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Form 1099-NEC Replaces Form 1099-MISC

December 8, 2020 by Frank

New Reporting Rules for Non-Employee Compensation of $600 or More

There is a new Form 1099-NEC, Nonemployee Compensation, for business taxpayers who pay or receive nonemployee compensation

The Internal Revenue Service now requires that non-employee compensation paid to non-corporate entities of $600 or more in a year be reported on IRS Form NEC

Background

Starting in tax year 2020, payers must complete Form 1099-NEC to report any payment of $600 or more to a payee.

Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, the due date is February 1, 2021.

There is no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.

Backup Withholding

Nonemployee compensation may be subject to backup withholding if a payee has not provided a taxpayer identification number (TIN) to the payer or the IRS notifies the payer that the TIN provided was incorrect PDF.

A TIN can be one of the following numbers:

Social Security
Employer identification
Individual taxpayer identification
Adoption taxpayer identification

What Is Backup Withholding?

Backup withholding can apply to most kinds of payments reported on Forms 1099 and W-2G. This means that the person or business paying the taxpayer doesn’t generally withhold taxes from certain payments. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. This is backup withholding.

More information:

Tax Planning Tip #1

If you have not already done so, make sure that you have a complete and accurate Form W-9, Request for Taxpayer Identification Number and Certification on file, for every non-corporate vendor who provides services to your business.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 19 years. His firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

For individual tax payers, real estate professionals, contractors and other self-employed individuals with IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at info@keysolutions.us.

Keystone Financial Solutions, Inc. specializes in providing innovative tax planning, tax preparation, and solving IRS tax debt problems. The company’s web site is https://www.keysolutions.us and its telephone number is (610) 594-2601.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information. Should you wish to engage our firm to represent you and your individual situation, please call us at (610) 594-2601.

IRS Announces 2020 W-2 Filing Due Date

December 8, 2020 by Frank

IRS Announces Feb. 1 2021 As Due Date to File 2020 W-2s

IRS IR-2020-269 Announces Feb. 1 2021 As Due Date to Send W-2s to IRS and Employees

The Internal Revenue Service reminds employers that they must file Form W-2 and other wage statements by Feb. 1, 2021, to avoid penalties and help the IRS prevent fraud

Background

A 2015 law made it a permanent requirement that employers file copies of their Form W-2, Wage and Tax Statements, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by Jan. 31. That is also the date the Forms W-2 are due to workers.

This upcoming tax season, however, Jan. 31 falls on a Sunday, pushing the due dates to the next business day, which is Monday, Feb. 1.

Forms 1099-MISC, Miscellaneous Income and Forms 1099-NEC, Nonemployee Compensation, are also normally due to taxpayers on Jan. 31, but this tax season they too will be due on the next business day, Feb. 1, 2021.

Various other due dates related to Form 1099-MISC, including dates dues to the IRS, can be found in the instructions on IRS.gov. The normal January filing date for wage statements means that the IRS can more easily detect refund fraud by verifying income that individuals report on their tax returns.

Employers can help support that process, and avoid penalties, by filing the forms on time and without errors.

The IRS recommends e-file as the quickest, most accurate and convenient way to file these forms.

Start Early

IRS recommends that employers get an early start verifying or updating employee information like names, addresses and Social Security numbers or Individual Taxpayer Identification Numbers. They should also ensure their company’s account information is current and active with the Social Security Administration before January. Businesses should also order paper Forms W-2 early if needed.

Automatic extensions of time to file Forms W-2 are not available.

The IRS will only grant extensions for very specific reasons. Details can be found on the instructions for Form 8809, Application for Time to File Information Returns.

Tax Planning Tip #1

Tax Planning Tip #2

If you plan to issue a year-end bonus to your employees, remember that any form of compensation paid to an employee gets reported on Form W-2 and not on a Form 1099.

About F. Bryan Haarlander, EA, CTRS:

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

IRS Announces New ID Theft Protection Program

December 8, 2020 by Frank

Starting in January 2021, the IRS will allow all individuals to receive an IP PIN

The IRS will unveil a portal in mid-January 2021 expanding its IP PIN ID Theft Program to all Individual Taxpayers

IRS announcement IR-2020-267 states that all individuals will be eligible to request an IP PIN beginning in January, 2021

What Is an IP PIN?:

An IP PIN is a six-digit number assigned to a taxpayer to prevent the misuse of Social Security numbers by others trying to submit fraudulent federal income tax returns. It helps the IRS verify taxpayers’ identity and accept their electronic or paper tax return. IPINs have been available for years to taxpayers who have experienced ID theft. This is an expansion of that program.

How to Obtain an IP PIN

To obtain an IP PIN, beginning in mid-January 2021, taxpayers can go to The Tool, which the IRS says is the preferred method, as it is the only method that immediately reveals the PIN to the taxpayer. Other alternatives are discussed below. The online tool employs Secure Access authentication, which uses several methods to verify a person’s identity.

Taxpayers with either a Social Security number or an individual tax identification number (ITIN) who can verify their identity are eligible for the opt-in program. Any primary taxpayer (first on the tax return), secondary taxpayer (second on the tax return), or dependent may obtain an IP PIN if he or she can pass the identity proof requirements.

The IRS says it plans to offer an opt-out feature to the IP PIN program in 2022 for taxpayers who find the opt-in program is not right for them.

There is no change to the IP PIN program for victims of identity theft. Taxpayers who want to voluntarily opt into the IP PIN program do not need to file a Form 14039, Identity Theft Affidavit.

Alternative Process

Taxpayers who cannot establish their identity online and pass Secure Access authentication can follow alternative procedures to obtain an IP PIN, though they will not receive one immediately.

Taxpayers with income of $72,000 or less with access to a telephone should complete Form 15227, Application for an Identity Protection Personal Identification Number, and mail or fax it to the IRS. The IRS will call taxpayers to verify their identity by asking a series of questions. For security reasons, taxpayers who pass authentication through this process will receive an IP PIN the following tax year.

Taxpayers who cannot verify their identity remotely or who are ineligible to file a Form 15227 may make an appointment to visit a Taxpayer Assistance Center, bringing two forms of picture identification to enable an in-person identity verification. An IP PIN will be mailed to the taxpayer within three weeks of the meeting.

The IRS emphasized that taxpayers who obtain an IP PIN should never share it with anyone except their tax preparer. The IRS will never call a taxpayer to request an IP PIN, and taxpayers should be alert to IP PIN scams, as the ingenuity of criminals appears boundless.

How Long of a Period Is an IP PIN Valid?

The IP PIN is valid for one year. The taxpayer must obtain a newly generated IP PIN every January. The IRS IP PIN site is generally not available from mid-November through Mid-January of each year.

Tax Planning Tip #1

In years past when an ID theft victim lost or misplaced his IP PIN, the filing of the taxpayer’s return was delayed because the return could not be filed until the IRS sent a new IP PIN to the taxpayer which could take several weeks. With this new program, the taxpayer will supposedly be able to log onto the IRS site and instantaneously retrieve his IP PIN.

Tax Planning Tip #2

If you decide to use an Alternate method and call the IRS to obtain an IP PIN, be sure to have your prior year’s tax return in front of you when the IRS calls you. The IRS will undoubtedly ask for information from that return. It is also recommended if you file a married joint return that you have your spouse on the phone with you. The IRS may ask for maiden names of parents.

Tax Planning Tip #3

Although the IRS announcement states that a taxpayer may make an appointment to visit a Taxpayer Assistance Center, many of these centers have been closed thus making this alternative not practical for many taxpayers.

About F. Bryan Haarlander, EA, CTRS:

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

Vacation Properties Owned by Real Estate Professional Not Considered a Rental Activity by the IRS

September 3, 2020 by Frank

Court Agrees with IRS that Real Estate Professional’s Losses Were Considered Non-Deductible Passive Losses

A Tax Advantages of Being a Real Estate Professional Is that Rental Losses Are Not Treated as Passive Losses and Can Be Offset Against Ordinary Business Income

What Makes the Case of Greg & Juli Eger, U.S. District Court, N.D. California, 2019-2 U.S.T.C. ¶50,248, (Aug. 30, 2019) Unique?

Background:

As an affiliate member of the Suburban West Realtors® Association, we see various taxpayer arguments made by real estate investors in our Exton PA office to maximize tax deductions in an attempt to decrease tax liabilities. By sharing these taxpayer arguments, we hope other real estate investors better understand the thresholds that they must meet to protect their tax positions.

The taxpayers, Greg and Juli Eger, owned numerous rental properties, including the three at issue here. The taxpayers grouped these three properties along with their other rental properties as a single rental real estate activity.

Greg Eger met the requirements to claim status as a Real Estate Professional (“REP”). Thus, with respect to the passive activity rules where a taxpayer does not materially participate, the taxpayer’s status as a REP allows their rental activities not be considered passive. This would allow the taxpayer to deduct their non-passive losses against their non-passive income.

The three rental properties at issue were managed by management companies. The Egers paid the management companies a percentage of rent received in exchange for services the management companies provided.

IRS Finds Taxpayers Had No Rental Activity for the Three Properties at Issue

The IRS found that these 3 properties did not qualify as rental activities and that the taxpayers had accordingly artificially increased the total amount of business loss they sought to claim (as the losses from these three properties would be non-deductible passive losses).

The IRS regulation sets forth seven exceptions to the definition of rental activity. The parties agree that their dispute centers on one of the exceptions, which states that the activity is not rental activity if [t]he average period of customer use for such property is seven days or less. A period of customer use is further defined as [e]ach period during which a customer has a continuous or recurring right to use [the property]. The IRS contended that this exception applies to the three properties at issue because the average period of customer use for each of them was seven days or less. The taxpayer argued that it met the 7-day or more test.

Who Was the Renter (Customer) of the Three Properties?

The IRS found that the renters of these three properties stayed for an average period of use as the end-user guests for less than seven days. In fact, the taxpayers made no attempt to prove that its renters stayed for more than seven days. Instead, the taxpayer argued that the management companies, not the renters, satisfied the greater than seven days test.

The IRS cited the definition of rental activity as being any activity where payments are principally for the use of tangible property. Therefore, the payment is tied to the use of the property and in this case the renters, not management companies, were paying to use the properties. The IRS logically argued that the management companies acted as the taxpayer’s representatives, not customers of the properties.

Court Findings:

The court ruled in favor of the IRS by finding that the property management companies did not have a continuous or recurring right to use the three properties because the taxpayers retained significant rights to use the properties throughout the tax years at issue. Moreover, the taxpayers provided no legal or factual support for their position that the management companies had a recurring right to use these properties.

Tax Planning Tip #1

Hogs get slaughtered. The taxpayers may have thought that their aggressive position would never be detected by the IRS. The taxpayers likely self-prepared their tax returns as no experienced tax professional would have taken the position that the property management company was the customer and not the renters. Really? They may have played the audit lottery game and lost.

Tax Planning Tip #2

The taxpayer, rather than agreeing to the IRS assessment, decided to bear the expense of going to court to contest the IRS position. While every taxpayer dreams of having his day in court to show that the IRS is wrong, the facts of this case did not support a challenge. The facts were clear that the renter was the user of the rental properties, not the management company.

Had the taxpayer consulted with an experienced tax professional when the return was prepared, the IRS audit examination of three years of tax returns would likely have been avoided, along with the cost of the audit and court costs.

About F. Bryan Haarlander, EA, CTRS:

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

17 Million Taxpayers at Risk

August 31, 2020 by Frank

Taxpayers Who Lost Their Jobs or Had Their Hours of Work Substantially Reduced May Wind Up In IRS Collections

As We Continue to Endure the Health and Financial Ravages of the Corona Virus, Unfortunately More Bad News May be on the Horizon

Tax Pros Predict that 1 to 2 Million Taxpayers May Fail to File Their 2020 Tax Returns Due to the Pandemic Financial Crisis

Currently, there are 15 million taxpayers in IRS collections. IRS estimates that 7 million taxpayers are currently not filing their tax returns. Many tax professionals are predicting that another 1 to 2 million taxpayers may fail to file their tax returns due to the pandemic financial crisis and the closing of their businesses and loss of jobs.

You don’t need to be a victim. Ignoring one’s tax problem usually results in the problem only getting worse. With failure to file penalties assessed at a rate of 5% a month, over the penalty period of 5 months, that is an additional 25% of penalties on top of the taxes due. Then there is interest being assessed on the underpayment of tax and on the penalties assessed. It is not unusual that the total interest and penalties assessed are 60% to 70% of the total taxes due.

Mistake #1:

Procrastinate. Put off until tomorrow what you can do today. Let those penalties and interest accrue substantially increasing your IRS tax debt.

Mistake #2:

Ignore those IRS letters and notices. The IRS sends numerous letters and notices to taxpayers allowing them certain taxpayer rights to address their assessments and set up a payment plan. Many taxpayers ignore those notices until the IRS begins to levy wages, social security benefits, and bank accounts. When the taxpayer finally realizes that the situation must be addressed, certain appeal rights may have been missed and the process to get the taxpayer into compliance becomes more complex.

Mistake #3:

Forgetting that unemployment compensation benefits paid to you are taxable income and that the taxes withheld on those payments (if any) are usually insufficient.

Tax Planning Tip #1

Call a tax professional who specializes in solving IRS tax problems. Better yet, call several firms. While your tax professional may be an excellent tax preparer, very few tax professionals specialize in solving IRS tax problems. You want the very best handling your tax debt problem, not someone who does it part-time.

When you make those calls, listen very carefully to what they share with you and take notes. Are you speaking with the person who will resolve your problems, or are you speaking with a sales person? What are their credentials and experience? Check their website for testimonials and reviews. Check with the Better Business Bureau. Check if they are in good standing with the IRS if an Enrolled Agent, local bar association if an attorney, and the State Board of Accountancy if a CPA.

Tax Planning Tip #2

Understand the process as to how the tax professional will solve your tax problem.

Our process is quite simple.

We offer a free telephone consultation to understand your situation.
We provide you with a fixed fee retainer arrangement and a letter of understanding as to what services we will provide to you.
We pull your IRS transcripts to learn everything about you from an IRS perspective.
Any unfiled tax returns are prepared and filed.
We provide you with an analysis of the alternatives available to you to solve your IRS tax debts.

About F. Bryan Haarlander, EA, CTRS:

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

Are My Unemployment Compensation (UC) Benefits Tax-Free or Taxable? What about the $1,200 Stimulus Check I Received?

August 12, 2020 by Frank

What You Need to Know about Your Unemployment Compensation Benefits and Tax Stimulus Check

Perhaps You Were One of the Millions of Taxpayers Who Lost their Job, Had their Work Hours Reduced, or Were Self-Employed and Received UC Benefits

Understanding the Taxation of Federal and State UC Benefits and Stimulus Checks

Due to the Covid-19 pandemic, millions of taxpayers who lost their jobs, had their hours reduced, or were self-employed and had their revenues decline received unemployment compensation (UC) benefits. Some taxpayers received the typical UC benefits paid by their state. Others may have also received federal UC benefits through their state’s UC website.

Are these UC benefits and stimulus check payments ($1,200 for individuals; $2,400 for married couples) that taxpayers received taxable income?

There is Good News! But alas, there is also some Bad News

The Good News

The Covid-19 stimulus checks are not taxable income. Your 2020 return (filed in 2021) will include a reconciliation so that if you received less than the full amount you were entitled to receive, an adjustment will be made to provide you with the full amount due you.

State taxation varies by state. If you are a PA resident, the good news is that any type of UC benefit received is non-taxable.

The Bad News

Unfortunately, both the state and federal UC benefits received are subject to federal income tax.

Tax Planning Tip #1

Now that the 2019 tax season is over, it is an opportune time to begin to plan for the 2020 tax season. You should make a Tax Folder that contains important tax documents that will be needed when your 2020 tax return is completed. You need to record the amount of the tax stimulus payment you received this year (if any) as that amount will be needed when completing your 2020 Form 1040.

Tax Planning Tip #2

Caution: Some states have stopped issuing Form 1099-G to show UC benefit payments paid to recipients. Accordingly, you need to track the UC dollar benefits you received and any income taxes withheld to file a complete and accurate 2020 return.

Tax Planning Tip #3

If you are in an installment payment plan with the IRS, remember that you must remain compliant by filing your tax returns and paying all of the taxes due each year. Since some taxpayers have no taxes withheld or have only 10% withheld from their UC benefits, they may find themselves with a balance due come April 15, 2021 which they are unable to pay in full. Be sure to make estimated tax payments or increase your tax withholdings to remain tax compliant or else the IRS may terminate your installment payment plan.

About F. Bryan Haarlander, EA, CTRS:

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.