1099 Misc Forms, What you need to know!

 Avoid the trap of hefty penalties. If you hire contractors, please have them fill out W9 forms so that you have the correct information to file the 1099 Misc forms which is due January 31.

When you have paid someone $600+ for the year, you need to look at what kind of entity your vendor is. If your vendor is a corporation (a C Corp or an S Corp) you do not need to issue them a 1099. The exception to this rule is with paying attorneys. If your attorney has exceeded the threshold, they receive a 1099 whether they’re incorporated or not.

You will need to provide a 1099 to any vendor who is a:

-Sole Proprietor

-LLC (and has not taken the S Corp election)

-LLP

-PC

Once you have this list of vendors figured out (even if there are still some you’re unsure of), figure out HOW you have paid them. Did you pay your vendor via check, bank draft, debit card, PayPal, or credit card?

If you paid your vendor directly through your bank account (check, debit card, ACH) you are responsible for sending them a 1099.

If you paid your vendor through PayPal or a Credit Card, the merchant will issue them a 1099K and you won’t have to.

The penalties are as follows for returns submitted late to the IRS:

*$50 per information return you correctly file within 30 days after the due date; maximum penalty of $556,500

*$110 per information return you correctly file more than 30 days after the due date but by August 1; maximum penalty of $1,669,500

*$270 per information return if you file after August 1 or you do not file required information returns; maximum penalty of $3,339,000

*$550 or more per information return if any failure to file a correct information return is due to intentional disregard; there is no maximum penalty

In addition, the same penalties above are assessed at the same amounts on a failure to provide a correct 1099 statement to the vendor or independent contractor. The penalty for not filing a correct information return with the IRS is separate from the penalty for not providing a 1099 statement to your vendor.

July 15th tax deadline and others...

Article Highlights:

• Extensions 
• Contributions to IRAs 
• Estimated Tax Payments for the First Two Quarters of 2020 
• Individual Refund Claims for the 2016 Tax Year 
• Foreign Account Reporting Requirements 

Due to the COVID-19 emergency, the IRS provided taxpayers with an automatic three-month extension to July 15 to file their 2019 tax returns and pay the 2019 tax, among other tax actions normally due on April 15. So, with July 15th fast approaching, it is important to understand that the day is more than just the deadline for filing your 2019 tax return. It is also the deadline for other things tax. Here is a rundown.

• 1040 Extension – Those who are unable to file their 2019 individual 1040 tax return by the July 15th deadline need to file a Form 4868 extension, which will give them until October 15th to file the return. The tax liability shown on the extension should be paid with the extension form to avoid late payment penalties and interest. Penalties, interest, or additions to tax for failure to pay federal income taxes were disregarded during the April 15–to–July 15 extension-period window, but these will begin to accrue on July 16, 2020.
  
  CAUTION: While the Form 4868 extension is an extension for filing, it is not an extension for paying your tax liability. The Form 4868 instructions say (and tax courts have ruled) that for an extension to be valid, a taxpayer must properly estimate their tax liability, enter that tax liability on the form, and file the extension by the due date of the return, which is July 15th this year.
  
  The monthly penalty for not filing the 1040 tax return by the July 15th due date is 4½ percent of the tax due for late filing and ½ percent of the tax due for late payment. The maximum cumulative penalty rate is 25%; however, the ½ percent per month for late payment continues until the tax is paid.
  
  There is also a minimum penalty for 2019 returns not filed within 60 days of the return due date, including extensions. That penalty is the lesser of $435 or the amount due on the 2019 tax return.
  
  Importantly, if you do not owe or if you are getting a refund, there is no penalty because the penalties are based on a percentage of the tax due—if no tax is due, then no penalty is assessed.
  
  The IRS also charges interest on late payments and penalties. The rate is subject to quarterly adjustment and is currently at an annual rate of 5% of the amount owed, with interest accumulating daily.
   
• Contributions to a Roth or Traditional IRA for the 2019 Tax Year – July 15th is the last day for making 2019 contributions to Roth or traditional IRAs. Form 4868 does not provide an extension for making IRA contributions. 
  
• Individual Estimated Tax Payments for the First Two Quarters of 2020 – Normally, the first installment of estimated taxes for a tax year is due on April 15th, and the second installment comes due on June 15th. For 2020, the IRS extended these due dates to July 15th, to coincide with the other COVID-19-related extensions. Taxpayers who fail to prepay the minimum (“safe harbor”) amount may be subject to a penalty for underpayment of the estimated tax. This penalty is based on the interest on the underpayment, which is calculated using the short-term federal rate plus 3 percentage points. The penalty is computed on a quarter-by-quarter basis, so even people who have prepaid the correct overall amount for the year may be subject to the penalty if the amounts are not paid proportionally or in a timely way. However, for 2020, penalties for failure to pay federal income taxes during the April 15–to–July 15 period will be disregarded.
  
  Federal tax law does provide ways to avoid the underpayment penalty. For instance, if the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, two options exist for safe-harbor prepayments:
  
  
  1. The first is based on the total tax on the current year’s return. There is no penalty when prepayments (including both withholding and estimated payments) equal or exceed 90% of the current year’s tax.
  
  2. The second is based on the total tax amount (not including credits for prepayments) on the return for the preceding tax year. This is generally set at 100% of the prior year’s tax liability. However, taxpayers with adjusted gross income exceeding $150,000 (or $75,000 for married taxpayers filing separately) must pay 110% of the prior year’s tax liability to meet the safe-harbor test. 
  
• Individual Refund Claims for the 2016 Tax Year – The regular three-year statute of limitations for 2016 tax returns normally would have expired on April 15th of this year. However, due to the COVID-19 emergency, the statute of limitations was extended to July 15th. Thus, no refund will be granted for 2016 returns (original or amended) filed after July 15th. An exception is if a net operating loss is being carried to 2016; in this case, the usual three-year limitation for claiming a refund won’t apply as long as the statute is still open for the year when the net operating loss (NOL) occurred. However, taxpayers could risk missing out on the refundable Earned Income Tax Credit, the refundable American Opportunity Tax Credit for college tuition, and the refundable child credit for the 2016 tax year if they do not file before the statute of limitations ends. Caution: The statute does not apply to balances due for unfiled 2016 returns. 
  
• Foreign Account Reporting Requirements (FBAR) – For each United States person who has a financial interest in, signature, or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, that person must report that relationship to the U.S. government during each calendar year. This reporting requirement is commonly referred to as FBAR, and the due date is the same as that for individual 1040 returns.
  
  This report is submitted online to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and the FBAR’s annual due date is April 15th. However, FinCEN grants an automatic extension to October 15th each year, so if you missed the April due date this year, you still have until October 15th to file the FBAR. Penalties for failing to file a FBAR are severe, and individuals should not overlook overseas family accounts on which they are named as account holders, or online foreign gambling accounts. If in doubt, call this office for further details.

Here is why you don't want to wait for IRS to file your tax returns!

Article Highlights:

• Non-Filers 
• IRS Information Reporting 
• IRS Prepared Substitute Return 
• Notice of Deficiency 
• Tax Court Appeal 
• Liens and Levies 

There are millions of individuals who do 
not file a tax return each year, many of them simply because their income is below the filing threshold levels for the year based upon their filing status.

Still others simply procrastinate and risk forfeiting their rightful refunds, including earned income tax credits, child tax credits, tuition credits and excess withholding.

Then there are others who believe they owe, whether they actually do or not, and don’t file because they think they can’t pay what they owe. Not filing on time and owing money can result in a 5% per month (maximum 25%) failure-to-file penalty, plus failure-to-pay penalties and statutory interest in addition to what is owed. It does not make sense to incur unnecessary penalties, especially when the IRS has payment options and, in certain hardship situations, compromise options that may apply.

If you are in the situation just described and think the IRS is not aware of you, think again. The IRS information reporting system knows a lot more about you than you might imagine. Here is just a short list of items that get reported to the IRS’s computer and added to your file:

• W-2s for wages filed by employers. 
• W-2Gs for wagering winnings from racetracks, casinos, poker parlors, etc. 
• 1099-MISC forms from businesses you have contracted with. 
• 1099-INT and 1099-DIV showing interest and dividends earned from financial accounts. 
• 1099-B forms showing the gross proceeds from the sales of securities. 
• 1099-K forms showing the credit card transactions for your business. 
• 1099-S forms reporting the gross proceeds from sales of real estate. 
• K-1s from businesses and trusts you are connected with. 
• Form 8300 transaction forms from banks showing large transactions. 
• The list goes on and on.

So what does the IRS do with all this information when you haven’t filed a return? Well, if the gross income is enough that they believe you have a filing requirement, the IRS will prepare a substitute return for you based upon the information they have.

This is when things can get really nasty, because the substitute return is based solely on the income reported to the IRS without the benefit of exemptions, itemized deductions, any of the many credits to which you may be entitled, or cost basis for any property or assets sold. In addition, the substitute return will treat you as married filing separate (the filing status for which the higher tax rates kick in quicker).

Along with the substitute return, you will generally receive a notice of statutory deficiency (commonly referred to as a 90-day letter), which will give you 90 days to file an appeal with the Tax Court. At this point things really get expensive because you will need a tax attorney to handle the appeal. If you ignore the 90-day letter or the 90 days run out, the tax assessment becomes final and the IRS can institute liens and levies. Then life really gets miserable. Your credit rating will take a nosedive, liens will be put on your property, and wages and refunds will be attached.

Although there are further remedies, they are increasingly expensive in terms of legal costs. Don’t let things escalate to this point; give this office a call so we can get your past returns filed before you start receiving notices from the IRS. If you’ve already received notices and have been ignoring them, gather them up in chronological order and bring them to the office so we can figure out the next steps required. If you have lost or misplaced past years’ records, we can order a transcript from the IRS that includes the information reported from various sources for each unfiled year. There are even ways to get penalties waived.

Personal Bookkeeping

Is your money managing you rather than the other way around? Do you not have the time or just dread paying your bills and balancing your checkbook each month? Or maybe you want to get serious about saving, setting aside some funds for retirement or paying off debt. Good news! I can help.

Core Services

• Organizing financial records and determining what needs to be paid each month
• Scanning and saving statements and bills so that you can find them when you need them
• Reconciling bank accounts, credit cards
• Tracking spending by category so that  summary detail reports are easy to run at tax time to maximize your tax deductions
• Compiling information that may be needed for your tax returns

Add-on Services

• Bill Payment services
• Budgeting
• Investment tracking (rental properties, etc)
• Personal bookkeeper meetings

I have professional liability insurance and I am bonded so you can be confident that your hard-earned money is protected.

Business Bookkeeping

Don’t have time to do some or all of your bookkeeping for your business? Leave that to me so you can get busy growing your business. I will work closely with you and develop strong, lasting relationships and prove that I am the expert you can count on. I am an Enrolled Agent and a Canadian CPA designation, and I can provide you with proper guidance and accounting to ensure your books are done right, get you the most benefit, and prepare your books for tax season.

Services We Offer

• Data Entry and bank reconciliations: We can record your transactions on a weekly or monthly basis and reconcile all your bank, credit card, and loan accounts
• Sales tax calculation and processing, e-filing and payment
• Payment processing
• Enter and Pay bills
• Payroll
• Annual 1099 Forms (limit of 2, additional will be $25 per form)
• Financial Statements

I am insured and reliable. I care about my clients and strive to empower business owners and champion their growth and success.

Why filling out W-4 is important.

Why the W-4 Is Important

It’s important to complete this form correctly because the IRS requires people to pay taxes on their income gradually throughout the year. If you don't withhold enough tax, you could owe a surprisingly large sum to the IRS in April, plus interest and penalties for underpaying your taxes during the year.

At the same time, if you withhold too much tax, your monthly budget will be tighter than it needs to be. In addition, you’ll be giving the government an interest-free loan when you could be saving or investing that extra money and earning a return – and you won’t get your overpaid taxes back until the following April when you file your tax return and get a refund. At that point, the money may feel like a windfall and you might use it less wisely than you would have if it had come in gradually with each paycheck. If you don’t submit form W-4 at all, the IRS requires your employer to withhold at the highest rate, as if you were single and claiming no allowances.

Figuring Your Allowances

IRS form W-4 comes with a Personal Allowances Worksheet to help you figure out how many allowances to claim. Answering the worksheet’s questions creates a broad picture of your tax situation that will allow your employer to withhold the correct amount of money from your paycheck. You can claim one allowance if no one else claims you as a dependent (which is the case for most adults). You can claim another allowance if you are single and have only one job, if you are married but your spouse doesn’t work or if your wages from a second job or a spouse’s job are $1,500 or less.

In other words, you’re claiming a second allowance if your household only has one major income source. You can also claim one allowance if you have a spouse, one allowance for each dependent you will claim on your tax return and one allowance if your tax-filing status is head of household. Finally, you can claim allowances for child and dependent care.

The worksheet has additional pages if your tax situation is more complicated because you have more than one job, your spouse works or you itemize deductions on your tax return instead of taking the standard deduction. IRS Publication 505, "Tax Withholding and Estimated Tax," provides additional information on how to complete form W-4 if you’re having trouble. Keep the worksheets for your records; your employer does not need them.

The more allowances you claim on form W-4, the less your employer will withhold from your paycheck. The fewer you claim, the more your employer will withhold. You can also use form W-4 to request additional money be withheld from each paycheck, which you should do if you expect to owe more in taxes than your employer would normally withhold based on the number of allowances you are claiming.

One situation where you might ask your employer to withhold an additional sum is if you earn self-employment income on the side and want to avoid making separate estimated tax payments for that income. You can also use form W-4 to prevent your employer from withholding any money at all from your paycheck, but only if you are legally exempt from withholding because you had no tax liability for the previous year and you also expect to have no tax liability for the current year.

When You Need to File a New Form

In general, your employer will not send form W-4 to the IRS; after using it to determine your withholding, the company will file it. You can change your withholding at any time by submitting a new W-4 to your employer.

Situations requiring a change to your W-4 include getting married or divorced, having a child or picking up a second job. You might also want to submit a new W-4 if you discover that you withheld too much or too little the previous year when you're preparing your annual tax return – and you expect your circumstances to be similar for the current tax year. Your W-4 changes will take effect within the next one to three pay periods.

Money-Saving Tip

If you start a job in the middle of the year and were not employed earlier that year, here's a tax wrinkle that can save you money. If you will be employed no more than 245 days for the year, request in writing that your employer use the part-year method to compute your withholding. The basic withholding formula assumes full-year employment, so without using the part-year method, you’ll have too much withheld and you’ll have to wait until tax time to get the money back.

The Bottom Line

Take the time to calculate your withholding properly. You'll avoid having to pay penalties at tax time and will keep as much of your earnings as legally possible.