1098s are another subset of forms, much like 1099s, that have small but crucial differences between the different form types. As we approach the end of 2020, tax season will seem closer than ever after the strange circumstances this year brought around for businesses and tax filing. Here are some answers to 5 common 1098 form and filing questions. What is the deadline for filing 1098s? Copy A of the 1098 deadline for filing on paper with the IRS is February 28. If you are filing electronically, the due date is the end of March. Copy B must be provided to the borrower by the end of January. What happens if there are errors on my 1098? The most common errors associated with 1098 filing are: filing the wrong form type, reporting the wrong amount, reporting the wrong TIN or not including one at all, using the wrong year/version of the form, and not using the correct IRS form (you cannot download or copy). If you make an error that you are unable to fix, the best thing to do is contact an accountant or tax professional for help. Once you have the updated information, you need to file a correction for each form that had errors. What are the different types of 1098s and what are they used for? The primary function of 1098 forms is to report payments and contributions you made that have the potential to be deducted from your taxable income. There are seven different 1098 forms: 1098 (mortgage interest statement), 1098-C (contributions of motor vehicles, boats, and airplanes), 1098-E (student loan interest statement), 1098-F (fines, penalties, and other amounts), 1098-MA (mortgage assistance payments), 1098-Q (qualifying longevity annuity contract information), and 1098-T (tuition statement). For a bit more on these forms and what they are used for, take a look at our other blog post. What’s the most common 1098 form? The most common 1098 form is, incidentally, the 1098 itself without any dashes or letters following it. This form is used to report …
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, …
Filing As an Independent Contractor
If you were hired as a freelancer or independent contractor and your total earnings were more than $600, you will need to file taxes using the renewed 1099-NEC form for the tax year 2020. What is an Independent Contractor? An independent contractor is a person or business that provides goods or services under contract or verbal agreement. Though this agreement means the independent contractor works for another company, the independent contractor is not considered an employee of that company. Being an independent contractor gives you the freedom to set your own schedule or to supplement your day job income, but that means you are the only one responsible for tracking and reporting those freelance earnings on your taxes. Here are some tips to help you when filing as an independent contractor. 1099-MISC vs 1099-NEC 1099 forms are the most common forms used by businesses that hire independent contractors. In the past, Box 7 on the 1099-MISC is where businesses reported their payments to contractors, but starting in the tax year 2020, the IRS has renewed the 1099-NEC (non-employee compensation) form and that is going to take the place of the 1099-MISC for freelance wage reporting. Self-Employment Taxes Self-employment taxes are taxes consisting of Social Security and Medicare taxes for individuals who work for themselves - since you don’t have an “employer”, you have to account for these taxes yourself if you are an independent contractor. You determine your self-employment tax using Schedule SE on the Form 1040 or 1040-SR. The self-employment tax rate is 15.4% and consists of two parts: 12.4% for social security and 2.9% for Medicare. For 2020, according to the IRS, the first $137,700 “of your combined wages, tips, and net earnings are subject to any combination of the Social Security part of self-employment tax, Social Security Tax, or railroad retirement (tier 1) tax.” Self-employment taxes tend to be higher than traditional employee taxes …
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How to Securely Send W-2s to Employees
Distributing tax information securely is very important, and there are lots of ways to do it. Here are some different ways you can securely send W-2s to your employees. Hand-Deliver the W-2 to Each Employee Personally Perhaps the safest way to distribute W-2s to your workers is by hand. This is also the most time-consuming method and the easiest way to miss someone. For many businesses, especially in the current global climate, hand-delivering this information is unsafe due to social distancing best practices or even impossible, as many companies have all or part of their labor force working remotely. Giving W-2s to employees by hand works best if you have a small number of employees who all work in the same geographic location. Mail Paper copies of W-2s can also be sent via mail. Remember to send them out in enough time that employees receive them no later than January 31. To send by mail, first, you need to verify the address of each employee to make sure these documents are sent to the right person. This also saves time and money - if you verify addresses before sending, you won’t have to reprint at the request of employees who moved this year and forgot to update their employee file. Another good way to cut down on processing time is to create pre-printed address labels. Depending on the software system you use, the employee's address may already be on the form. Then all you have to do is put them in envelopes with address windows, add postage, and send. A disadvantage of mailing a paper copy is those W-2s change hands quite a few times between your business outbox and your employees’ mailboxes. Also, mail can be damaged, dropped, or lost. This creates a slightly higher risk of the wrong person receiving that sensitive information. Undeliverable W-2s Any mailed W-2s that are returned as undeliverable should be kept for four years from the issue date. Do not send undeliverable employee W-2 forms to the Social Security …
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Federal and State Filing for 1099-NEC
For the 2020 tax year, form 1099-NEC has a filing due date of February 1, since January 31 falls on a Sunday in 2021. This date is for paper and electronic filing. 2020 is filled with apprehension as businesses scramble to stay afloat amid the COVID-19 crisis The revived 1099-NEC form may not be a big concern right now, but as the deadline for filing gets closer, you will have questions about this “new” form in regards to the state, federal, and possibly combined filing. How does the 1099-NEC Change State Filing? The introduction of the 1099-NEC form in addition to the 1099-MISC will change how businesses report and file non-employee compensation. Though the changes seem minimal, navigating which forms to use and when may prove more nuanced than initially thought. According to the American Payroll Association, in the coming months, “state tax authorities will most likely be revising regulations, forms, and instructions to adopt the new federal Form 1099-NEC or states may choose to retain their form 1099-MISC equivalent for reporting NEC.” States will have to figure out how best to incorporate this new form just as businesses will. It’s also good to keep in mind that the Taxpayer First Act prohibits many businesses from submitting more than 100 paper forms. The addition of the 1099-NEC requirements could mean your business must now submit forms electronically if you have not done so in the past. Can You Combine Federal and State Filing for 1099-NEC? Though many 1099 forms, including 1099-MISC returns, can be filed through the Combined Federal/State Filing (CF/SF) program using the FIRE System, the same is not yet true for the new 1099-NEC. Since the 1099-NEC has not been used since the 1980s, states have been using the 1099-MISC for all NEC reporting. Because the 1099-NEC filing due date is January 31 in most states, businesses will need to create a procedure to separate the appropriate information and report on either the 1099-NEC or …
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