Small businesses: Don’t neglect 1099-MISC and 1099-NEC filings

 Accounting & Taxation, Tax Tips  Comments Off on Small businesses: Don’t neglect 1099-MISC and 1099-NEC filings
Nov 012020
 

Penalties for failure to file 1099 documents (information returns) with the IRS and failure to furnish recipients with their copies have increased dramatically in recent years. In 2021, for small businesses (less than $5M in average annual receipts in the most recent three years), these penalties can run as high as $280 for failure to file plus $280 for failure to furnish – per document – up to a maximum penalty of $1,130,500 in the aggregate for each of these issues.

New for 2020 is the 1099-NEC to report non-employee compensation. This information was previously reported on 1099-MISC, but has now been split out onto a separate information return. Who must file 1099-NEC, and who must be furnished one? These are questions to ask of a qualified professional. Even individuals who own rental property may be subject to 1099-NEC (and 1099-MISC) reporting, depending upon circumstances.

If you have a payroll service, do not assume that 1099 preparation is included with your basic level of service! In most cases, your payroll service will be completely unaware of any subcontractors or others who must be furnished documents, and don’t expect your payroll service rep to be able to provide answers as to whom should be furnished a 1099.

Your checkbook management software likewise can’t provide any guidance for you in this regard.

Planning to do these internally? To be considered correctly filed, information returns must be complete and accurate. That means full names and addresses, ID numbers (TIN, SSN, etc.), amounts, and in the cases of forms W-2G, 1097-BTC, 1098, 1098-C, 1098-E, 1098-F, 1098-MA, 1098-Q, 1098-T, 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-DIV, 1099-G (excluding state and local income tax refunds), 1099-INT, 1099-K, 1099-LS, 1099-LTC, 1099-MISC (excluding fishing boat proceeds), 1099-NEC, 1099-OID, 1099-PATR, 1099-Q, 1099-QA, 1099-R, 1099-S, 1099-SA, and 1099-SB, a valid telephone number providing direct access to an individual in a position to answer questions about the statement must appear somewhere on it. [N.B.: This is not a complete list of requirements. Please do not rely on this as any type of instruction guide.]

As a reminder, forms 1099-NEC are due out to recipients no later than January 31, and must be filed with the IRS no later than January 31, as well. Forms 1099-MISC are due out to recipients no later than January 31, and must be filed with the IRS no later than February 28. Extensions of time to file with the IRS are available (the first 30-day extension is automatic, but must still be submitted on Form 8809; a second 8809 may be submitted to request another 30 days), but there is no extension of time to furnish documents to recipients.

Generally, we prepare information returns for our business clients as part of our standard service portfolio. If you have a need for this service à la carte, we can surely discuss your needs. Contact us for more information.

2020 Coronavirus (COVID-19) Economic Impact – IRS People First Initiative

 Accounting & Taxation, Current Events, Current Events, Tax Tips  Comments Off on 2020 Coronavirus (COVID-19) Economic Impact – IRS People First Initiative
May 042020
 

Key collection and compliance activities have been temporarily suspended by the IRS in the wake of the COVID-19 pandemic. These include existing installment arrangements, pending arrangements, offers in compromise, non-filer programs, and others. In general, activity has been postponed until July 15, 2020, however the impact on running statutes of limitations has yet to be fully determined.

See the second link, below, for specific information.

Further information

Here are some helpful links for more information, which should be updated on a regular basis:

https://www.irs.gov/coronavirus
https://www.irs.gov/newsroom/irs-unveils-new-people-first-initiative-covid-19-effort-temporarily-adjusts-suspends-key-compliance-program

2020 Coronavirus (COVID-19) Economic Impact – Information for all taxpayers

 Accounting & Taxation, Current Events, Current Events, Tax Tips  Comments Off on 2020 Coronavirus (COVID-19) Economic Impact – Information for all taxpayers
Apr 032020
 

Recent events have unfolded very rapidly; perhaps too rapidly for processes to keep pace. This is the first entry in a series to hopefully help bring some current information together in one place for our clients who are financially affected by the 2020 Coronavirus pandemic.

This post focuses on general taxpayer information, due dates, and economic impact payments.

Due dates

Federal filings and payments

Per IRS Notice 2020-18, any individual, trust, estate, partnership, association, company, or corporation1 with a Federal income tax payment or a Federal income tax return due April 15, 2020, such payment or return is automatically postponed to July 15, 2020. There is no limitation on the amount of the payment that may be postponed, and no extension filing is required.

No interest or penalty which would otherwise be charged or would accrue between April 15 and July 15 will be charged on any amount due.

Essentially, for tax purposes, July 15 is April 15, this year.

Note that this also applies to Federal estimated income tax payments. Thus, the payment due date schedule for 2020 is currently:

  • 1st quarter – July 15, 2020
  • 2nd quarter – June 15, 2020
  • 3rd quarter – September 15, 2020
  • 4th quarter – January 15, 2021

ONLY THE PAYMENTS AND FILINGS DUE APRIL 15 HAVE BEEN AFFECTED BY THIS CHANGE. FURTHER, FISCAL YEAR ENTITIES WITH PAYMENTS AND FILINGS DUE IN MAY AND JUNE REMAIN ON THE ORIGINAL SCHEDULE.

State and local filings and payments

These vary by taxing authority, and vary widely. For an updated list, see Taxing Subjects: Did COVID-19 Change My State Individual Income Tax Deadline?

Reconciliation of Federal and State filing dates

Where applicable and as possible, we will be filing State extensions so as to take full advantage of the Federal postponement to July 15. This would pertain to those clients who have filings due to states which have not moved their due dates to at least July 15.

As always, an extension of time to file is not an extension of time to pay any tax which would otherwise be due (the Federal postponement is different, in that it is in fact, a postponement and specifically not an extension, and it pertains to payments as well as filings). Thus, if any State tax would be due on the original (or as adjusted) due date for filing that return, this tax should be paid or it will generally be subject to penalty and interest on the underpayment and may invalidate the State extension.

Economic impact payments

Amounts

Subtitle B-Rebates and Other Individual Provisions, SEC. 2201. 2020 RECOVERY REBATES FOR INDIVIDUALS as stated in the CARES Act, provides for the following tax rebates or economic impact payments to all eligible taxpayers2:

  • $1,200 ($2,400 for joint filers), plus
  • $500 for each qualifying child3

This is (currently) a one-time rebate (cash payment). See the next section on how income levels are determined for the purpose of this payment.

These amounts phase out at the rate of $5 for each $100 above the following thresholds:

  • $75,000 of adjusted gross income for single filers
  • $150,000 of adjusted gross income for joint filers

Single filers with AGI in excess of $99,000 and joint filers with AGI in excess of $198,000 with no children are not eligible for any rebate (fully phased out).

Adjusted gross income

Taxpayers who have filed 2018 or 2019 returns will automatically receive a payment as calculated above.

Method of payment

If direct deposit information has already been provided to the Internal Revenue Service on the most recent income tax return filing (or in some other fashion), this information will be used to directly deposit the rebate amount.

Treasury Secretary Mnuchin has stated publicly that it is the intention of the Treasury, through the Internal Revenue Service, to provide an online portal for taxpayers to provide their banking information if not already on file with the IRS. Alternatively, payments may (apparently) be sent in the form of debit cards or paper checks.

Timing of payments

Disbursements are reportedly to begin sometime during the week of April 6, 2020.

Non-filers for 2018 who have returns due

If you have not yet filed a 2018 Federal income tax return, while our normal procedure is to prepare returns chronologically, we can prepare these based on the information at hand, simply to satisfy the filing requirement for rebate eligibility. Note that you should fully expect to have us amend such filings if one or more preceding year(s) need to be prepared and where such earlier return(s) would have an impact on 2018. Contact us to get started.

Non-filers for 2018 and/or 2019 who did not or do not have a filing obligation

If your gross income was below the filing threshold or other circumstances would have rendered you not required to file a return for 2018 (and 2019), supposedly there will be an “abbreviated” return filing which will be made available. As such forms have not yet been released, our best advice is to have us prepare a standard 2018 tax return showing what income you did have, even if it was below the filing threshold or even if you were exempted from filing for that year. No tax or penalty should be due with the late filing of the return (assuming no return would have been statutorily required originally).

Further information

Here are some helpful links for more information, which should be updated on a regular basis:

https://www.irs.gov/coronavirus
https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know
https://www.drakesoftware.com/archive/economic-impact-payments-the-facts/

Show 3 footnotes

  1. As provided in section 7701(a)(1) of the Internal Revenue Code.
  2. Any individual who is NOT: a nonresident alien individual, any individual who is a dependent of another, or an estate or trust.
  3. Within the meaning of section 24(c).