1099 Basics – In July

That’s right, it’s never too early to start the process of preparing your 1099s (you will thank us come January). Here are a few tips to start preparing those 1099s.

Who do I prepare 1099s for?

The simplest answer for the most common type of 1099, the 1099-MISC, is they need to be prepared for anyone that provided services to you. However, they are not given to someone who is an employee (here’s your refresh), and you need to have paid them $600 or more for the year (we’re talking accounting, legal, janitorial services, repairs, snow removal or lawn maintenance, etc. unless the company is incorporated). If the company is incorporated, then a 1099-MISC is not required, except with lawyers … then you still get to fill out the form.

Other items reported on a 1099-MISC include rent paid to an individual or a business that is not incorporated, royalties of $10 or more, other income payments including prizes and awards, employee wages paid after death in the year following death, director fees, etc.

Another common 1099 form is the 1099-INT. This form is required for interest paid of $10 or more, any foreign tax on interest withheld and paid, or backup federal withholdings regardless of the amount of the interest payment.

Please note, this is a very simplified list of items that 1099s need to be issued for. IRS.gov has several booklets that go into more detail on what is required and instructions for each form is available. On their website, type 1099 instructions in the search box and a list of forms and instructions will pop up.

So what am I supposed to do in July?

Identifying the vendors that need 1099s now will save you a lot of headache come year end. You can do this by having each of your vendors complete and return to you a Form W-9 (also found on IRS.gov). This form will give you their business name, address, tax identification number and type of entity. Best practice is to have all of your vendors complete this form, even if you know they will not be providing services to you. If circumstances change and you are required to provide a 1099 to them in another year, then you are already prepared!

Once the W-9s are returned, you can begin updating your records so when it comes time to complete your 1099s you will have the correct name, address, and TIN on file. You should also flag your vendors so it accumulates the amounts for you. Many accounting programs, such as QuickBooks, allow you to indicate the vendor will need a 1099 at the end of the year. Most also allow you to indicate the type of form and which box the amounts should be reported in. Having your system set up to accurately do the work for you will save tons of time at year end.

If all of these suggestions are followed, you should have time in January to put your feet up on your desk and relax because you won’t be spending hours trying to find vendor information and trying to figure out the amounts to report.

If you have questions, we’re always here to help.

Forms W2 & 1099: What You Need to Know

w2-bookAs 2017 begins, one of the things at the top of a business owners list is forms. Tax forms, to be more specific.

These forms are complex and take some time to go through. However, they’re necessary for your business for a multitude of reasons, one of which is not getting in trouble with the IRS.

Two of the most common tax forms you’ll get to deal with are the W-2 and 1099. These particular forms deal with reporting worker wages and income … and employees like to get paid.

Need a refresh on what they are? Check it out here and here.

To learn more about these important forms, and how to complete them correctly, check out our annual W2/1099 Book. In it, you’ll find:

  • Answers to who is an independent contractor and who is an employee
  • Information specific to the 1099
  • New Hire Reporting requirements and info
  • Information specific to Forms W-2 and W-3

Check out all the goodness here.

Taxes: When’s that due?

With the holiday season upon us, you’re probably thinking of the fun and festivities of the season and definitely not taxes.

Taxes? Why should you be thinking about taxes? Well, there have been some very important changes to tax due dates, and these deadlines will sneak up on you before you know it! Check out this infographic to see the deadlines so you’re not scrambling at the last minute!

tax-dates

W2/1099 Resource Book

Picture1Running a business never comes with a shortage of to do items. One of those is the ever friendly forms that need to be filled out to stay compliant. Among them is everyone’s favorite: tax forms.

These forms can be complex and take some time to complete, but they’re necessary to ensure your business is running smoothly and soundly from a financial perspective. Also, it’s not really fun to get in trouble with the IRS.

At the heart of the tax form journey are two very important ones that have to do with reporting worker wages and income: W-2 and 1099 (sound familiar? We talked about them here, here and here).

As a refresher, if you have employees, their payments are reported on a W-2. If you have independent contractors, their payments are reported on Form 1099-MISC.

So why are we refreshing your memory? Well, here at Eide Bailly, we want to provide you with resources to help you grow and succeed. One of these is our W2/1099 Book, which gives information on common issues related to 1099 and W2, like:

  • How to complete various forms
  • How to make corrections to these forms
  • Common tax reporting and employee benefit issues
  • Changes for the following year, such as new tax rates and wage limits.

Check out all the goodness here. And remember, we’re always here to help if you have questions.

 

 

Year-End Planning: Form 1099

Now that you’ve become an expert in filling out your W-2s correctly (still not quite sure? Here you go!), it’s time to talk about another type of FORM. Get excited.

Form 1099

Businesses make certain payments to nonemployees during a calendar year. When they do this (you guessed it), they must furnish annual information returns both to the IRS and to the nonemployee recipient of the payment.

As a reminder, an information return is a document used for reporting purposes based on certain transactions incurred throughout the year. Information on these forms is used to assist both the taxpayer (you and the nonemployee party) in preparing to file taxes, as well as the IRS to match records to the taxpayer’s tax return.

In order to facilitate the reporting of these payments, IRS has developed the Form 1099 Series, which is a group of forms used to report ordinary kinds of payments made by a business, such as dividends, interest, retirement distributions, and miscellaneous income payments.

Wait … what?

While W-2 reports wages, salaries and tips, Form 1099-MISC, “Miscellaneous Income” is filed by a business for certain payments made to nonemployees (remember the difference?) in the course of trade or business.

What exactly does trade or business mean?

Trade or business generally refers to an entity that operates for gain or profit. However, it’s not that simple. Nonprofit organizations are also subject to these reporting requirements. Other organizations/items subject to the reporting requirement also include:

  • Trusts of qualified pension or profit-sharing plans of employers
  • Certain organizations exempt from tax under section 501(c) or (d)
  • Farmers’ cooperatives exempt from tax under section 521
  • Widely held investment trusts
  • Payments made by federal, state or local governments

When is Form 1099-Misc required exactly?

Form 1099 is required in a number of circumstances, including:

  • $10 or more in royalties or broker payments in lieu of dividends or tax–exempt interest;
  • $600 or more in:
    • Rent
    • Services, including parts and materials
    • Prizes and awards
    • Other income payments
    • Medical and health care payments
    • Crop insurance proceeds
    • Cash payments for fish you purchase from anyone engaged in the trade or business of catching fish (we’re not kidding)
    • The cash paid from notional principal contract to an individual, partnership, or estate
  • Any fish boat proceeds (again, not making this up)
  • Gross proceeds to an attorney
  • Reporting of direct sales of at least $5000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment
  • Any backup withholding regardless of the amount of payment.

This form is seriously required? 

Yep! The form is required for each person to whom payments have been made during the year.

So everyone has to fill this thing out?

Not quite. There are certain payments where Forms 1099 are not required:

  • Generally payments to a corporation
  • Payments for merchandise telegrams (yes, it’s a thing), telephone, freight, storage and similar items
  • Payments of rent to real estate agents
  • Wages paid to employees (report on Form W-2. Learn more about that one here)
    • Other items not included on Forms 1099, but are included on W-2:
      • Military differential wage payments made to employees while they are on active duty in the Armed forces or other uniformed services
      • Business travel allowances paid to employee (may be reportable on W-2)
      • Cost of current life insurance protection (report on Form W-2 or Form 1099-R, Distributions from Pensions, Annuities, Retirement, or Profit-Sharing plans, IRAs, Insurance Contracts, etc.)
  • Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, and Coverdell ESAs), the United States, a state, the District of Columbia, a U.S. possession, or a foreign government
  • Payments made to or for homeowners from the HFA Hardest Hit Fund or the Emergency Homeowners’ Loan Program or similar state program.
  • Payments made with a credit card or payment card and certain other types of payments, including third party network transactions
    • These ones go on a different form, known as the Form 1099K
  • A payment to an informer as an award, fee, or reward for information about criminal activity
    • Yep, you don’t have to fill this form out if you were being a good Samaritan, as long as the payment is made by a federal, state, or local government agency, or by a nonprofit organization exempt from tax under section 501(c)(3) that makes the payment to further the charitable purpose of lessening the burdens of government.
  • Scholarship or fellowship grants. Why, you might ask. Well scholarship or fellowship grants are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant.
    • So where might this one go? If you guessed W-2, you’re exactly right. They are considered wages and must be reported on Form W-2. Other taxable scholarships or fellowship payments (to a degree or non-degree candidate) are not required to be reported to the IRS on any form.
  • Difficulty-of-care payments that are excludable from the recipient’s gross income are not required to be reported. Difficulty-of-care payments to foster care providers are not reportable if paid for not more than 11 children under age 19 and not more than six individuals age 19 or older.
  • A canceled debt is not reportable on Form 1099-MISC. That one goes on a different form (yes, there really are a lot of forms), known as Form 1099-C.

This makes NO SENSE. Head hurts.

Tax reporting is complex and multi-faceted. This stuff isn’t easy and, frankly, stumps quite a few of us (and we’re accountants). So don’t be afraid to ask.