payroll 

Payroll can be complex, and it’s important to understand what to do and what not to do when dealing with payroll for your small business. 

1. Do not delay having new employees fill out a W-4 form. You cannot process payroll for an employee without a signed W-4 form. Failing to provide this form will result in late payments to the employee. Employees must also complete an I-9 form to verify that they are legally allowed to work in the United States.  

2. Do not mistake independent contractors for employees, or vice versa. Whether a worker is an independent contractor or an employee impacts their income, how they pay taxes, and what forms are needed. Come tax time, employees receive a W-2, while contractors usually receive a copy of a 1099 form (typically a 1099-NEC form). There are serious penalties for misclassifying employees as contractors.  

Furthermore, you want to ensure all employees and contractors receive their payroll records on time come tax season. Do not keep your employees waiting too long for their W-2 forms. If a contractor no longer works for you, remember that you are still responsible to send them a copy of the 1099 form as they need it to do their income tax. 

3. Do not fail to retain payroll records. Not only does the IRS require businesses to retain certain records, but it may be helpful for you too. You must retain all records for all actively employed individuals, and certain records must even be retained after an employee is terminated.   

4. Do not neglect to find the right payroll technology. If you’re doing payroll for your small business yourself, chances are you are still using the help of some payroll platform or payroll software. However, make sure that you are using software that you understand and is easy to use. Using software that you find confusing will only result in payroll errors, which may cause a delay in paying your employees. Using Excel is a simple way to track hours and expenses and makes the payroll process easier. 

5. Do not fail to stay organized. One of the main causes of a payroll error is a lack of organization. Aim to keep accurate and exact records of all of your employees’ hours and pay rates in a spreadsheet to track this information for payroll. You don’t want to be scrambling around for this information when it comes time to do payroll or underpaying employees for hours worked. 

6. Do not shy away from seeking professional payroll help. If you’re finding the payroll experience to be overwhelming, you do not have to keep doing it yourself. There are many payroll processing services available to help you do your payroll. It may be worth enlisting the help of a payroll service to do your payroll. An even more reliable option is to hire an accountant. Accountants may be more expensive than a full payroll service, but they are more reliable, and they would also be your employee (or independent contractor). 

How to Do Payroll For You Small Business 

Doing payroll for your small business may be complex and challenging at times, but it is possible. If you follow the steps, meticulously pay attention to detail, and understand what mistakes to avoid, you are setting yourself up to do your payroll.  Doing your payroll can save you costs and ensure that you are involved in every detail of your small business.  

Your small business can generate a W-2 form and 1099-NEC form using FormPros to make processing payroll documents a simple annual task, saving you both time and money every tax season.