Category: Income Taxes

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What is the difference between IRS Form 1099-NEC and Form 1099-MISC?

Beginning with tax year 2020, the 1099-MISC has been redesigned due to Form 1099-NEC. Employers will no longer report nonemployee compensation, such as payments to independent contractors, on Form 1099-MISC.

Form 1099-NEC

This tax year 2020, employers must use Form 1099-NEC to report nonemployee compensation, if the following criteria is met.

  1. Payment made to someone who is not your employee.
  2. Payment made for services of your business
  3. Payment made to an individual, a partnership, or an estate.
  4. Payments made of $600 or more during the year.

This nonemployee compensation are payments made to independent contractors, fees paid for professional services such as of attorneys and accountants, and commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year.

Form 1099-NEC must be given by employers to the individual and filed to the IRS by January 31, 2021.

Form 1099-NEC example:

1099NEC.gif

Source: Internal Revenue Service

Form 1099-MISC

This tax year 2020, employers must use Form 1099-MISC to report payments made if the following criteria is met.

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in the following:
    • Rents.
    • Prizes and awards.
    • Other income payments.
    • Generally, cash from a notional principal contract to an individual, a partnership or an estate.
    • Medical and health care payments.
    • Payments to an attorney.
    • Section 409A deferrals.
    • Nonqualified deferred compensation.

Form 1099-MISC must be given by employers to the individual by January 31, 2021 and filed to the IRS by February 28 or March 31st if filed electronically.

Form 1099-MISC example:

1099-MISC

Source: Internal Revenue Service

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Business Expenses for IRS Reporting

The general rule for deducting business expenses are the costs of carrying on a trade or business and are usually deductible if the business is operated to make a profit.

For an expense to qualify as a deduction come tax time, the expense must be both ordinary and necessary.

Qualified Business Expense Test

  • Is the expense ordinary and commonly accepted in your industry?
  • Is the expense necessary and helpful in operating your trade/business?

An expense does not have to be essential to be considered necessary. Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. In some cases, you may not be allowed to deduct the expense at all. Therefore, it is important to distinguish business expenses and include them into the following 3 categories.

  • Cost of Goods Sold (COGS)
  • Capital Expense
  • Personal Expense

Learn More about the different type of categories in a different post.

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IRS-Publication-535-1Download
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IRS NEWS: New Tax Debt Relief Rules

Posted from IRS website.
https://www.irs.gov/newsroom/irs-makes-it-easier-to-set-up-payment-agreements-offers-other-relief-to-taxpayers-struggling-with-tax-debts

IR-2020-248, November 2, 2020

WASHINGTON — The Internal Revenue Service today announced a number of changes designed to help struggling taxpayers impacted by COVID-19 more easily settle their tax debts with the IRS.

The IRS assessed its collection activities to see how it could apply relief for taxpayers who owe but are struggling financially because of the pandemic, expanding taxpayer options for making payments and alternatives to resolve balances owed.

“The IRS understands that many taxpayers face challenges, and we’re working hard to help people facing issues paying their tax bills,” said IRS Commissioner Chuck Rettig. “Following up on our People First Initiative earlier this year, this next phase of our efforts will help with further taxpayer relief efforts.”

“We want people to know our IRS employees are committed to continue helping taxpayers wherever possible, including offering many options for those struggling to pay their tax bills,” said Darren Guillot, the IRS Small Business/Self-Employed Deputy Commissioner for Collection and Operations Support. Guillot discussed the new relief options in a new edition of IRS “A Closer Look.”

Taxpayers who owe always had options to seek help through payment plans and other tools from the IRS, but the new IRS Taxpayer Relief Initiative is expanding on those existing tools even more.

The revised COVID-related collection procedures will be helpful to taxpayers, especially those who have a record of filing their returns and paying their taxes on time. Among the highlights of the Taxpayer Relief Initiative:

  • Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days.
  • The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
  • The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers. This taxpayer-friendly approach will occur instead of defaulting the agreement, which can complicate matters for those trying to pay their taxes.
  • To reduce burden, certain qualified individual taxpayers who owe less than $250,000 may set up Installment Agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient. 
  • Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a notice of federal tax lien filed by the IRS.
  • Additionally, qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.

Additional details on the Taxpayer Relief Initiative

The IRS offers options for short-term and long-term payment plans, including Installment Agreements via the Online Payment Agreement (OPA) system. In general, this service is available to individuals who owe $50,000 or less in combined income tax, penalties and interest or businesses that owe $25,000 or less combined that have filed all tax returns. The short-term payment plans are now able to be extended from 120 to 180 days for certain taxpayers.

Installment Agreement options are available for taxpayers who cannot full pay their balance but can pay their balance over time. The IRS expanded Installment Agreement options to remove the requirement for financial statements and substantiation in more circumstances for balances owed up to $250,000 if the monthly payment proposal is sufficient. The IRS also modified Installment Agreement procedures to further limit requirements for Federal Tax Lien determinations for some taxpayers who only owe for tax year 2019.

In addition to payment plans and Installment Agreements, the IRS offers additional tools to assist taxpayers who owe taxes:

Temporarily Delaying Collection — Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves.

Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an Offer in Compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool. Now, the IRS is offering additional flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted offer in compromise.

Relief from Penalties — The IRS is highlighting reasonable cause assistance available for taxpayers with failure to file, pay and deposit penalties. First-time penalty abatement relief is also available for the first time a taxpayer is subject to one or more of these tax penalties.

All taxpayers can access important information on IRS.gov. Many taxpayers requesting payment plans, including Installment Agreements, can apply through IRS.gov without ever having to talk to a representative.

Other requests, including this new relief, can be made by contacting the number on the taxpayer’s notice or responding in writing. However, to request relief, the IRS reminds taxpayers they must be responsive when they receive a balance due notice.

“If you’re having a tax issue, don’t go silent. Please don’t ignore the notice arriving in your mailbox,” Guillot said. “These problems don’t get better with time. We understand tax issues and know that dealing with the IRS can be intimidating, but our employees really are here to help.”

Throughout COVID-19, the IRS has continued to adjust operations to help ensure the health and safety of employees and taxpayers, including the extensive and temporary relief of the IRS People First Initiative. More information and background on the collection relief and procedures can be found in “A Closer Look.”

“While it’s been important for us and the nation to resume our critical tax compliance responsibilities, we continue to assess the wide-ranging impacts of COVID-19 and other difficulties people are experiencing,” Guillot said.

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2020 Tax Brackets

Every year the IRS adjusts more than 40 tax provisions for inflation.

The IRS used to use the Consumer Price Index (CPI) to calculate the past year’s inflation.[1] However, with the Tax Cuts and Jobs Act of 2017, the IRS will now use the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.[2]

2020 Federal Income Tax Brackets and Rates

In 2020, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Table 1). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $518,400 and higher for single filers and $622,050 and higher for married couples filing jointly.

2020 Federal Tax Bracket
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IRS Announces Temporarily Digital Signatures

On August 28, the IRS announced that it would temporarily allow the use of digital signatures on certain forms that cannot be filed electronically. Today, the agency added several more forms (PDF) to that list.

The IRS made this decision to help protect the health of taxpayers and tax professionals during the COVID-19 pandemic. The change will help to reduce in-person contact and lessen the risk to taxpayers and tax professionals, allowing both groups to work remotely to timely file forms.

The IRS added the following forms to the list of those being accepted digitally:

  • Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
  • Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
  • Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;
  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;
  • Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; and
  • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

The below list was announced August 28, and all of these forms can be submitted with digital signatures if mailed by or on December 31, 2020:

  • Form 3115, Application for Change in Accounting Method;
  • Form 8832, Entity Classification Election;
  • Form 8802, Application for U.S. Residency Certification;
  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;
  • Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies;
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return;
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms.

The IRS will continue to monitor this temporary option for e-signatures and determine if additional steps are needed.

In addition, the IRS understands the importance of digital signatures to the tax community. The agency will continue to review its processes to determine where long-term actions can help reduce burden for the tax community, while at the same appropriately balancing that with critical security and protection against identity theft and fraud.

https://www.irs.gov/newsroom/irs-adds-six-more-forms-to-list-that-can-be-signed-digitally-16-now-available

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IRS debunks tax refund myths

https://www.irs.gov/newsroom/irs-debunks-tax-refund-myths

Taken from the IRS Newsroom page.

IR-2020-161, July 16, 2020

WASHINGTON ― With the July 15 tax deadline now past, the Internal Revenue Service reminds all taxpayers that there is no secret way to find out when a refund will be issued.

Most taxpayers have already filed their federal tax return, and many have already received their refund. Those that have not are understandably eager for details about when their refund will arrive. When it comes to tax refunds, a few common myths keep circulating and misinforming taxpayers.

Some key facts can help people understand the refund process better:

  • Taxpayers who file electronically and use direct deposit can expect their refund faster than those who mail a paper return, especially since the COVID-19 outbreak has reduced IRS staffing available to process paper returns.
  • Taxpayers who file a paper tax return are likely to face processing and refund delays.
  • The best and easiest way to check on a refund is Where’s My Refund?
  • The Where’s My Refund? tool available on IRS.gov and the IRS2Go mobile app.
  • A tax refund’s status can be checked within 24 hours after the taxpayer receives the e-file acceptance notification.
  • “Where’s My Refund?” is updated once a day, usually overnight.

Processing delays for paper tax returns

The IRS continues to process electronic and paper tax returns, issue refunds, and accept payments.

The IRS is experiencing delays in processing paper tax returns due to limited staffing. This is causing refund delays. Taxpayers who have already filed a paper return should know that the IRS is processing paper returns in the order in which they are received.In addition, interest on individual 2019 refunds reflected on returns filed by July 15, 2020, will generally be paid from April 15, 2020, until the date of the refund. Interest payments may be received separately from the refund and are considered taxable income in the year received.

Taxpayers who filed a paper return should not file the same tax return again or call the IRS.

Common myths about tax refunds include:

Getting a refund this year means there’s no need to adjust withholding for 2020

To help avoid a possible surprise next year, taxpayers should look to make changes now. Adjusting tax withholding with an employer can help ensure that neither too much nor too little tax is withheld from an employee’s paycheck. The Tax Withholding Estimator helps taxpayers figure out the right amount.

Calling the IRS or a tax professional will provide a better refund date

Contacting the IRS or a tax professional will not expedite a refund. IRS assistors and tax professionals cannot move up a refund date nor do they have access to any “special” information that will provide a more accurate refund date.

Ordering a tax transcript is a secret way to get a refund date

Ordering a tax transcript will not help taxpayers find out when they will get their refund and it does not accelerate the issue date of a refund.

The Where’s My Refund? tool is wrong because there’s no deposit date yet

WhenWhere’s My Refund?shows the tax return status is received it means that we have received the tax return and are processing it. Some returns may take longer to process than others and needs further review. This includes when a return:

  • Includes errors
  • Is incomplete
  • Is affected by identity theft or fraud
  • Includes a Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process

Taxpayers will be contacted by mail if the IRS needs more information to process a tax return. People waiting for a refund in the mail should plan for the additional time a check takes to arrive.

Something is wrong when the refund amount is less than expected

There are a lot of reasons that cause a tax refund to be different than expected. Situations that could decrease a refund include:

  • Taxpayer math errors or mistakes
  • Owing federal or state taxes, child support, student loans or other federal non-tax obligations
  • A portion of the refund is held while IRS reviews an item claimed on the return

The IRS will mail a letter of explanation if these adjustments are made. Some taxpayers may also receive a letter from the Department of Treasury’s Bureau of the Fiscal Service if their refund was reduced to offset certain financial obligations.

Taxpayers can call the IRS’s automated refund hotline at 800-829-1954, which uses the same information as “Where’s My Refund?”. There is no need to call the IRS unless Where’s My Refund? says to do so.

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Pending: Americans Waiting for their Tax Refund

This year, 2020, gave American taxpayers an extra three months to file and pay your taxes. But with that, many Americans that filed before April 15th are still waiting for their refunds.

An IRS spokesperson, Eric Smith said, “Yes, some paper returns filed early in the season have not yet been processed.”

Check the status of your refund

Use the “Where’s My Refund?” tool at irs.gov/refunds or by calling 800-829-1954. Check once a day, since the refund portal is only updated once a day.

Over 21 Days

If its been longer than 21 days since you e-filed, you should call the IRS. If you received a letter or the refund portal reads to contact the IRS. You should call the IRS. Expect long waits. I learned that the best time to call is on Wednesday’s. They tend to be the slowest days and hold time can range from 2 hours to they are no longer receiving calls. Yes, you read that right. I have called at 11 am and got the message that said they are no longer taking calls for the day.

Keep in mind that if you’re due a refund, you’ll get the full amount. There’s no penalty assessed by the IRS even if the return is late. There is only a late-filing penalty if you owe.

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Free Apps to Track Your Business Miles

If you drive your personal vehicle for business they may qualify for the standard mileage rate deduction.

Prior to Apps, can you believe that tracking was done by notebook. Just as with a notebook, you miss noting down a business drive you took. But with an App, it can automatically track mileage for you. Here is a few of the Apps, I believe you will enjoy using, in no particular order.

Free Mileage Tracker Apps That Work

Stride

This app tracks your miles and more. The app is FREE and log every mile you drive and can help track expenses like parking fees and toll fees.

Cost: Free
Android and Apple

MileIQ

This app tracks your miles and more. MileIQ has a free version with limited drives per month, max of 40 drives. Do more than 40 drives a month and you will need to sign up for the premium unlimited version. Drives can be categorized into personal or business drives.

Cost: Free with 40 drives. Unlimited $5.99 P/ Month
Android and Apple

Everlance

This app tracks your miles and more. The app automatically starts and stops by detecting when your car starts moving and tracking those miles. All you have to do is swipe to identify if it was a business or personal drive. Still need more, set a work schedule and the App will categorize any drive during that as a business drive.

Cost: $8 P/Month or $60 for the Year.
Android and Apple

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File your TAXES for FREE. Here’s how to file your 2019 Tax Return for FREE

Looking to file your taxes for free! You are not alone and the government has certain requirements that can allow you to file your federal taxes for free, its called ‘Free File’. IRS Free File providers allow taxpayers to prepare and file your federal individual income tax return for free using tax-preparation-and-filing software. Each provider has some requirements for you to qualify. See below to see which one suits you.

Let Free File do the hard work for you with big box brand-name software or Free File Fillable Forms used to mail your federal return in. Free File is one of several ways that low income and older taxpayers can save money and file their taxes.

For taxpayers on a fixed income, every penny saved matters.

Learn more at IRS Website

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $56,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance in preparing their own tax returns. IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals.

In addition to VITA, the Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors. The IRS-certified volunteers who provide tax counseling are often retired individuals associated with non-profit organizations that receive grants from the IRS.

Know Your Protections Under the IRS Free File Program

  • Get a free federal tax return – As long as you qualify for the Free File federal return offer, you must not be charged for preparation and e-filing of a federal tax return.
  • Be protected from unnecessary fees – Other than state tax preparation fees and a possible fee if you choose to continue with tax preparation when you don’t qualify for the federal return offer, you must not be offered or solicited marketing, promotional rebates, or any other form of selling activity on the Free File company’s website. Any state preparation or non-qualifying fees must be disclosed on the company’s Free File landing page.
  • Be guided in your choices – If you find you don’t qualify for a specific company’s Free File offer after visiting their Free File website, you may return to the IRS.gov Free File website to seek another Free File online offer. Each Free File company will provide you information when you don’t qualify, with the option to select a link to bring you back to IRS.gov Free File site to select another company.
  • Get help if you need it – If you need help when you are on the company’s Free File website and doing your taxes, you may refer to the company’s free customer service options.
  • Be reminded of Free File – If you used Free File last year, you should receive an email from the same company product that you used, welcoming you back to Free File. The email should include a link to the company’s Free File online program and explain how to file with the program.
  • Be protected from bank product fees – As part of Free File, you must not be offered any bank products such as Refund Anticipation Loans or Refund Anticipation Checks.
  • Get help finding a free option for you – IRS offers a Free File online Look-up tool to help you find an offer that best meets your needs.
  • Get important information on possible charges for state returns – Many Free File online products offer free state tax preparation. Some charge a state fee. Be sure to read each company’s information carefully.
  • Contact IRS – If you have a question about the IRS Free File Program contact us at freefile@irs.gov. The mailbox only handles suggestions, feedback or concerns about the Free File program. For questions about your Free File tax return or tax law contact your provider’s customer service. Non-Free File topics submitted will not receive a response. Do not email ANY personal information, such as a Social Security number or a home/office address.

IRS Free File Infographic

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