There’s a new IRS form for business taxpayers that pay or receive certain types of nonemployee compensation and it must be furnished to most recipients by February 1, 2021. After sending the forms to recipients, taxpayers must file the forms with the IRS by March 1 (March 31 if filing electronically).
The requirement begins with forms for tax year 2020. Payers must complete Form 1099-NEC, “Nonemployee Compensation,” to report any payment of $600 or more to a recipient. February 1 is also the deadline for furnishing Form 1099-MISC, “Miscellaneous Income,” to report certain other payments to recipients.
If your business is using Form 1099-MISC to report amounts in box 8, “substitute payments in lieu of dividends or interest,” or box 10, “gross proceeds paid to an attorney,” there’s an exception to the regular due date. Those forms are due to recipients by February 16, 2021.
Before the 2020 tax year, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee (in other words, an independent contractor). These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.
Form 1099-NEC was introduced to alleviate the confusion caused by separate deadlines for Form 1099-MISC that reported NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers.
Payers of nonemployee compensation now use Form 1099-NEC to report those payments.
Generally, payers must file Form 1099-NEC by January 31. But for 2020 tax returns, the due date is February 1, 2021, because January 31, 2021, is on a Sunday. There’s no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.
When to file 1099-NEC
If the following four conditions are met, you must generally report payments as nonemployee compensation:
We can help
If you have questions about filing Form 1099-NEC, Form 1099-MISC or any tax forms, contact us. We can assist you in staying in compliance with all rules.
We are pleased to announce exciting changes to our firm’s Partnership. As our founder, Marcus Ullrich, passes the torch of full-time Managing Partner role to Partner, Anthony Delevati, two senior staff members, Lisa Martinez Dunham and Vivian Plank, will join as Partners. Marcus Ullrich will continue to serve his present clients as an active Partner, and Jim Engstrom will remain as a Principal for the West Sacramento Office.
This expansion of our Partnership strengthens our ability to provide you and our growing client base with the exemplary service and uncompromising quality we’re known for. We are well-poised for the future, and we look forward to growing more with our community.
Exciting Partnership Changes at Ullrich Delevati, CPAs
Founder, Marcus Ullrich, is passing the torch of full-time Managing Partner role to Anthony Delevati, as two senior staff members, Lisa Martinez Dunham and Vivian Plank, join the Partnership. Marcus Ullrich will continue to serve his present clients as an active Partner, and Jim Engstrom will remain as a Principal for the West Sacramento Office.
What it Means For You: This expansion of our Partnership strengthens our ability to provide you and our growing client base with the exemplary service and uncompromising quality we’re known for. We are well-poised for the future, and we look forward to growing more with our community.
Want to Learn More: To learn more about how Ullrich Delevati, CPAs can help provide financial clarity for your business or personal ventures, email email@example.com, call 530-666-6671, or visit our website www.udcpas.com.
The law providing relief due to the coronavirus (COVID-19) pandemic contains a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings. This is referred to as qualified improvement property (QIP). You may recall that under the Tax Cuts and Jobs Act (TCJA), any QIP placed in service after December 31, 2017 wasn’t considered to be eligible for 100% bonus depreciation. Therefore, the cost of QIP had to be deducted over a 39-year period rather than entirely in the year the QIP was placed in service. This was due to an inadvertent drafting mistake made by Congress.
But the error is now fixed. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. It now allows most businesses to claim 100% bonus depreciation for QIP, as long as certain other requirements are met. What’s also helpful is that the correction is retroactive and it goes back to apply to any QIP placed in service after December 31, 2017. Unfortunately, improvements related to the enlargement of a building, any elevator or escalator, or the internal structural framework continue to not qualify under the definition of QIP.
In the current business climate, you may not be in a position to undertake new capital expenditures — even if they’re needed as a practical matter and even if the substitution of 100% bonus depreciation for a 39-year depreciation period significantly lowers the true cost of QIP. But it’s good to know that when you’re ready to undertake qualifying improvements that 100% bonus depreciation will be available.
And, the retroactive nature of the CARES Act provision presents favorable opportunities for qualifying expenditures you’ve already made. We can revisit and add to documentation that you’ve already provided to identify QIP expenditures.
For not-yet-filed tax returns, we can simply reflect the favorable treatment for QIP on the return.
If you’ve already filed returns that didn’t claim 100% bonus depreciation for what might be QIP, we can investigate based on available documentation as discussed above. We will evaluate what your options are under Revenue Procedure 2020-25, which was just released by the IRS.
If you have any questions about how you can take advantage of the QIP provision, please don’t hesitate to contact us.
Do you own a business but haven’t gotten around to setting up a tax-advantaged retirement plan? Fortunately, it’s not too late to establish one and reduce your 2019 tax bill. A Simplified Employee Pension (SEP) can still be set up for 2019, and you can make contributions to it that you can deduct on your 2019 income tax return. Even better, SEPs keep administrative costs low.
Deadlines for contributions
A SEP can be set up as late as the due date (including extensions) of your income tax return for the tax year for which the SEP first applies. That means you can establish a SEP for 2019 in 2020 as long as you do it before your 2019 return filing deadline. You have until the same deadline to make 2019 contributions and still claim a potentially substantial deduction on your 2019 return.
Generally, most other types of retirement plans would have to have been established by December 31, 2019, in order for 2019 contributions to be made (though many of these plans do allow 2019 contributions to be made in 2020).
Contributions are optional
With a SEP, you can decide how much to contribute each year. You aren’t required to make any certain minimum contributions annually.
However, if your business has employees other than you:
The contributions go into SEP-IRAs established for each eligible employee. As the employer, you’ll get a current income tax deduction for contributions you make on behalf of your employees. Your employees won’t be taxed when the contributions are made, but at a later date when distributions are made — usually in retirement.
For 2019, the maximum contribution that can be made to a SEP-IRA is 25% of compensation (or 20% of self-employed income net of the self-employment tax deduction), subject to a contribution cap of $56,000. (The 2020 cap is $57,000.)
How to proceed
To set up a SEP, you complete and sign the simple Form 5305-SEP (“Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement”). You don’t need to file Form 5305-SEP with the IRS, but you should keep it as part of your permanent tax records. A copy of Form 5305-SEP must be given to each employee covered by the SEP, along with a disclosure statement.
Although there are rules and limits that apply to SEPs beyond what we’ve discussed here, SEPs generally are much simpler to administer than other retirement plans. Contact us with any questions you have about SEPs and to discuss whether it makes sense for you to set one up for 2019 (or 2020).
In addition to the official filing deadline on April 15, 2020, there are several other filing deadlines this month!
April 10, 2o20
Employees – who work for tips. If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.
April 15, 2020
Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March.
Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March.
Individuals – File an income tax return for 2019 (Form 1040 or Form 1040-SR) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return and pay what you estimate you owe in tax to avoid penalties and interest. Then file Form 1040 or Form 1040-SR by October 15.
Household Employers – If you paid cash wages of $2,100 or more in 2019 to a household employee, file Schedule H (Form 1040 or Form 1040-SR) with your income tax return and report any employment taxes. Report any federal unemployment (FUTA) tax on Schedule H (Form 1040 or Form 1040-SR) if you paid total cash wages of $1,000 or more in any calendar quarter of 2018 or 2019 to household employees.
Individuals – If you are not paying your 2020 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2020 estimated tax. Use Form 1040-ES.
Corporations – File a 2019 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in taxes.
Corporations – Deposit the first installment of estimated income tax for 2020. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.
April 30, 2020
Employers – Federal unemployment tax. Deposit the tax owed through March if more than $500.
Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2020. Deposit any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until May 11 to file the return.
To Our Valued Clients and Friends,
We understand the last several weeks have been both confusing and uncertain, elevating levels of stress and anxiety while imposing varying degrees of fear and concern. To compound the ever-present conditions, it’s the heart of tax season and many individuals and business owners are wondering the extent to which the Coronavirus pandemic and state restrictions will impact your filings.
To those of you who are ill with COVID-19, or have loved ones who are, we hold you in the light and are thinking of you and wishing you a speedy and full recovery. To any who may be grieving, the Ullrich Delevati family grieves with you. To those with questions about your financial interests and tax filings, we are here to support you in every way!
As an essential business, our firm is staying open and diligently working to complete all tax filings in a timely manner. Both the State of California and Federal government have extended the filing and tax payment deadlines to July 15, 2020. We understand this and will use it as necessary. However, we are aware of the current level of anxiety in the world and are making every effort to complete returns on time, in order to help minimize the stress and anxiety tax day brings and ensure those of you receiving refunds will get your money in a timely manner.
With that said, we have made changes to our internal practices in order to protect both our staff and our clientele. This includes social distancing and limiting visitors. We are now conducting client interviews via telephone and kindly request that you send your information electronically or arrange for a drop off, prior to your scheduled appointment. For client preferring to complete an electronic document transfers, we have a secured web portal and invite you to contact our office to establish your account. For those wishing to drop off, please call our office to schedule a day and time.
Within our office, we are making every effort to practice social distancing as well as encouraging frequent hand washing and surface cleaning within the office. Where possible, staff will be working remotely to minimize exposure. Rest assured we have ramped up our online security to ensure any and all personal and financial data is secured. We have also requested that any staff showing or feeling any signs of illness stay at home and are monitoring all recommended best practices to prevent and reduce the spread of COVID-19.
We thank you for your continued support and your willingness to accommodate the office modifications during this time. We are thankful for each of you, appreciate you entrusting us with your tax preparation, and wish you well as we collectively navigate tax season and work to stop the spread of Coronavirus.
Tony Delevati and the Ullrich Delevati Team