Skip to main content Skip to search

2016

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.

Read more

Benefits of a Roth 401(k)

A Roth IRA can be a great vehicle for retirement savings.  Taxpayers make after-tax (non-deductible) contributions to a Roth IRA.  Contributions accumulate along with earnings in the Roth IRA and can be withdrawn TAX FREE once the taxpayer reaches 59 ½ years old.  Contributing to a Roth IRA forgoes a current tax deduction for tax-free withdrawal of contributions and related earnings in retirement (after 59 ½ years old).

A drawback of Roth IRAs is the potential for taxpayers being excluded from making contributions as their income grows.  Taxpayers cannot contribute to a Roth IRA once their adjusted gross income reaches $133,000 (single filer) or $194,000 (married filer).

Taxpayers that participate in 401(k) plans at work or are self employed can avoid the Roth IRA contribution adjusted gross income phase outs ($133,000/single, $194,000 married) described above by making Roth contributions within a 401(k) plan.  Most 401(k) plans allow for employee Roth contributions and these contributions are NOT subject to the adjusted gross income limitations described above for taxpayers contributing to Roth IRAs.  Further sweetening the Roth 401(k) deal is ability to make larger employee contributions to a 401(k) than to a Roth IRA.  Roth IRA contributions are limited to $5,500 ($6,500 if 50 years or older) while Roth 401(k) contributions are limited to $18,000 ($24,000 if 50 years or older).

Consider this example:

  • Married couple in their 30s with an adjusted gross income of $320,000
  • Roth IRA contributions allowed = ZERO
    • Contributions allowed are “phased out” when adjusted gross income reaches $194,000 for a married couple
  • Roth 401(k) contributions allowed = $36,000 ($18,000 each)

A Roth 401(k) makes PERFECT sense for a high-income, young taxpayer.  Why?  Consider a taxpayer that would normally be excluded from making Roth IRA contributions because their adjusted gross income exceeds the phase out thresholds.  Not only can that taxpayer contribute to a Roth 401(k), he can contribute over three times the amount ($18,000 vs. $5,500) that could be contributed to a Roth IRA.

The reason being “young” is a big factor in this example is the time horizon for earnings growth.  Roth IRAs are popular to young taxpayers because of the length of time earnings grow that will ultimately be distributed tax free assuming distributions after 59 ½ years old.

A Roth 401(k) option is available even if you’re self-employed.  Consult your financial adviser about setting up a “Solo K” plan that allows for employee Roth contributions.

For taxpayers that fit the right criteria (high income, young), Roth 401(k) contributions make a TON of sense.

Read more

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

 

Read more