As the leaves start to turn, we concentrate toward year end planning for 1099 vendors.
The IRS continues to heavily focus on taxpayer compliance with hefty penalties those that fail to do so.
Our standard year end letter regarding the filing requirements and due dates for 1099’s is listed below. The laws that Congress enacted for 2016 are ongoing, forms 1099-MISC must be provided to the recipients by January 31, 2021, AND they must ALSO BE FILED with the IRS by January 31. So, it is essential that you start planning now.
Please review your 2020 tax data to date and accumulate what you can now so when January gets here, you’ll be ready!
We have included, as a separate attachment, an information form you can use to record your 1099 data.
Should you need assistance or explanation regarding any of this, please do not hesitate to contact your accountant.
For your convenience, this letter can be found on our website by utilizing the following link: http://www.stac-cpa.com/1099misc.php
The PATH Act of 2015 changed the deadlines and filing requirements for Forms W2, W3 and 1099-Misc.
As of January 1, 2020 The PATH Act added a new form for nonemployee compensation (NEC). Moving forward all nonemployee compensation will be reported on form 1099-NEC box 1 rather than reporting on 1099-MISC box 7 to reduce burdens on filers.
It is now more important than ever to have your bookkeeping records complete, accurate, and available on time to us as your Tax Preparer.
As your trusted Tax Preparer, we have prepared answers to frequently asked questions regarding 1099-Misc & 1099-NEC filing that should make it easier for you to become familiar with your responsibilities as a business owner or landlord.
1. Who gets a 1099?
a. Anyone you have paid
i. more than $600 to in 2020 for Services provided (see below**), and who is
ii. not Incorporated, and
iii. who you have paid by any method (including by trading goods/services) EXCEPT by credit card (the credit card company will report those payments).
iv. More than $10 to in 2020 for Royalties or broker payments as a substitute of dividends or tax-exempt interest (Box 2)
b. Doctors you have paid more than $600 to in 2020, if paid through your business.
i. does not include Insurance premiums.
ii. It does not matter if they are Incorporated or not, they still get a 1099-Misc.
c. Lawyers you have paid more than $600 to in 2020.
i. It does not matter if they are Incorporated or not, they still get a 1099-Misc.
2. **What is a Service?
a. Examples include:
i. Rental of real property or land.
ii. Royalty payments.
iii. Prize and award payments.
v. Directors Fees.
vi. Rental of equipment/tools.
vii. Medical and health care payments (does not include Insurance premiums).
viii. Insurance broker fees (does not include Insurance premiums).
x. Architects, engineering, accountant and bookkeeping services.
xi. Contractors and repair-persons.
xiii. Telephone answering services.
xiv. Website design or graphic design (e.g. new Logo).
xv. Custom printing services (e.g. T-Shirts or Stationery).
3. If I only purchased materials or supplies, do they get a 1099?
4. What if I have paid someone for their labor (service), and also paid/reimbursed them for supplies?
a. You have 2 options:
i. If you know the amount for labor, and the amount for reimbursement, you can issue a 1099-NEC for just the labor (service) portion.
ii. If you do not know the dollar amount for each, you can include the full amount paid. The recipient will include the items they purchased on your behalf as an expense on their personal tax return.
5. If the labor (service) portion is less than $600, do I need to issue a 1099-NEC.
6. How do I know if they are Incorporated?
a. The recipient should provide you with a completed and signed copy of Form W-9, indicating which type of Entity they are.
b. If the name of the business has “,Inc.”, or “,PC” in the business name, then likely incorporated.
7. What if they are an LLC?
a. An LLC can be either incorporated or un-incorporated. On the W-9 they should indicate which type of LLC they are. Most LLC’s are unincorporated.
8. When should I get a W-9 from the person I paid?
a. Before you paid them, or before you contracted with them. This is best practice.
c. Asap, but before January 15th (see #12 below).
9. What if the person I have paid will not provide a W-9 form?
a. They can provide you with the same information that is requested on that form, but we strongly recommend you push for the W-9, and retain a copy on file.
b. You may choose to withhold payment in full, until received.
c. If you choose to continue paying this person, the IRS requires that you withhold “Backup Withholding”, and remit this to them. This is currently 24% of the payment. We caution against this, as you can still receive penalties for not filing the 1099-Misc with correct information. The person refusing to provide the W-9 can also be subject to penalties.
10. What is the deadline for providing 1099-NEC & 1099-Misc’s to recipients (people I have paid)?
a. This date is unchanged at January 31st.
11. What is the deadline for filing 1099’s with the IRS/SSA?
a. For 1099-NECs that report Box 1 Non-Employee Compensation (most common), is due January 31st.
b. Most of the 1099-Misc’s, the due date is unchanged at March 31st.
12. When do I need to have information to Sickler, Torchia?
a. We would like all information by January 15th in order to make sure we can file on time.
13. When should I start working on gathering information?
a. You should start now to make sure you have W-9 forms on file for any potential 1099 recipients for the 2020 year.
14. What is the difference between W-9 and 1099-NEC.
a. The completed W-9 is given to you BY the person you have paid, and includes the information you (and We) will need to prepare the 1099-Misc.
b. The 1099-NEC is provided by you TO the recipient (and to the IRS/SSA), to report how much you have paid them.
15. Do I need to provide W-9’s to Sickler, Torchia?
a. Yes, if possible (we will keep on file).
b. Alternatively, you can provide the same information that would be detailed on such a Form to us.
16. What if I need to change an amount, or add a recipient after the filing deadline?
a. If the change is less than $100 (unless related to Backup Withholding in which the threshold is a change of less than $25) you only need to provide an amended copy of 1099 to the Recipient. (Safe Harbor DeMinimis errors).
b. Other changes require Amended filings with the IRS/SSA as well as the recipient, and may be subject to Penalties.
c. If the recipient has already filed their personal tax return, they may need to file an Amended personal tax return.
17. Are there penalties for filing late?
a. $50 per return (if filed in February) or
b. $110 per return (if filed March-July) or
c. $270 per return (if filed after July)
d. $550 per return (if intentionally not filed).
If you would like to discuss any of the above, please feel free to contact your accountant.
Sickler, Torchia, Allen & Churchill, CPA’s