New York's Premier Bookkeeping for Creatives, Freelancers, Solopreneurs, and Small Business Owners

1099’s: Keeping a Tab and Ensuring Compliance

by | Apr 29, 2016 | Business Improvement, Business Tips, Tax Forms & Filings

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.

Do You Owe Sales Tax & Not Realize You Do?

by | Feb 14, 2016 | Business Tips, Tax Forms & Filings

Sales Tax Help

Photo courtesy of APO Bookkeeping

Many states are in a state of budget deficit and are looking for ways to fill that gap in the shortest time possible. They are searching really hard for new income source, and many of them may be on their way to finding one in the form of owed sales taxes to them – plus fees. They are creating means to get their monies in, such as the Nexus survey, and are on the prowl to collect on every dollar. That said, I have seen many small business owners who are disconnected from their bookkeeping/financial/taxes aspect of their businesses, which has left collected sales tax unnoticed and the filing requirements unmet. Some are also aware of their sales tax responsibility, but have taken it less seriously than other taxes such as payroll taxes. As with any tax requirements, there are fines associated with non-compliance, and you want to avoid those fines at all cost.

What is Nexus?

Nexus is a connection that a business has with a state, and it has to do with a form of presence. In the sales tax world, you owe sales tax to a state if you have nexus in that state and you are selling taxable items. The scary part for small businesses is what makes up nexus. See SBA’s contributor Caron Beesley “Sales Tax 101 for Small Business Owners and Online Retailers” for more sales tax/Nexus information. It is your responsibility to know if you are required to collect and file sales tax, and the correct way to go about it, such as filing for a sales tax permit prior to collecting sales tax.

It is advisable to keep a separate account for sales tax collected, and not include it with your income as it is not income but monies you collect on behalf of the relevant states, to subsequently turn over to them. If you have a bookkeeping and accounting software system setup for your business, this can make it very easy for you to setup an account so that that portion of monies received can be transported to that account, where it will be noticeable on the balance sheet as a payable and therefore owing by you.

Taxable in One State but Not in Another

Sales tax, like many other taxes, can be complicated and there are gray areas that are difficult to sort through. According to Caron, “As a general rule, if your business has a physical presence in a state – nexus, whether it’s a store, warehouse, office, employees or other criteria established by your state, then you must collect sales tax from customers in that state. If you do not have a physical presence in a state, then you are not required to collect sales taxes.”

Minimizing Sales Tax Audit Risk

You may receive a form that looks like a survey and asks innocent-looking questions such as: how many employees do you have? And, what state do they work in? The surveys do not look like they are from a state government but they may very well be. It is their way of getting you to admit nexus. Do not complete any of the surveys; it could expose you to a huge liability. It is always best to get a sales tax professional involved to help you determine the taxability of your items as well as to interpret nexus. Many states are hiring auditors and aggressively pursuing businesses, so due diligence in this area is prudent.

Get a grip on your sales tax and avoid getting blindsided

In an effort to combat holes in their budgets, many states are working to collect on monies owing to them, from all sources, by whatever means necessary. Sales tax is one such source of helping to fill that gap in budget, and so if you have collected sales tax on their behalf and have not paid it over, you need to do so at your earliest convenience to avoid hefty fines and fees. If you have not been collecting sales taxes, but should have been, get your paperwork in order and start doing so as quickly as possible.

If you need help getting a grip on your sales tax, there are many bookkeeping and accounting companies – like ourselves who are equipped with the knowledge and technical know-how to get your sales taxes under control. If you have not already done so, get a system setup where you can effectively track your collected sales tax, and pay attention to your sales tax filing. Reach out for the help you need, and avoid unnecessary penalties.