There are 11 exceptions listed by the IRS that are not to be filed using 1099-NEC. The renewed 1099-NEC and accompanying 1099-MISC form changes may make your 2020 tax year filing a bit different than past years. We’ve discussed the dos and don’ts of filing the 1099-NEC as well as federal and state filing, and now let’s talk about some of the exceptions to the 1099-NEC, according to the IRS. Some payments, payouts, and compensation will not be reported on the 1099-NEC. Payment Exceptions to 1099-NEC Though many payments like contract work, fees paid to attorneys, and other payments and merchandise transactions between two professionals are recorded on the 1099-NEC, there are quite a few exceptions. Payment exceptions include: Payments for merchandise, telegrams, telephone, freight, storage and similar items Rent payments to property managers and/or real estate agents. Note: these rent payments must, however, be reported on the 1099-MISC by the agent or manager. Payments to a tax-exempt organization, which also includes tax-exempt trusts: IRAs, HSAs, Archer MSAs, Coverdell ESAs, and ABLE (529A) accounts. Any payments made to or for homeowners from the HFA Hardest Hit Fund or similar state programs. Compensation Exceptions to 1099-NEC 1099-NEC exceptions also include some forms of compensation. Per the IRS, there are 1099-NEC exceptions for “compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor's benefit, or under a state program that provides benefits for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty.” Compensation for wrongful incarceration (regardless of criminal offense) which ended in a conviction under federal or state law are also exempt from form 1099-NEC filing. Wage Exceptions to 1099-NEC Wages paid to employees are another exception to form 1099-NEC, …
Types of 1098s and When to Use Them
There are close to 1,000 forms related to federal income taxes, and seven different types of 1098 forms. There are seven different types of 1098 forms, each with a different purpose and importance. Let’s run through each form and what they’re used for. 1098 This form is a Mortgage Interest Statement. Your mortgage company will send you this form if you paid at least $600 in mortgage interest. 1098-C This form is for Contributions of Motor Vehicles, Boats, and Airplanes. If you donated a car, boat, or airplane worth more than $500 to a charity, you can take a charitable deduction for your contribution using this form. 1098-E This form is a Student Loan Interest Statement. Your lenders must give you this form if you paid at least $600 in qualified loan interest. 1098-F This form is for Fines, Penalties, and Other Amounts. If you paid any of the following, you’ll need to include them on this 1098 form: court-ordered fines, penalties, restitution, or remediation. However, these payments are not typically tax-deductible. 1098-MA This form is for Mortgage Assistance Payments. You’ll use this form when you received or paid any homeowner assistance payments through a state Housing Finance Agency. If you meet certain requirements, you could potentially deduct those payments. 1098-Q This form is for Qualifying Longevity Annuity Contract Information. This contract is from a certain type of retirement account, and the 1098-Q is where you’d report these payouts. 1098-T This form is a tuition statement. The recipient may claim education credits if he or she paid tuition to an eligible higher education institution, like a college or university. 1098 forms are given to anyone who has been engaged in any of the abovementioned financial transactions during the tax year. When you receive these forms, it’s always a good practice to make sure all information reported – even VINs, social security numbers, etc, - is correct before you file your …
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1099-MISC and 1099-NEC Mistakes and How to Avoid Them
With the introductions of the 1099-NEC for the 2020 tax year, there are many common 1099 filing mistakes, but they can be easily avoided with some research and planning. 1099-MISC and 1099-NEC Common Mistakes One of the common mistakes that we’ll see a lot next year is the confusion about which 1099 form to use, MISC vs. NEC. The MISC form is largely unchanged, but the non-employee compensation will now be reported on the NEC form instead. This includes all the payments made to independent contractors for services and products related to that service. Next to completing the wrong form, not verifying the TIN (taxpayer ID number) is another easy mistake to make. This will cause all IRS reporting to be off, often resulting in penalties that a business, its contractors, or both may have to deal with. Filing a paper return, while not inherently a mistake, may result in late fees and penalties if the number of forms filed exceeds the IRS limit of 250. This count is per form, so you can file 10 1099-MISC and 130 1099-K forms with no trouble, but if there are 265 1099-NECs, the NEC forms must be e-filed. If you find yourself making any of these mistakes, it might be good to figure out what the filing penalties are and how to correct the issues. If there are errors in your 1099 forms, click here to learn how to correct them. How to Avoid Them Many of these mistakes can be avoided by doing some research about the different forms and their due dates. Double-check all information you will be reporting, especially the TIN. Having a professional individual or service look over your 1099s can also be a cost-effective way to avoid common 1099 filing mistakes and ensure all your forms have been filled out and submitted correctly federally and by state. If you think e-filing these forms is confusing, eFile360 can help. For more information about electronic filing, sign up for a free eFile360 account. …
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Who Fills Out the New 1099-NEC
Independent contractor payments that were previously recorded in Box 7 of Form 1099-MISC will now be reported in the renewed 1099-NEC form starting in the tax year 2020. But who fills out 1099-NEC forms? What Businesses Need 1099-NEC Any business that pays out non-employee compensation to any contract labor for more than $600 in the taxable year must fill out a 1099-NEC by January 31 so that the contractor can file it with their taxes after that. There are a few different payment types that fall under non-employee compensation: fees, commissions, prizes, awards, and other forms of compensation for services. Some examples of compensation that qualifies for 1099-NEC reporting include the following circumstances: Professional service fees – to attorneys, accountants, architects, contractors, engineers, etc. Payments for services like parts or materials used to carry out the services Director’s fees and other remuneration (i.e. payment) Does the Contractor File or the Business That Hired Them? The business that hired the contractor is responsible for the 1099-NEC, but it is the responsibility of the contractor to prepare and send a W-9 form prior even to paying the contractor so that the hiring business has all the proper records to accurately prepare and file the 1099-NEC. The hiring business prepares and sends the 1099-NEC form to the IRS, with copies going to the independent contractor and the state tax department, if applicable. The independent contractor will need to record all information on the W-9 they send with the rest of their tax documents. Who Qualifies for an Extension? Businesses who need an extension must file a paper request. The following reasons will have their request granted/approved: The person or business who is filing suffered a “catastrophic event in a federally declared disaster that made the filer unable to resume operations or made necessary records unavailable” Operations were affected by the death, …
Types of 1099s and When to Use Them
The most common 1099 forms are 1099-MISC, 1099-INT, 1099-DIV, 1099-K, 1099-B, 1099-G, and 1099-R. There are more than a dozen different types of 1099 forms, each with a different purpose and importance. Let’s run through each 1099 form and what they’re used for. 1099-A This form is for Acquisition or Abandonment of Secured Property. This is typically used when property has been transferred due to foreclosure. 1099-B This form is for Proceeds from Broker and Barter Exchange Transactions. It is used by brokerages and barter exchanges to record customer gains and losses in a tax year – stocks, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, securities futures contracts, etc. 1099-C This form is for Cancellation of Debts. Lenders and creditors file this form if a debt of $600 or more has been canceled. 1099-CAP This form is for Changes in Corporate Control and Capital Structure. This form is used to report shareholders who have received cash, stock, or other property through an acquisition or other significant change in structure of capital. 1099-DIV This form is for Dividends and Distributions. You must file this form if you own stock or securities and receive more than $10 in distributions like dividends, capital gain distributions, or nontaxable distributions paid on stock and liquidation distributions. 1099-G This form is for Certain Government Payments. Use this form to report unemployment compensation, state and local income tax refunds, agricultural payments, and grants that are taxable. 1099-H This form is for Health Coverage Tax Credit (HCTC) Advance Payments. This form is used to report advance payments of qualified health insurance payments for the benefit of eligible trade adjustment assistance (TAA), alternative TAA, re-employment TAA, or Pension Benefit Guaranty Corporation (PBGC) payees and their qualifying family members. 1099-INT This form is for Interest Income. …
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Filing 1099-NEC: Dos and Don’ts
The IRS has re-introduced the 1099-NEC form for reporting non-employee compensation in an effort to smooth out the reporting process for contract labor and other related costs. Here are some of the main dos and don’ts of filing 1099-NEC. Do: File 1099-NEC Forms for Non-Employee Compensation The IRS requires reporting payments that are: made to someone who is not your employee, made for services in the course of trade or business dealings, or payments over $600 for the calendar made to an individual, partnership, estate, or even sometimes a corporation. Some examples of this include professional service fees to attorneys, accountants, or architects, fees paid between two professionals, payments for services, even parts and materials, and commissions. Don’t: Report Exceptions These exceptions do not need to be reported: payments for phone, freight, telegrams, storage, or merchandise and the like and payments for a foreign government, tax-exempt organizations, tax-exempt trusts, and payments to governments at the federal, state, and local levels. Do: Verify Recipient Taxpayer ID One of the first things you need to do is verify each recipient’s taxpayer ID. In order to complete the 1099-NEC for your contract workers, you must also have a form W-9 given to you by each recipient. Don’t: Use Form 1099-NEC for Personal Payments A big thing to remember about the new 1099-NEC form reporting is: don’t use the form 1099-NEC to report personal payments. Do: Mind Your Due Dates When filing and submitting these forms, remember the due date to distribute 1099-NECs to recipients is January 31 – though this date falls on a Sunday for 2021, so February 1 will be the deadline for the year. You must also be sure to file with the IRS by January 31 (again, February 1 for the year 2021). Don’t: Use Form 1099-NEC for Employee Wages In the same way that personal payments aren’t reported on the 1099-NEC, this form is also not for reporting employee wages. Make sure not to …