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1099’s: Keeping a Tab and Ensuring Compliance

Generating 1099 Misc Forms

1099 Miscellaneous Forms

As with many tax forms 1099’s can be pretty confusing, especially now with more rules – and exceptions. There are multiple 1099 types as well as forms to accommodate them, but the most commonly used is the form 1099-Misc. As such, we will focus on the 1099-Misc. Here is a shortlist on the things that you need to know about 1099-Misc – and ensuring you are doing things right.

NOTE: The deadline for filing 1099 Misc Forms (Box 7 – Non-employee Compensation) has changed effective immediately, and the new deadline is January 31st following the reporting tax year. So, the deadline to file your 1099’s for 2020 tax year is January 31, 2021 – the same date you need to issue your 1099’s to your independent contractors by. If you do not have amounts in Box 7, then the deadline remains February 28th for paper filings or March 31st for electronic filings. (See 2020 1099 Misc Form instructions on IRS website)

WHO IS ELIGIBLE FOR A 1099

  • All subcontractors you have paid $600 or more to in a calendar year using any payment methods excluding credit card, debit card, gift card, or third-party payment network such as PayPal.
  • All service-based businesses that is NOT incorporated
  • An LLC or an LLP business may or may not be eligible. Follow the rule “when in doubt, send it out” to be on the safe side
  • Unincorporated Accountants and Lawyers are eligible; do not let them tell you otherwise

WHO IS EXCLUDED FROM RECEIVING A 1099

  • Corporations
  • Anyone you have paid with a credit card, debit card, gift card or a third party payment service like Paypal
  • Any company you have purchased a product from, such as office supplies, computers, etc.
  • Employees

Related: Employee (W2) vs Independent Contractor (1099)

HOW TO FILE A 1099

    • The first step is requesting a completed and signed W9 form from your eligible vendors. The W9 form can be downloaded here and should be issued and collected BEFORE you make any payment to those vendors who are within the specified threshhold.
    • Use the information provided on the signed W9 form the vendors returned to you to complete your Form 1099’s. It should have: a) the name of the individual with the dba (if applicable) if a sole proprietorship, the name of the organization if a Limited Liability Company (LLC) b) the Social Security Number (SSN) or Employer Identification Number (EIN) of the sole proprietor, the Employer Identification Number if an LLC. c) an address so you can mail completed 1099’s out to them.
    • Print and mail out 1099’s to vendors by the deadline – usually January 31st of the following year for the previous year reporting, and IRS 1099 forms along with a form 1096 by this same deadline – January 31st. The 1096 is a summary transmittal form of the 1099’s, kinda like a cover letter to a resume. The forms can also be efiled to the IRS by a tax professional.

APO Bookkeeping uses QuickBooks to generate 1099 and 1096 forms for mailing, and also efiling forms if the number of 1099’s are above the threshhold for mailing which is 250 plus. If you will be generating the forms yourself, you can purchase preprinted forms at your local office supply store. You cannot print on regular printing sheets and mail as the forms need to be machine-readable for the IRS, and regular printing sheets are not.

Related: How to Setup Vendors for 1099’s and Print 1099 Forms in QuickBooks

There are multiple parts to the 1099-Misc forms. Below is the breakdown and where to send each:

      • Copy B and Copy 2 are for the independent contractor and must be provided no later than January 31st, following the year you are reporting
      • Copy A must be filed with the IRS no later than January 31st whether by mail or electronic filing.
      • Copy C is for you to retain in your files

WHAT ELSE DO I NEED TO KNOW ABOUT FORM 1099

If your 1099 forms contain a mistake, IRS can bounce it back to you. The most common mistake is the incorrect spelling of a name, or an incorrect tax identification number. Make sure forms are issued to the “exact” name that appear on the individual or LLC’s filing documents which hopefully is what they have sent to you on their form W9.

Also, try to pay vendors only one way! Do not send your website developer a check, followed by his or her next payment with a credit card, and then paying their next bill using Paypal. If you co-mingle payment methods, it will make calculating the amount you need to input on the 1099-Misc more difficult. Visit IRS website to view Other Types of 1099 Forms and their requirements.

WHEN ARE 1099 FORMS DUE

      • 1099 Misc form for Non-employee Compensation (Box 7) is due to the independent contractor as well as the IRS by January 31st following the tax year – whether they are filed electronically or by mail.
      • All other 1099 Misc box categories and 1099 form types are due to the independent contractors by January 31st following the tax year, and must be filed with the IRS by a deadline of February 28th by mail or March 31st if filed electronically.

1099 forms must be postmarked no later than January 31st of the following year for the previous year reporting, or the next business day if the 31st falls on a Saturday, for all eligible vendors. They must be submitted along with a 1096 form to the IRS by January 31st if they are for Non-employee compensation – Box 7 on the 1099 Misc form, or by February 28th if for other boxes or other 1099 forms. The 1096 form is a summary sheet that lists the total amount of 1099’s you are submitting, and the total dollar amount of all of your 1099’s combined.

You can obtain a 30-day extension on the time to file 1099’s by filing IRS Form 8809, Extension of Time to File Information Returns. The form must be filed with the IRS by the 1099 due date which is January 31. The extension is not granted automatically. You must explain the reason you need it. The IRS will send you a letter of explanation approving or denying your request. As you can see, this extension request must be filed way in advance of the due date, as there is no way to know if the extension will be granted, and if it is denied you will be penalized for filing the 1099’s late.

Related: W2’s & 1099’s Preparation

As always, remember to stay in the know, in order to remain compliant in your business. 1099’s are just one aspect of the many requirements business owners must take care of, and we are here to help you understand these processes and activate you to pay attention to this (requirement) segment of your business which is also your responsibility.

If you have questions regarding 1099’s or need help getting them done, we are here to help you! Contact us today so we can get started! And if you’re looking for bookkeeping services in New York, reach out to us and let’s have a chat about it.

Reconciling Accounts Receivable

Accounts Receivable Reconciliation

Photo courtesy of APO Bookkeeping

Managing your accounts receivable is very important because the timing of receivables plays a major role in your company’s cash flow. In addition, you want to ensure your customer balances are accurate, and your receivables current, based on the terms of service you offered your customers. Reconciling the individual customer account balances with the general ledger balance establishes the accuracy of the balance sheet asset. Reconciliation of your receivables should be done on a monthly basis – at least, as part of the month-end closing process.

What is Accounts Receivable?

Accounts receivable is the monies your customers owe you which is derived from the goods or services you have sold them or provided for them – respectively, on credit. When you sell goods or services to your customers on credit, the amounts they owe your business make up the accounts receivable balance in an accounting record called the general ledger. Their individual balances are found in the subsidiary sales ledger and listed in the aged accounts receivable report. This aged accounts receivable report will keep you apprised of the monies that are due, so you can reach out to those customers before they become way overdue. Reconciling accounts receivable means you are ensuring that the total of the individual amounts due from debtors equals the balance of the accounts receivable account in the general ledger.

How is Accounts Receivable Reconciliation Done?

You need to verify the general ledger accounts receivable balance, starting with the balance brought forward from the previous period. To do this: 1) Add the total of all invoices issued from the sales day book and deduct any credit memos issued. 2) Deduct the total payments received from customers – taking the figure from the cash book, and add any finance charges made. (If you post open credits (overpayments or advance payments from customers) to a separate general ledger account, the total at this point should be the same as the accounts receivable balance.) 3) Deduct open credits and add open credit refunds. 4) Check the final figure against the total of individual customer balances from the aged accounts receivable report. Any difference between the two balances must be investigated.

Common Reasons for Discrepancies in Accounts Receivable Reconciliation

The most common reason for discrepancies in accounts receivable reconciliation are journal or adjusting entries made directly in the general ledger and not reflected in the subsidiary sales ledger, or vice versa, and differing cutoff dates of the reports used. Two other possible reasons for discrepancies in the reconciliation numbers are; incorrectly offsetting customer and supplier contra-accounts, and posting to the wrong general ledger account.

When you have identified all the errors, you need to make the adjusting entries needed for the accounts to reconcile with the correct balances, and include a clear description of the reason for each transaction for auditing purposes. Where possible, reverse the incorrect entry and re-post it correctly, rather than posting the difference only, to make the transaction easier to follow. When all entries have been made, reconcile the balances again as a final check.

Incorrect accounts receivable balances will not only throw off your business financials as far as the receivables showing more monies owing than are actually owing, or vice versa, but can also make you lose valuable customers if you repeatedly send them statements with inaccurate balances. One time? May be not so much, but more than once could shout incompetent or dishonest.