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Tuesday, January 28, 2014

Who gets a 1099?

Form 1099-MISC is used to report certain types of payments made in the course of a trade or business. If you're in business or self-employed, you may need to submit this report to both the Internal Revenue Service and the person or business that you paid.  The form is filed between January 1st and February 28th.  So who gets a 1099?  Every year this is a question that plagues many business owners. 

Payments types are divided into categories (or boxes) on a 1099-Misc that are detailed below.  Reporting is required if the recipient is an individual, a partnership, an LLC or a sole proprietorship.  You are only required to report if the amount paid is $600 or more.  But remember that $600 is cumulative throughout the year and not per invoice!

You are not required to report payments made to tax-exempt organizations and for the most part, corporations; however, there are a few exceptions! 1099s must be issued to corporations providing the following services:
*         Legal (any lawyer/attorney fees)
*         Medical (doctors and other health institutions)
*         Health Care (long term care or hospitals)
*         Fishing Boat Proceeds

One of the most reported items on the 1099-Misc is the reporting of rents of $600 or more for any of the following:
*       Real estate rentals paid for office space. (Except if paid to a real estate agent and not directly to the property owner)
*       Machine rentals (for example, renting a bulldozer).  If the machine rental is part of a contract including both the use of the machine and the operator, the payment for the machine is reported as rent and the operator's charge is reported as non-employee compensation.
*      Pasture rentals (paying for the use of grazing land)

Royalties do not follow the $600+ rule.  Any royalties of $10 or more must be reported.  You should report royalties from oil, gas, or other mineral properties before reduction for severance and other taxes that may have been withheld and paid. Surface royalties are categorized as rent.  Likewise, oil and gas payment for a working interest are categorized as non-employee compensation. 

Other Income
This is used to report $600 or more in payments that are not reportable in one of the other boxes on the form.  Prizes, awards and personal injuries are the most common.

Medical and Health Care Payments
Enter payments of $600 or more made in the course of your trade or business to each physician or other supplier of medical health care services.  Corporations providing medical services must be issued a 1099, but it is not required for tax-exempt facilities.  You are not required to report payments to pharmacies for prescription drugs. 

Non-employee Compensation (NEC) or Independent Contractor
By far the most reported area used by small businesses is for services performed by non-employees for repairs or maintenance and for fees and commissions that you have paid in amounts of $600 or more.  This includes work for plumbing, electrical, carpentry, equipment maintenance, accounting, gardening, horseshoeing, brand inspection and any other service you paid for during the year that was not to an employee.  However, a 1099 is not required for payments for merchandise, telephone, freight, storage or similar items.  Therefore, anyone you paid for trucking does not need a 1099. 

The IRS provides the following examples of 1099-Misc NEC recipients:
*       Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers, etc.
*       Fees paid by one professional to another, such as fee-splitting or referral fees.
*       Payment for services and labor (including payment for parts or materials used to perform that service if supplying the parts or materials was incidental to providing the service). For example, report the total payment to an auto repair shop on an invoice showing a breakdown for labor and for parts, if furnishing parts was incidental to repairing the auto.
*        Payments to non-employee entertainers for services.
*       Crop Share - amounts paid out of crop/livestock proceeds to another individual or business for their share

Gross Proceeds Paid to an Attorney
Another common item to report will be any gross proceeds totaling $600 or more paid to an attorney in connection with legal services in the course of your trade or business.  The term attorney includes a law firm or other provider of legal services.  And remember, corporations are NOT exempt in the case of payments made for legal services. 

Crop Insurance Proceeds
Enter crop insurance proceeds of $600 or more paid to farmers by insurance companies unless the farmer has informed the insurance company that expenses have been capitalized under section 278, 263A or 447.  

The 1099 process can be a bit overwhelming, but it is much easier if you collect the proper information as you pay for services throughout the year.  You will need the name, address, tax identification number, the cumulative amount paid over the year and the type of payment (rent, NEC, royalty, etc).  Use IRS form W-9 (obtained by following this link form W-9) to collect the information required for each 1099-Misc.  It’s easy to hand a subcontractor a W-9 before handing them the signed check for payment.  Remember, if ever in doubt, issue the 1099.  There is nothing wrong with issuing when you didn’t need to, but you will face penalties if you don’t issue a 1099 when it is required.

At Gardner & Billing CPAs, 1099 filing is one of the services we are pleased to offer our clients.  It’s still helpful if you are able to provide the necessary information for your 1099 recipients, but if you prefer to let us make the call on who should receive one, just bring in your farm book or bank statements for us to go over.

For more information on 1099s, please contact our office or follow this link to the IRS 1099 Miscellaneous instructions:

Wednesday, January 22, 2014

Tips from the IRS for Taxpayers / Victims about Identity Theft and Tax Returns

Identity theft remains a top priority for the Internal Revenue Service in 2014. Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the IRS. This year, the IRS continues to take new steps and strong actions to protect taxpayers and help victims of identity theft and refund fraud. 

Stopping refund fraud related to identity theft is a top priority for the tax agency.  The IRS is focused on preventing, detecting and resolving identity theft cases as soon as possible.  The IRS has more than 3,000 employees working on identity theft cases - more than twice the level of a year ago.  We have trained more than 35,000 employees who work with taxpayers to recognize and provide assistance when identity theft occurs. 

Taxpayers can encounter identity theft involving their tax returns in several ways. One instance is where identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen. Innocent taxpayers are victimized because their refunds are delayed.

Here are some tips to protect you from becoming a victim, and steps to take if you think someone may have filed a tax return using your name:

Tips to protect you from becoming a victim of identity theft
  • Don’t carry your Social Security card or any documents that include your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).
  • Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
  • Protect your financial information.
  • Check your credit report every 12 months.
  • Secure personal information in your home.
  • Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts.
  • Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 (Monday - Friday, 7 a.m. - 7 p.m. local time; Alaska and Hawaii follow Pacific time).

If you believe you’re a victim of identity theft
Be alert to possible identity theft if you receive a notice from the IRS:
  • More than one tax return for you was filed;
  • You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return;
  • IRS records indicate you received more wages than you actually earned or
  • Your state or federal benefits were reduced or cancelled because the agency received information reporting an income change.
If you receive a notice from the IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.
If you did not receive an IRS notice but believe you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490, Extension 245 right away so the IRS can take steps to secure your tax account and match  your SSN and ITIN. 


Our office takes the above seriously and we take the necessary steps to keep client information secure.  If you have any questions, please give Gardner & Billing, CPA’s PLLC a call at 406-436-2583.

Wednesday, January 15, 2014

New Year Tips for Employers and Employees

 As 2013 has come to a close and 2014 is getting started, here are some important things to consider for both employers and employees.....

First, it is good practice for all employers to issue their employees a new form W-4 to fill out at the start of each year.  This provides the employee with an opportunity to update their information and change their withholding allowances based on how their prior year taxes turned out as well as update any name and address changes they had from the prior year. However you might feel that filling out one of these W-4 forms is not quite as simple as it would seem. The basic rule to remember is that the lower the number of allowances claimed, the higher the amount of Federal and State taxes that will be withheld from each paycheck.  Employees need to consider such things as: spouse's income and also, if they have activities in their lives generating income or loss outside of their W-2 jobs. For help and additional assistance on filling out the form W-4 please feel free to contact us.

The next issue is tax rates, which it seems are always changing.  For 2014, the employee Social Security tax rate will remain at 6.2% with the employer match also being 6.2%.  Medicare remains at 1.45% for both employee and employer.  Federal Unemployment Tax rate for those employers in MT is still at .6% paid on the first $7,000 of wages paid to each employee in the year.  Montana Unemployment tax rate varies per employer but the wage base is increased to $29,000 in 2014 where it was $27,900 in 2013. This means that Montana Unemployment is paid on the first $29,000 of wages an employee earns in 2014.

Finally, as of January 1st, the minimum wage increased in Montana by $.10 from $7.80 to $7.90 per hour.  Early release copies for 2014 percentage method tax tables are available to be viewed on the internet but employers may continue to use the 2013 tables until the complete 2014 tables are released a little later this year.

For any further questions please feel free to contact us.  We are always happy to help!