October 2022

Unbelievably, year-end is right around the corner. The first line of business in January 2023 will be to file and issue any necessary Form 1099s. Although I am fairly new to the profession and my role as a CPA, I have quickly come to realize that taxpayers do not particularly like sending or receiving 1099s. Business owners and clients often do not collect the required information to accurately or timely issue a 1099. This leaves taxpayers and their accountants in a fury to gather information by the filing deadline, January 31st. There are some misunderstandings surrounding this tax task that I’d like to help clear up and make your 1099s one less problem in the New Year.

Who Should Receive a 1099?

The IRS requires individuals and businesses to file Form 1099, which is an informational return, to inform the IRS that they have paid $600 or more to someone who is not an employee, during the normal course of business. You are required to issue a 1099 to “non-incorporated” vendors or contractors, meaning individuals, partnerships, Limited Liability Companies (LLCs), Limited Partnerships (LPs), estates and trusts.

For example, a rancher who pays an LLC for machine hire to harvest or plant, must issue the LLC a 1099-NEC for the services provided. Additionally, this rancher may pay for a pasture lease; as the lessee, they will issue the lessor a 1099-MISC for rent. If the rancher’s livestock requires attention at the local veterinarian clinic, the rancher’s payment for the vet services could require a 1099-MISC. Essentially, if you are deducting the services or rental expenses on your tax return, you will likely be required to issue a 1099 for payments of $600 or more.

How to Collect Information from Vendors?

It appears that the issue surrounding Forms 1099 is collecting the necessary information to accurately report the form. You may ask, “What exactly needs to be reported?” You are required to report the name, address, tax I.D. number (Social Security number or EIN) and the total amount paid to the recipient. The IRS holds the stance that it is the taxpayer’s, or issuer of the 1099’s, responsibility to collect this information from vendors before payment is made.

To ease this responsibility, request Form W-9 from any vendor or contractor if you believe there is chance you will issue them a 1099. Form W-9, or formally titled “Request for Taxpayer Identification Number and Certification”, will provide you with the tax I.D. number, address and indicate if they are incorporated. Instilling this practice in your normal course of business will ensure you have all the essential information on hand, should you be required to issue a 1099 after the start of the year.

The Price to Pay

Yes, it may be a hassle to collect this information upfront, but the risk of not filing or inaccurately filing Form 1099 is too great. The IRS now requires taxpayers to answer questions on their tax return to indicate if they were required to issue Forms 1099, and if so, did they file the required forms. Under penalty of perjury, you must indicate that your tax return is accurate and complete. If you answer “No” to the latter question, you may be subject to penalties and fines varying from $50 to $270 per form, depending on how late the 1099 is filed. If a taxpayer intentionally disregards the requirement to file, a minimum penalty of $550 per form can be imposed. Always keep filing and issuing documentation with your tax files.

Mark January 31st, 2023 on your calendars, as this is the deadline to file and mail Forms 1099 for the 2022 tax year. Do not let the deadline come and go, leaving yourself wishing you kept better records throughout the year. If you have any questions about Forms 1099, reach out to your trusted CPA.

Published in the Victoria Advocate

Carlee H. Gibbs, CPA is a staff accountant for Keller & Associates CPAs, PLLC.

After a long, hot summer, fall is finally in the air. Crisp autumn mornings and pumpkin spice everything will be ringing in the holidays in no time. With the hustle and bustle of fall activities, the holidays and year end, spare time becomes even more of a premium. I will share with you a short checklist of last minute financial planning items to consider as 2022 begins to come to a close.

1. Review year-to-date capital gains and losses. The stock market has been extremely volatile the entire year. Depending on when you rebalanced your portfolio, you may have year-to-date capital gains or capital losses. Opportunities may exist to reduce tax liabilities by offsetting year-to-date capital gains with current losses in your portfolio. Alternatively, you may be able to rebalance your portfolio tax efficiently by offsetting any current gains with year-to-date capital losses. Grab your most recent portfolio statement to see where you stand.

2. Make required minimum distributions sooner rather than later. IRA owners over age 72 have required minimum distribution obligations to meet by year end. Most custodians have high volumes of documents to process right at year end. Making these decisions early will help alleviate the risk of not getting your distribution processed timely. Don’t forget that you can give up to $100,000 directly to charity from your IRA. This is known as a Qualified Charitable Distribution and is an extremely tax efficient alternative for those who are charitably inclined and may not need all of their required minimum distribution.

3. Identify Roth conversion opportunities. When I wrote in June, we discussed making lemonade out of market lemons. Roth conversions are an example of such a strategy. By utilizing depressed market values on your pre-tax IRAs, you can elect to convert an amount to a Roth IRA now and let the eventual market recovery happen on an after-tax basis. You will pay tax this year on the amount of the conversion so make sure you are managing your tax brackets accordingly. IRA owners over 65 should also take in to account the impacts on their Medicare premium costs when making a decision of whether to convert or not.

4. Maximize retirement savings opportunities. 401(k), IRA, Roth IRA and Health Savings accounts are all great retirement savings vehicles. These are all different plans with varying contribution limits, income phase outs and age restrictions. Reviewing your options for funding now will help you establish a roadmap of which vehicle is appropriate for you. Self-employed individuals should not overlook the benefits of SEP IRAs, Simple IRAs and Solo 401(k) plans.

5. Coordinate the above with your CPA. All four of the aforementioned items have direct interplay with your tax return and tax planning. Coordinating these decisions with your CPA will ensure you are making a tax-conscious decision as well as helping to get a jump start on preparing your 2022 income tax return.

This checklist is a representation of what our firm will be looking at for our clients between now and year-end. While not all inclusive, these are common items that should apply to most people and you should have the ability to complete this checklist in less than an hour.

Published in the Victoria Advocate

Kyle W. Noack CPA/CFP® is Chief Executive Officer of Keller & Associates CPAs, PLLC and KMH Wealth Management, LLC.

Form 1099 – What You Should Know

2022 Year End Financial Planning Checklist

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