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Examples of When to Use Form 1099-NEC

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Form 1099-NEC doesn’t have to be confusing. Here are practical examples of using Form 1099-NEC.  If you need to catch up on what Form 1099-NEC is and how it changes Form 1099-MISC, read these first: What’s the New 1099-NEC for Non-Employee Compensation? How has Form 1099-MISC Changed with the Return of Form 1099-NEC? Form 1099-NEC: What Does It Mean For Your Business? When to Use Form 1099-NEC When You Pay Fees for Professional Services  When you pay for professional services, you will likely report this on Form 1099-NEC. This includes fees paid to attorneys – even when the law firm or individual is a corporation – as well as fees paid to accountants, architects, engineers, and consultants.  According to Sovos, you may create two 1099 forms for the same attorney for different legal services. These forms will likely have different numbers on them. When you work with an attorney for a specific litigation, you will report your payments on Form 1099-MISC in Box 10 Gross Proceeds Paid to an Attorney. If you use the same law firm for general purposes – including contract reviews and potential legal issues concerning your employees  – you will report your payments on Form 1099-NEC.  Incidentals  When you pay for other services and part of the payment covered incidentals – the cost of parts or materials used to perform the services – you will complete Form 1099-NEC. When You Pay Commission If you have salespeople, you likely pay them a commission. If they do not repay this commission during the year, you will report the total payment on Form 1099-NEC.  If You Sold $5,000 or More in Consumer Products According to the IRS, if your made direct “sales of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale (by the buyer or any other person) anywhere other than in a permanent retail establishment,” you will enter an “X” in Box 7 of Form 1099-MISC. With this form, you may also need …

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Everything You Need to Know About Filing 1099 Forms

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As a business owner, bookkeeper, or accountant, you may need to file 1099 forms. What is a 1099 Form? Form 1099 is one type of IRS tax form used to report non-salary income for federal tax purposes. There are more than 20 variations of Form 1099, but the most common are 1099-MISC and 1099-NEC. Non-salary income includes: Money from tax dividends Prize winnings Gambling and lottery winnings  Interest income IRA distributions and withdrawals  Personal property sales State tax refunds Credit card debt forgiveness Who Fills Out a 1099 Form? As a business owner, bookkeeper, or accountant, you are the one who fills out 1099 forms for every non-employee you pay more than $600 in a calendar year. Who Receives a 1099 Form? Non-employees receive 1099 forms. This is usually independent contractors or freelancers, but can also be partnerships.  Every 1099 form has five copies: Copy A is meant for the IRS Copy 1 is meant for the state tax department, if applicable Copy B is for the recipient (non-employee); they do not send this form to the IRS, but they do report the income on their personal tax return Copy 2 is meant for the recipient (non-employee) to submit to their state tax department, if applicable Copy C is for your records Who Doesn’t Receive a 1099? If you pay a non-employee less than $600 in a calendar year, then you do not need to file a 1099. If a non-employee, such as an independent contractor, is registered as a C or S corporation, you do not need to file a 1099.  If you have employees, you will not file 1099s. Instead, you will file W-2s.  What Information Does a 1099 Form Require? When you go to fill out a 1099 form for each non-employee you paid at least $600 last year, you need the following information: Their legal name Their address Their taxpayer identification number (TIN) The total amount you paid them last year How Do You Get This Information? To acquire this information for each non-employee, you need to …

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I Can’t Pay My Business Taxes On Time. What Do I Do?

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Don’t panic. You have options.  What To Do When You Realize You Can’t Pay Your Business Taxes First, don’t panic. This happens to many business owners. Second, be sure to file on time, even if you can’t afford to pay in full at that time.  Next, review your options. Understand that no matter how you proceed, your debt will accrue interest until you pay the IRS in full. And the IRS will not waive interest charges. Double-check your books to see if you can pay the IRS in full before moving forward with payment options. Then, be sure to respond to the IRS’s notice within 30 days of receiving it. This means collecting all of your business’s financial information, including pay stubs, rental or lease agreements, mortgage statements, lease and loan documents, and utilities documents. Call the IRS at 800-829-4933 for assistance. The IRS can help you determine the best payment option for you based on your current circumstances. You Have 4 Options if You Can’t Pay Your Business Taxes On Time Full Payment Agreement Installment Agreement  Offer in Compromise or Partial Payment Installment Agreement Temporarily Delay Collection  A Full Payment Agreement provides you with additional time to pay your business taxes in full. The timeframe is up to 120 days.  An Installment Agreement is a monthly payment plan. You can discuss your needs with the IRS about payment options and set up a payment plan with them. A monthly payment plan may work well with your monthly budget if you cannot pay in full within 120 days.  An Offer in Compromise is when you and the IRS create an agreement that determines a reduced payment amount to resolve your tax liability. You are essentially compromising on the debt amount. The IRS will only consider an Offer in Compromise if you are up-to-date on all tax filing and all other tax payments, including quarterly taxes.  A Partial Payment Installment Agreement lies somewhere between an Installment Agreement and an …

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I Received A “B Notice.” Now What? + How To Avoid Them

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To avoid receiving B Notices, it’s important to be proactive whenever you onboard a new non-employee.  What Is A “B Notice”? A “B Notice” is part of the IRS’s Backup Withholding Program, which provides notices to payers (such as businesses) who file certain information returns with incorrect Taxpayer Identification Numbers (TINs), which includes Social Security Numbers (SSNs) and Employer Identification Numbers (EINs). These notices begin the backup withholding process. “Backup withholding” means withholding income tax from independent contractors or other non-employees. As a business owner, you receive the notice, but it is up to you to inform your independent contractor or other non-employee that they provided the wrong TIN number to you. The IRS cannot contact your contractor (the payee) because they have the wrong TIN number on file. What To Do With A B Notice When you inform the payee about this situation, you must do a few things: Send a copy of the B Notice to the payee and request that they fill out an updated W-9 form with their correct TIN and full name. It’s best if you provide them with the W-9 form. Begin withholding taxes immediately at the rate of 24% if: the IRS says the taxpayer ID is missing. you cannot find the payee. the payee refuses or fails to provide a TIN. the TIN is obviously incorrect (e.g. it’s not 9 digits). Double-check that the new W-9 form has a different TIN than the old form.  At this point, the payee should send the W-9 to the IRS.  If you receive a second B Notice, continue withholding income taxes. The payee is responsible for resolving the issue with the IRS directly. The IRS will inform you when the payee’s TIN has been corrected. At that point, you can stop withholding income taxes. What To Do After the TIN Is Updated After the matter is resolved, you need to pay the withheld taxes to the IRS, report them to the IRS using Form 945, and include the backup withholding …

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2021 Tax Prep for Small Businesses

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Tax season is a good time to think about tax preparation for the next year. There may have been unforeseen obstacles you encountered with filing this year that you can avoid next time.  Since many of us are working from home due to stay-at-home orders because of the pandemic, our new reality will shift our tax preparation process, so it’s important to start noting changes and differences now, before you go to file.  Now that your 2019 taxes are filed, it’s time to start preparing to file your 2020 taxes in 2021. We’ll take you through the step-by-step process on how to do just that. File the right tax return for your business Know your tax filing deadline Gather your records Look for tax deductions Deduct your estimated tax payments File your taxes File the Right Tax Return For Your Business There are different tax returns based on the size and needs of your business. Choosing the right tax form depends on how you operate your small business.  Sole Proprietorship Schedule C Schedule C-EZ, Form 1040 (individual income tax return) Limited Liability Company (LLC) Form 1065 (return of partnership income) Form 1040 (individual income tax return) Schedule C (a Schedule C is only used if one person owns 100 percent of the LLC business)  Partnerships  Form 1065 (return of partnership income) Form 1040 (individual income tax return) S Corporation Form 1120S (income tax return for S corporation) Form 1040 (individual income tax return) Schedule K-1 (individual owner shares) Additionally, the IRS requires businesses who made or received payments for certain transactions to file an information return. Information returns are not income tax returns but are a requirement for reporting purposes to assist other taxpayers in preparing their return. Examples include: 1099s, 1098s, 1095s and W-2s. Know Your Tax Filing Deadline Although the IRS extended the deadline this year for …

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Modernizing Information Returns

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Last year, the Internal Revenue Service (IRS) launched a multi-year modernization plan to strengthen cybersecurity protections and improve how the agency engages with taxpayers. Through the IRS Modernization Plan, the federal agency will focus on advancing technology systems and building critical infrastructure for the country’s tax system. Included in the plan is an effort to update systems that process information returns, which are used for tax verification and reporting transactions to the IRS.  The Information Returns Processing (IRP) environment processes information returns filed by third parties like employers, financial institutions, educational institutions and other government agencies. The current system uses an intake system through paper or electronic submission, validates data and then updates accounts for compliance and analytics. The IRP environment works but is no longer able to accommodate new requirements. The new modernization effort is needed because old systems are unable to handle a series of legislative mandates such as the Affordable Care Act and Tax Reform Act. The Information Returns Program Development (IRPD) aims to address this re-engineering challenge with seven objectives: Create a modern and flexible solution for acceptance, validation, perfection, management, and use of Information Returns Data. Replace aging systems with modern, adaptive, and sustainable technologies. Use Information Returns Data to support enhanced compliance processes. Consolidate, standardize and simplify Intake and Validation systems for Information Returns. Establish a new design for IR Processing to support new types of Information Returns. Improve data access and data integration for downstream systems. Develop a foundation for streamlining operations.  In addition to seeing updates in how information returns are filed, we’ll also see emerging priorities and advances across the system under the four Modernization …

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