1099 Alphabet Soup

© Avalara

Navigating the Information Reporting Maze

1099 Alphabet Soup

1

© Avalara

© Avalara

Marcia L. Miller, MBA, EA

Transition Advisors, LLC

Weston, Florida

[email protected]

Presented by:

2

Making sales tax less taxing 3

© Avalara

INFORMATION REPORTING

REQUIRED FORMS & DESCRIPTIONS

4







© Avalara

INFORMATION FORMS WITH SIMILAR PURPOSES

11

Making sales tax less taxing

Forms 1099-A &1099-C

Both are used to report debts and/or the loss of property

from unpaid debts.

• Form 1099-A is filed by a creditor in the trade or

business of lending money for which a debt was secured

by the property of the debtor.

• Form 1099-C is filed by the creditor in the business of

lending money who cancels some or all portions of the

debt.

12





1099-B & 1099-S

Both are used to report sales.

• Form 1099-B summarizes the proceeds from broker and

barter exchange transactions including the sale of

stocks, bonds and mutual funds accompanied by their

respective gains and losses.

• Form 1099-S reports a detailed statement of the

proceeds from the sale of real estate.

16


POLLING QUESTION # 1

What are some of the new cost basis requirement rules?

A. An issuer of a specified security must file a new information return with the IRS to

describe any organizational action it takes that affects the basis of the security (such

as a stock split or merger) within 45 days after the date of the organizational action

(unless the action takes place in December, in which case the return must be filed by

January 15 of the following year).

B. The Act amended the reporting requirements to require the customer’s adjusted basis

in the securities and whether any gain or loss is either short-term or long-term.

C.The requirements apply to both domestic and foreign issuers of securities if the

security is owned by U.S. taxpayers, either directly or as a depository receipt.

D.Brokers must use the average basis method when determining basis for a stock

position if the customer elects this method. They may also choose this method a

default selection when determining basis for mutual fund and DRP (Dividend

Reinvestment Plan) stock if the customers has not notified the broker of any election

otherwise.

E. All of the above.

17




Forms 1099-INT & 1099-OID

Both report interest income.

• Form 1099-INT summarizes interest income and related

expenses.

• Form 1099-OID reports original-issue discount income

from securities, such as Treasury bills, zero coupon

bonds and commercial paper with a term of more than

one year.

20





Forms 1099-DIV & 1099-PATR

Both account for distributions related to a corporation or

cooperative association.

• Form 1099-DIV reports dividends and capital gain

distributions relating to stocks.

• Form 1099-PATR reports patronage distributions paid to

the members of a cooperative association. These

distributions may be shared profits, revenues or credits.

24



CHECK BOX 2nd TIN not.

27


B-Notice Facts

B-Notices are sent in both the spring and the fall beginning

in September (commonly known as B-Notice season).

• B - Notices are sent in response to errors on six 1099 Forms:

1099-MISC 1099-OID 1099-PATR

1099-INT 1099-DIV 1099-B

• Should you fail to take the appropriate action, including backup

withholding, when required, you become responsible for any unpaid

taxes on the payments made as well as any penalties and interest.

• It is recommended to:

– Use the TIN Matching System to avoid B-Notices;

– Send out B-Notices and respond to B-Notices promptly;

– Backup withhold, if required, and;

– Document all actions taken.

28



• The penalty for failing to withhold because an employer

honestly but wrongly treated their employee as an

independent contractor is:

A. 1.5% of the wages paid to that employee for lack of income tax

withholding.

B. 20% of the amount of FICA tax not withheld.

C. If the employer fails to file information returns or withholding

statements regarding that employee, the liability doubles to 3%

of what should have been withheld.

D. If the employer fails to file information returns or withholding

statements regarding that employee, the liability for FICA

doubles to 40% of what was to have been withheld.

E. All of the above.

29


Forms 1099-MISC & 1099-K

Both are used to report business income.

• Form 1099-MISC is the broadest information reporting

form.

– It is used to report various types of income that include rent or

royalty payments, awards, contest winnings, prizes and

compensation for independent contractors, freelancers and

service workers.

• Form 1099-K reports Merchant Card, either debit or

credit, and third party network payments with gross

payments that exceed thresholds of $20,000 and 200

transactions.

30





Online Seller Andrea OrelannaTC Summary 2010-51

• Sold personal items on E-Bay;

• $43,000 of underreported income;

• Claimed to merely have an online garage sale;

• 7,000 transactions/sales over a 5 year span;

• Andrea claimed that she was not aware of the taxability

of these transactions;

• And her real occupation was……………………………...

34








Forms 1099-LTC & 1099-SA

Both relate to health care.

• Form 1099-LTC reports the long-term care and

accelerated death benefits generally paid by an

insurance provider.

• Form 1099-SA reports distributions made from

an HSA, Archer MSA, or Medicare MSA.

41




Forms 1099-Q, 1098-E & 1098-T

All relate to tuition & education expenses.

• Form 1099-Q is filed if you (a) are an officer or an employee or the

designee of an officer or employee, having control of a program

established by a state or eligible educational institution; and (b)

made a distribution from a qualified tuition program (QTP).

• Form 1098-E is filed if you receive student loan interest of $600 or

more from an individual during the year in the course of your trade

or business.

• Form 1098-T is provided by an eligible financial institution to a

student which shows payments received for qualified tuition and

related expenses, amounts billed for qualified tuition and related

expenses, adjustments made for a prior year, scholarships and

grants, and adjustments to scholarship and grants for a prior year.

44




© Avalara

OTHER INFORMATION RETURNS

48


WHO ARE YOU PAYING ?

Payee/Recipient: EMPLOYEE U.S. PERSON

NON - U.S.

PERSON

Documentation

Required:

W – 4 W - 9 W - 8 or 8233

Form to

Report On:

W - 2 1099 1042-S

Tax Amounts to

Withhold:

Per Tax Chart 28% Withholding 30% Withholding

Annual

Reporting Form:

941 945 1042

49


1042-S vs. 1099

1042-S

• Non U.S. Persons

• U.S Source Income

(Determine where the services

are performed)

• 30% Withholding (unless

exception)

• File Form W-8

– BEN / BEN – E

– ECI

– IMY

• File Form 8233

1099

• U.S. Persons

– Entities organized under U.S.

Law

– Citizens

– Resident Aliens

• Greencard

• Substantial presence test

• Worldwide Income

• 28% Backup Withholding or

exception basis

• Form W-9

50

See IRS Pub 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities)






Top 10 1042-S Processing Errors

1) Box 1 - invalid code (type of income)

2) Box 5 - invalid w/h tax rate

3) Box 7 - inconsistent amount with rate

4) Box 12 - recipient code differs from Box 13

5) Box 13 - recipient name differs from Box 12

6) Box 14 - must show TIN if claim exemption

7) Box 14 - conflicts with Box 12- QI-EIN

8) Box 15 - Country code conflict with Box 16

9) Box requiring entry are left blank

10) Amounts in dollars must be rounded

55


1099 vs. 1098

• 1099 & 1098 series forms are information returns that

report different types of transactions.

• 1099 Forms are prepared by the payors of funds,

whereas 1098 Forms are prepared by recipients of money

or property.

• For either series, be sure to obtain a valid Form W-9

prior to issuing any payments!

56




If the employer does not receive a valid TIN (Taxpayer

Identification Number), it is their obligation to prove their

efforts to obtain the TIN to avoid penalties that might have

been assessed.

However, the employer must still remit the backup

withholding and report the amounts paid on Form 945.

True or False?

A. True

B. False

58


Form 1098 & 1098-C

• Form 1098 is used to report mortgage interest of $600

or more received by you during the year in the course

of your trade or business from an individual, including

a sole proprietor.

• Form 1098-C must be filed by a donee organization with

the IRS for each contribution of a qualified vehicle

(motor vehicle, boat or airplane) that has a claimed

value of more than $500.

59










Report Gambling Wins on Form W-2G

NOTForm 1099-G

68




POLLING QUESTION # 4• What is your opinion as to how to solve our nation’s

budget crisis and to eliminate the growing tax gap

(the difference between the amount of tax that

taxpayers should pay and the amount that is voluntarily

paid and on time)?

A. Raise the Social Security Wage base.

B. Withhold a minimum amount on all 1099s not just the 1099 MISC.

C. Increase foreign backup withholding requirements.

D. Other

E. No comment.

71


IRS Advice: Avoid the “Dirty Dozen” Tax Scams of 2014

• Identity Theft

• Pervasive Telephone Scams

• Phishing

• False Promises of “free Money” from Inflated Refunds

• Return Preparer Fraud

• Hiding Income Offshore

• Impersonation of Charitable Organizations

• False Income, Expenses or Exemptions

• Frivolous Arguments

• Falsely Claiming Zero Wages or Using False Form 1099

• Abusive Tax Structures

• Misuse of Trusts

72


IRS CIRCULAR 230

Any tax advice included in this written or electronic

communication was not intended or written to be

used, and it cannot be used by the taxpayer, for

the purpose of avoiding any penalties that may be

imposed on the taxpayer by any governmental

taxing authority or agency.

73


About Avalara

We’re a team of developers, accountants,

support specialists, marketers, salespeople,

researchers, and technologists who know

we’re on to something big.

We know we are part of a team that is

revolutionizing what is a huge drain for

businesses of all sizes: managing the

compliance of transactional taxes, from

sales and use tax to 1099s and more.

Documents

1099 Alphabet Soup