Why aren’t credit and debit card payments included on the 1099-NEC?Ī few years ago the IRS realized that the merchant service companies have huge databases of payment information regarding small businesses that could be easily tapped. You won’t know until you see their W-9.ĭid you know that payments made to 1099 eligible vendors are subject to a mandatory 24% Federal backup withholding if you don’t have a valid W-9 on file for them? If you fail to follow protocol and the IRS is unable to collect, you could end up liable for a portion of the taxes due. Many people think that LLC’s are automatically exempt, but that’s only true if they have elected S or C Corp status. But be careful with the LLC’s and partnerships. If the business has the word “Incorporated” in their name, it’s a pretty safe assumption that they will be exempt from filing. By signing the form, they are making themselves legally responsible for the information they have provided you. It will also provide the information you will need when it comes time to file (name, business name, address, tax ID). This form will help you determine whether you will need to send them a 1099, as it will indicate whether they are S or C Corp or otherwise exempt. How do I know whether a business is exempt from 1099 filing?Īlways request that the business fill out and sign a Form W-9 before you send them payment. If you exchange services or goods in lieu of payment, that is also be considered reportable compensation. What are the dollar limits for 1099 filings? For most categories, a cumulative amount of $600 or more in cash and/or check during the calendar year. These payments will now be reported on Box 1 of Form 1099-NEC instead. The key word in this category is “services”. That would include payments made to independent contractors, attorneys, accountants, janitors, computer technicians, etc. The old Box 7 was specifically for reporting “services performed by someone who is not your employee (including parts and materials)”. If your business rents an office (or equipment) unless your landlord is a real estate agent, a tax-exempt trust, or an S or C Corp, you should be sending them a 1099. For instance, gross proceeds to an attorneys is reported on Box 10 of the 1099-MISC, whether corporate or not.Ī reporting category that is often overlooked by small business owners is Box 1 of the 1099-MISC. What kind of businesses should receive 1099’s? Individuals, partnerships, estates, and in some cases, even corporations. To avoid penalties, the 1099-NEC needs to be postmarked or electronically distributed to all required parties by January 31st. To resolve this issue, the IRS has decided to move Nonemployee Compensation to it’s own form.
The 1099-NEC form is essentially an information return that helps the IRS monitor small businesses revenue reporting.įor the past few years, the other boxes of the 1099-MISC had a later due date than Box 7, which has led to some confusion. By requiring businesses to report payments made to other businesses, the IRS can more easily identify potential under-reporters. The IRS is aware of this, and is justifiably concerned that without some basic governmental oversight, small businesses will understate their taxable income. Some of these companies may keeping their books on paper ledgers, but in reality many small businesses don’t have a proper accounting system in place.
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What is the purpose of 1099-NEC reporting?Ī recent accounting survey revealed that around one fifth of small businesses in the US don’t use bookkeeping software or online apps to manage their accounting. Since that is the prime reason that many small businesses need to file a 1099, we will focus the most of this article on Form 1099-NEC.
Starting with the 2020 tax year, payments made to contractors and freelancers will be reported via the new and improved 1099-NEC. In the past, Form 1099-MISC was broken down into 14 different categories of income, including the familiar Box 7 for Nonemployee Compensation. Before we formally enter the filing season, allow me to break down the rules for Nonemployee Compensation you in plain lingo.īe aware that there will be a slight twist this year to the familiar 1099-MISC filing process. There are plenty of misconceptions about what should or shouldn’t be reported. Whether you are sending 1099’s or receiving them from other businesses, the whole 1099 reporting process can be a bit daunting.
Sales tax, payroll, property tax, estimated payments, and the dreaded (but necessary) 1099 filings all come due at the same time. January is a “perfect storm” of tax deadlines for bookkeepers and business owners.
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