Category: Tax Form Guidance

31 Oct 2019

THE EVER-EVOLVING FORM 1040

THE EVER-EVOLVING FORM 1040
Hopes for a Postcard to File Your Taxes … Dashed Once Again!

Post Card Tax Filing

Earlier this year, the IRS heralded the introduction of a new and improved tax Form 1040. You’ve heard that the new tax law provides for a “postcard-sized” tax return. The intent was to simplify filing Form 1040 for the 2018 tax year and presumably beyond. Like most of us, you immediately came up with a postcard-like image.

Well as it turns out, the IRS vision of a postcard-sized 1040 came out like this.

New 1040 Form

Now Pay Attention!  There’s a side 2 as well!

New 1040 Form - Back Side

But wait, there’s more to the story. Six new schedules were introduced relating to such things as additional sources of income and qualifying for tax credits.

Assuming your tax situation was super-simple, your responsibility was to file the base postcard return. However, the reality is that you most likely faced the necessity to also file one or more of the new schedules.

Here’s the IRS matrix summary to help you know which new schedules may apply.

IRS Matrix

OK. So much for simplicity.

Now comes the latest 1040 news from the IRS … the “postcard-size” Form 1040 has been officially scrapped. The IRS has announced abandoning its earlier effort to revamp the latest form and working on a new version that more closely resembles the traditional 1040 … remember 2017.

In large part, this turn of events is a direct result of objections from the tax preparation community that viewed the revised “work-in-process” prototype as being inefficient and burdensome.

In the words of the IRS, “We generally do not release drafts of forms until we believe we have incorporated all changes. However, in this case we anticipate it is likely that this draft will change at least slightly before being released as final. Whether we make changes to this draft or not, we will post a new draft later this summer with our standard coversheet (this page) indicating we do not expect that draft of the form to change.

IRS Draft 1 - Form 1040

IRS Draft 2 - Form 1040

There are numerous changes in the draft version as it continues to evolve. This is not the place to enumerate the differences as the final version has not been released … although expected in November of this year. In its current form, the new 1040 has one more line than its predecessor … 24 vs. 23 and sports being 1.5 inches longer than the 2018 version.

Additionally, the Schedules 1-6 referenced above have been reduced to just three … Schedules 4, 5, and 6, which dealt with taxes on retirement plans, refundable credits and foreign addresses will no longer be in use Depending on content in the remaining three, a sigh of relief is in order.

Taxpayers Age 65 and Older … A 1040 Built for You

In July of this year, the IRS released a draft form of the 1040-SR, U.S. Tax Return for Seniors. Some of the design elements include:

  • Highlights retirement income streams and other tax benefits for older taxpayers.
  • Based on the regular 1040 and uses same schedules, instructions and attachments.
  • Larger fonts to make the text easier to read.
  • A standard deduction chart is featured for seniors to take advantage of the higher standard deduction.

To learn more about the debut of this form tailored for taxpayers 65 and older … Click Here.

How Will The New Form Affect You? Perhaps Not at All.

You are probably among the majority of American taxpayers who won’t file a paper tax Form 1040. Nearly 90% of taxpayers are expected to use a tax preparer or file electronically … more than 131 million people e-filed their returns in 2019.

If you intend your tax filing for 2019 to be a DIY project, be sure to reconsider and seek the services of a tax preparation professional. You’ll benefit from enhanced peace of mind and know that your tax bite, or refund, is accurate and to your maximum benefit based on your unique circumstances.

As ever, Pearson & Co. stands ready to help!
Give us a call or an email. We’ll respond promptly.

23 Jan 2018

FORM 1099 – NOT JUST A NUMBER!

The IRS is on the Hunt to Ensure Compliance

Pearson Tax 1099 Compliance

The Internal Revenue Service (IRS) has increasingly been scrutinizing tax returns that should have included, payments that would require you to file Form(s) 1099. Many taxpayers, both businesses and individuals, are likely candidates to comply with 1099 filing requirements … you may be one of themread on to find out.

Pearson-Tax-2

Due Dates & Penalties

Both 1099 recipients and the IRS must be provided 1099s by January 31, 2018. The penalties for non-compliance – failing to file or filing late – are severe. Here’s a rundown:

  • If you file late but within 30 days of the due date, the penalty is $50 for failing to file the 1099 with the recipient and an additional $50 penalty for failing to file a copy with the IRS (for a total penalty of $100 per 1099).
  • If you file after 30 days but before August 2nd, the penalty is $100 for failing to file the 1099 with the recipient and an additional $100 penalty for failing to file a copy with the IRS (for a total penalty of $200 per 1099).
  • If you file after August 2nd, the penalty is $260 for failing to file the 1099 with the recipient and an additional $260 penalty for failing to file a copy with the IRS (for a total penalty of $520 per 1099).
  • Finally, if you intentionally fail to file a 1099, the penalty is $520 for failing to file the 1099 with the recipient and an additional $520 penalty for failing to file a copy with the IRS (for a total penalty of $1,040 per 1099).

In preparing your tax return this year, you must answer under penalty of perjury (a felony) the following two questions:

  • Did you make any payments in 2017 that would require you to file Form(s) 1099?
  • If “Yes”, did or will you file all required Form(s) 1099?

Assuming your answer to the first question is “Yes”, the appropriate answer to the second question is clearly “No” to avoid penalties.

Pearson-Tax-3

Who Must File Form 1099?

Generally, any trade or business that makes payments for rents, interest, compensation, or remuneration for services aggregating $600 or more for the year to a single payee is required to report the payments to the recipient of the payments as well as the IRS by filing Form 1099.

Note: This reporting requirement generally does not apply for payments to a corporation, other than payments made to corporations for attorney fees.

How do you determine if a business is incorporated?

The safest thing is to send a 1099, unless the invoice you pay and the check you write includes the words “Inc.”, “Incorporated”, or “Corporation”. For example, paying a bill to XYZ Contractors Company should trigger you sending a 1099 as it is undetermined that the business is incorporated.

Here are some of the more common examples of 1099 requirements:

  • Rent paid on your office space, even if your landlord is an LLC.
  • If you are incorporated and own your building, your corporation is required to send you or your LLC a 1099.
  • Paying a person or cleaning company to clean your office or maintain the lawn at your office will most likely require a 1099.
  • Paying a person or company to perform building maintenance, repairs, improvements, etc. at your office could trigger filing 1099s.
  • Paying someone for casual labor may require a 1099.
  • Payment to a team member that was not included on their W-2 form may require a 1099.

Note: In most cases all of an employee’s compensation should be reported on their W-2.

  • Paying an attorney or law firm, whether or not they are incorporated, to perform work related to your business requires you to file a 1099. Personal work such as wills and estate planning does not require filing a 1099.
  • Landlords with rental property who pay for lawn service, repairs or maintenance are subject to the1099 filing requirements.
  • Payments to LLCs that are not classified as an S or C Corporation.

 

Pearson-Tax-4

What happens if my request to provide information to send a 1099 is refused?

Before engaging and paying an unincorporated business or individual for services, you must require completion of Form W-9. This form lists the person’s or entity’s name, address, social security number or tax identification number, and their signature.

Note: Be sure that all of the above information is fully completed on the W-9.

You are required to maintain this form on file. If your request to complete the form is refused, you may want to re-think whether they are a good “fit” for your needs. In the event they won’t complete the form and you do continue to engage their services, you are required to do “backup withholding”. This means you must withhold 28% of their billing to you and remit it to the IRS.

Summary

Clearly, the requirements are complex and the penalties for non-compliance are severe. We stand ready to bring definition and clarity to your unique circumstances and how it may affect your need to file 1099s. Just give us a call or drop an email. We promise to respond promptly.