PREPARING

TO FILE 2019

FORMS 1099

Contents

Special Interest Articles

1099-MISC 1

W-9 Form: Required or Not? 2

E-Filing News 2

Trade or Business 3

Attorney Fees 4

Legislation in the News 4

Individual Highlights

Penalties 2

Expense Reimbursement 3

Form 1099-NEC 3

1099-MISC Forms due January 31, 2020 If you made payments of more than $600 in the course of your trade or business to a

person who is not an employee or to an unincorporated business, you need to file Forms

1099-Misc by January 31, 2020.

You will also need to report payments of more than $10 in gross royalties or more than

$600 in rent. This form is used to report prizes and awards as well.

Payments to corporations are usually exempt from 1099-Misc reporting requirements

EXCEPT when paid more than $600 for: medical and health care payments (including

veterinary fees), attorneys’ fees, attorney gross proceeds and a few less common

circumstances.

Some examples of when 1099-Misc forms are required are: consultants, lawyers,

accountants, bookkeepers, landscapers, doctors, veterinarians, exterminators, cleaning

or maintenance companies, plumbers or electricians, repair or building contractors, and

photographers. This is not an all-inclusive list.

Please read our article, ‘W-9 Form: Required or Not?’ to learn how to verify if a payee is a

corporation.

Personal Payments

PREPARING TO FILE 2019 FORMS 1099 | SOBELCO | 973-994-9494 DECEMBER 2019

Only payments made in the course of your trade or business are reportable.

Personal payments are NOT reportable. While payments made by individuals not in

business are clearly personal, payments from other activities such as trusts,

vacation home rentals or rental properties can be more complex. Read our article,

“Trade or Business?” for more information.

Penalties

Penalties for not filing a correct 1099

wit the IRS may apply if you:

1. Don’t file a correct 1099 by

the due date

2. File on paper if required to

file electronically

3. Don’t report a taxpayer

identification number (TIN)

4. Report an incorrect TIN

Penalties for not providing correct

payee statements may apply if:

1. You do not send payee

statements by the due date

2. All required information is

not shown on the statement

3. Incorrect information is

shown on the statement

SobelCo will once again be e-filing all 1099 forms prepared by our office.

Clients should submit their 1099 information to our office using SobelCo’s Excel

template, which should include the payees’ name, address, identification number and

amount paid. Here are some helpful tips:

Do not include those vendors you do not want to receive a 1099. For example,

vendors paid under the $600 limit but listed on your template will be issued a

1099, even though not required by the IRS.

If you had us prepare your 1099s last year we will be emailing the designated

contact person a copy of last year’s template during the first part of December. If

you do not receive your template or if you have a new contact person, please let

us now by sending an email to 1099@SobelCoLLC.com.

If you would like us to prepare your 1099s for the first time, please contact

Norma Ribeiro-Simoes at 973-994-9494 to arrange for a personalized template to

be sent to you.

We prepare 1099s for many companies. Submit early for the fastest response

time! Our busiest time is the week of January 20th—26th.

We will not e-file without an authorization from you. Once you receive your 1099

package for review alert us immediately with any corrections or return the

authorization for us to file your 1099 Forms.

Be ready! Go through your vendor history now and provide each vendor you believe may need a 1099 with a blank W-9 if you do not already have one on file.

W-9 Form: Required or Not?

E-Filing News

Q: Is it true before you give anyone a

1099-Misc form you must first get a W-9

form from that person or entity to

verify their taxpayer ID number?

A: YES. Not only is it true, but the IRS

states that you cannot accept the

information informally. In the event

your business is audited you must be

able to show a W-9 Form for each

vendor that worked for you.

One benefit of having to get W-9 forms

from your vendors is that this form also

requires them to identify their federal

tax classification, including whether an

LLC is taxed as a partnership, sole

proprietor or corporation. This

information is critical in determining

whether or not to issue the vendor a

1099.

A W-9 form can be downloaded from

the IRS at: https://www.irs.gov/pub/irs-

pdf/fw9.pdf

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Expense Reimbursements

Expense reimbursements covered under

an accountable plan do NOT get included

in payments reported on Form 1099-

MISC.

An Accountable Plan must meet three

conditions:

1. The expense must have a business

connection and occur during the

performance of the service

2. The contractor must substantiate

the business expense by providing

evidence (i.e. a receipt) showing the

amount, time, place and business

purpose of the expense, within a

reasonable time

3. Any amounts paid in excess of those

spent for qualified expenses must be

returned within a reasonable period

of time

Interested in finding a mobile app to help

track employee or contractor expenses?

Contact our office for more information

or recommendations.

Trade or Business? The IRS generally defines a trade or business as any activity carried on for the

production of income from selling goods or performing services. A trade or business

is also carried on for a livelihood or in good faith to make a profit. The IRS is clear that

you do not need to make a profit to be in a trade or business as long as there is a

profit motive. However, there must be ongoing and continuous efforts to further the

interest of the business. The facts and circumstances of each case determine whether

an activity is a trade or business.

One area where this often comes into question is regarding real estate rentals.

Whether your rental activity qualifies as a business or investment for tax purposes has

significant tax consequences. Business owners qualify for valuable tax deductions that

investors can’t use, such as the home office deduction, Section 179 expensing, and the

new Section 199A 20% deduction. Rental properties held for investment are not

required to file forms 1099 as opposed to those that are considered a trade or

business.

Another question often asked is whether Trusts or Estates are required to issue 1099s

to their fiduciaries or trustees. Forms 1099-MISC are not required to report these fees

because the administration of an estate or trust is not a business activity. However, if

the trust or estate is engaged in a business endeavor, including some rental activities

as mentioned above, 1099-MISC forms would be required for payments related to

that business activity.

NEW!: 1099-NEC for 2020

We haven’t seen the 1099-NEC, Nonemployee Compensation, since 1982 but the IRS

is bringing it back! Taxpayers will generally use this form to report payments currently

reported on Form 1099-MISC—Box 7. The purpose of this new form is to resolve IRS

processing problems caused by differing due dates for NEC and Non-NEC payments

reported on Form 1099 MISC. What does this mean? If you pay rent, royalties,

attorney gross proceeds, or other income required on 1099-MISC in addition to non-

employee compensation; next year you will have two separate 1099 filings.

SobelCo | 3

The IRS distinguishes between two different types of payments to attorneys on its

Form 1099-MISC:

FEES (Box 7) - Any law firm or attorney to whom you paid more than $600 in fees

during 2019 must be given a 1099-MISC. It does not matter if this attorney or firm is a

corporation; the 1099-MISC is required.

GROSS PROCEEDS (Box 14) - These are monies you paid an attorney during the course

of your business but not for the attorney’s services. The payments are generally part

of a settlement agreement or sale (i.e.: of a business or business assets).

Gross proceeds also occur when the attorney accepts funds on behalf of a client and

takes a fee from the payment.

Attorneys: Fees or Gross Proceeds?

SobelCo

293 Eisenhower Parkway

Livingston, NJ 07039

973-994-9494

1099@SobelCoLLC.com

Ellen.Marvin@SobelCoLLC.com

Glenn.Taylor@SobelCoLLC.com

Find us on the Web:

www.SobelCoLLC.com

Legislation in the News (but not passed YET!) Lawmakers in New Jersey are looking to greatly expand the definition of an official

employee which may cause many currently classified as independent contractors to fall

under the employment umbrella.

A bill endorsed by Senate President Steve Sweeney has cleared committee and would

clearly define a worker as an employee even if they do work outside of all the places of

business of the enterprise for which the services are performed. Current law uses

where the services are provided as one of the three determining factors of whether a

worker is an independent contractor or an employee.

The legislation, as currently written, would also classify the worker as an employee if

they are “customarily engaged in an independently established trade, occupation,

profession or business of the same nature as that involved in the work performed.” This

is an especially important point for those in such industries as construction, trucking or

medical services where workers are commonly paid on a contract basis and have their

own established businesses in the same trade as the one contracting their services.

Though the bill provides exemptions for some types of work (currently accounting and

real estate industries but more may be added), the majority of industries would fall

under its requirements.

Although not yet law, it is a good reminder to become knowledgeable on worker misclassification issues and ensure your organization is following current rules. We will monitor the news and keep you updated on future developments through postings on our website, www.SobelCoLLC.com and email blasts. To ensure you receive all news blasts from us, please contact Colleen Logan at Colleen.Logan@SobelCoLLC.com with your name and email address.

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