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Posts by Rhonda Guidry

Form 1099 Filing Requirements

Form 1099 Filing Requirements

If you made a payment during the calendar year **as part of your trade or business**, you are likely required to file a 1099 or Information Return with the IRS.

Form 1099-MISC would be issued for payments, in the course of your trade or business for:

  • Services performed by independent contractors or others that are not your employees (to individuals or other businesses) of $600 or more to each payee
  • Prizes and awards of $600 or more
  • Rent of $600 or more
  • Royalties $10 or more
  • To physicians, physicians’ corporation or other supplier of health and medical services of $600 or more
  • For a purchase of fish from anyone engaged in the trade or business of catching fish of $600 or more
  • Substitute dividends or tax exempt interest payments and you are broker of $10 or more
  • Crop insurance proceeds of $600 or more
  • Gross proceeds of $600 or more paid to an attorney

Form 1099-MISC would also be used to report direct sales of $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

Form 1099-INT is used to report interest you paid on a business debt to someone of at least $10.

Form 1099-DIV is used to report dividends or other distributions to a company shareholder.  The minimum amount to be reported is $10.

Form 1099-R is used to report distributions from retirement plans.

**Trade or business**

If you are not engaged in a trade or business, you are not required to file 1099 forms.  A question that sometimes arises is, “do I need to give my lawn care service a 1099.”  It depends…if you pay a lawn care service to take care of your personal residence, then you are not required to issue a 1099 because there is no trade or business.  If you pay that same lawn care service to tend to your business property, then you are required to issue a 1099 unless an exception applies.

Owning a rental property constitutes a trade or business.  Paying someone over $600 for the upkeep or maintenance of your property could create a filing requirement.

Exceptions to general rule for issuing 1099s

You do not have to issue 1099s to companies that are incorporated unless it is for medical or legal services.  A company is incorporated if it is established as a C Corporation or an S Corporation.  You must issue a 1099 to a partnership or an LLC unless the business is taxed as a Corporation.  See W-9 Forms below.

If you paid someone under $600, you also are not required to issue a 1099 to that vendor.

W-9 Forms

It is a best practice for you to have a W-9 Form on file for each of your vendors.  The W-9 Form, prepared and signed by the vendor, provides information to the company that is necessary to prepare 1099 Forms.  Information includes the vendor’s name, address, tax identification number or social security number, and type of business.  If the W-9 form indicates that the company is a corporation or an S Corporation, you do not need to file a 1099 form unless they provide medical or legal services.  If the IRS questions why you did not issue a 1099 to XYZ LLC (an LLC taxed as an S Corporation), the signed W-9 Form is your proof that the company certified to you that they were incorporated.

Due Dates and Penalties

1099s are due to the recipients and to the IRS by January 31st this year if you are reporting nonemployee compensation in box 7.  Penalties for failure to file 1099s vary but are anywhere from $50 to $260 per 1099.

More info…

Most companies are required to prepare 1099s…are you ready to do so?  The due dates for filing with the IRS have been pushed up this year so get ready now for filing those 1099s in January!  The information presented above is a summary of some important 1099 facts; however, should you need to see the detailed rules, click below to access the IRS Instructions – 2016 General Instructions for Certain Information Returns.

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New Due Dates for 2016 Tax Returns

 

Are you ready for the new due dates for 2016 tax returns due in 2017?  Recently enacted legislation has changed some due dates in order to facilitate a more logical flow of information, allowing taxpayers and preparers more ability to timely prepare and file returns.

Individual tax return (Form 1040) due date of April 15th and extended due date of October 15th did not change!  These dates are said to be “cut in stone”!  See below regarding FinCen Form 114, if applicable.

Partnership and LLC return (Form 1065) due dates have moved up a month…they are now due on March 15th.  If an extension is filed, the due date will be September 15th.

S Corporation return (Form 1120S) due dates remain the same…they are due on March 15th.  If an extension is filed, the due date will be September 15th.

Trust returns (Form 1041) original due date remains the same (April 15th); however, the extended due date is now September 30th.

Corporation return (Form 1120) due dates have been pushed back a month to April 15th for calendar-year returns. If an extension is filed, returns are due Sept. 15th until 2026, see note below.  For fiscal year companies, in most cases, returns will be due on the 15th day of the fourth month after the year-end.

Note:  Calendar­year C corporations can get extensions until Sept. 15 until tax years beginning after 2025, when the extended due date will be Oct. 15. June 30 fiscal­ year­end C corporations (returns due Sept. 15) can get extensions to April 15 until tax years beginning after 2025; after 2025, June 30 fiscal­year­end C corporations will have an Oct. 15 due date and can get extensions until April 15.

FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) due date has changed from June to April 15th.  An extension can be filed now to grant additional time (until October 15th).

State Returns –  Many states are likely to follow the above federal due date changes but may need to enact legislation in order to make those changes.  Louisiana has not made those changes yet…stay tuned.

Forms W-2 and 1099 Series – Acceleration of Due Dates for Filing Information returns

W-2 and 1099 Forms have generally been due to recipients by January 31st and due to the IRS/SSA by February 28th (or March 31 if filed electronically). For the 2016 Forms due in 2017, returns will be due to the IRS/SSA by January 31st, the same day they are due to the recipients.

Businesses should review accounting records now in order to verify that vendor information is complete and ready to file 1099 forms at the end of the year.

Why change the due dates now? 

If you are wondering why these changes have been implemented and how they will be helpful, continue reading below:  The partnership Form 1065 is now the first return due (March 15th).  All other entities and individuals can be partners in a partnership and may need information from Schedules K­1 from partnerships to complete their tax returns. For this reason, it is both logical and helpful to many that it be completed first.

Once partnership and S corporation returns have been filed by March 15, individuals, trusts, and C corporations will have the information (K-1s) they need from their pass-through entities to file timely returns. Trusts will have two more weeks after receiving extended partnership and S corporation Schedules K­1 to finalize their extended returns and issue their Form 1041 Schedules K­1 to beneficiaries, who will have an additional two weeks to complete their personal returns. Taxpayers with foreign accounts will have all the information needed to complete FinCEN Form 114 at the same time as the individual tax return due date and extension.

C corporation new due dates of April 15 (or the 15th day of the fourth month following the close of the tax year for most fiscal­year corporations).  Many C corporations previously needed to extend their returns because they were waiting on audited financial statements.  Audited financial statements are typically complete by the end of March. These corporations may no longer need to extend the income tax return.

It makes logical sense…only a tax season will tell whether the new dates truly make a difference in the hectic, fast-paced busy season!

For a quick-reference guide on the new due dates, click the link below to access the AICPA Federal Due Date Chart

http://www.aicpa.org/Advocacy/Tax/DownloadableDocuments/Federal-Due-Date-Chart-1-22-2016.pdf

 

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Can I claim a loss due to the flooding?

Casualty Losses 

Personal Property

Those affected by the recent floods may qualify for casualty loss deductions.  These losses are reported on Form 4684, Casualties and Thefts.  The loss is limited to the lesser of cost or decrease in FMV of property, less insurance proceeds or other reimbursements.

There are various methods to determine the amount of the loss or decrease in fair market value.   The first method is an appraisal of the property (before and after the loss).  Secondly, one could use the cost of cleaning up or making repairs to property.  The following conditions must be met in order to use the “cost of cleaning up or making repairs”:

  • Repairs are actually made
  • Repairs are necessary to bring the property back to its condition before the casualty
  • Amount spent for repairs isn’t excessive
  • Repairs take care of the damage only
  • The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty.

The deductibility of losses on personal-use property is limited to the following amount for each loss event:

Loss – $100 – (10% X Adjusted Gross Income)

For example:

Your loss after insurance reimbursement is $10,000.  Your AGI for the year of the loss is $85,000.  Your first apply the $100 rule and then the 10 % rule.

  • Loss after insurance                      $10,000
  • Subtract $100 per incident             (  100)
  • Loss after $100 rule                       9,900
  • Subtract 10% * $85,000 AGI           ( 8,500)
  • Casualty Loss Deduction         $ 1,400

 If 10% of your AGI exceeds your loss after insurance reimbursement, you do not have a deductible casualty loss.

Business or Income Producing Property – Casualty Loss

Property completely destroyed

For business or income-producing property, including rental property, that is completely destroyed, the decrease in fair market value is not considered.  Your loss is figured as follows:

Your adjusted basis in the property

Less any Salvage Value

Less any insurance or other reimbursement you receive or expect to receive

Loss of Inventory

If you have a loss of items held for sale to customers, you can deduct the loss through an increase in cost of goods sold, including any insurance reimbursements related to the lost inventory in gross income.

Business property – not completely destroyed

If your business property was damaged but not completely destroyed, your casualty loss would be the smaller of the decrease in Fair Market Value (FMV) of the property or the adjusted basis in the property before the casualty less any insurance reimbursement.  For example:  a truck used for business sustained damage from flooding; the insurance company reimbursed $3,000 (the cost to repair the truck (the assumed decrease in FMV), less the deductible of $1,000);the basis of the vehicle was $10,000.

  • Adjusted basis in the truck before the flooding             $10,000
  • Decrease in FMV                                                                      $ 4,000
  • Amount of loss (lesser of line 1 or 2)                                   $ 4,000
  • Less insurance reimbursement                                            ( 3,000)
  • Business Casualty Loss Deduction                                      $ 1,000

If a single casualty involves more than one item of property, you must figure the loss on each item separately.  Then combine the losses to determine the total loss from that casualty.

Gains from Casualties

Please be aware that gains can result if insurance proceeds exceed the adjusted basis of the property before the casualty.

When can I claim this loss? 

The President has declared that a major disaster exists in the State of Louisiana due to the recent flooding events. This declaration allows you to claim casualty losses on either your 2015 tax return or on your 2016 tax returns.  If you filed your 2015 return already, you can file an amended return to claim the losses.  See the link below for more information.

 https://www.irs.gov/taxtopics/tc515.html

Please do not hesitate to contact us if you need assistance with tax matters related to the recent flooding.

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Do I have to pay these estimated taxes?

This question is a rather common one and the answer is, “It depends”.  The IRS and most states require taxpayers to “pay as you go”.  For many of us, that consists of having taxes withheld from our paychecks.  In that case, estimates are not required unless you receive other types of income (investments, business income, income from partnerships and S-corporations).  For taxpayers who are not solely W-2 wage earners, but receive other forms of compensation, estimates may be necessary.

The federal underpayment/estimated tax penalty is actually interest at the federal rate for underpayments (currently 3%).

For 2015, you could be subject to a federal underpayment penalty if you do not pay in:

  • 90% of your 2015 tax or
  • 100% or 110% of your 2014 tax (110% applies for high income earners)

 

* Qualified farmers and fishermen have alternative methods for calculating estimates.

Estimates must be paid in four equal installments to avoid a penalty.  Due dates for 2015 estimates are April 15th, June 15th, September 15th, and January 15th.  If the estimated tax payment is paid late, penalty is charged from the date it is due until the date of payment.  You cannot avoid penalty by doubling up on your next payment, since the penalty runs from the due date of the original payment.  If you are a W-2 wage earner with other taxable income, you might be able to avoid an underpayment penalty by increasing your federal withholding.  Withholdings are considered to be paid equally throughout the year, regardless of when the tax is withheld.

If you have a spike in income at the end of the year, there are methods to reduce the penalty for not having paid in higher estimates at the beginning of the year.  Mention this to your tax preparer if this happens to you.

Coming soon….June 15th estimated tax deadline.  Get your checkbook ready unless you are OK with tacking on extra to your tax bill!

http://www.irs.gov/pub/irs-pdf/f1040es.pdf – Federal Tax Voucher

http://www.revenue.louisiana.gov/IndividualIncomeTax#det – LA Est Tax

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