1099 alphabet soup
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© Avalara
Navigating the Information Reporting Maze
1099 Alphabet Soup
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© Avalara
© Avalara
Marcia L. Miller, MBA, EA
Transition Advisors, LLC
Weston, Florida
mmiller@transitionadvisors.com
Presented by:
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© Avalara
INFORMATION REPORTING
REQUIRED FORMS & DESCRIPTIONS
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© Avalara
INFORMATION FORMS WITH SIMILAR PURPOSES
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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.
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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.
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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.
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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.
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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.
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CHECK BOX 2nd TIN not.
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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.
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POLLING QUESTION # 2
• 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.
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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.
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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……………………………...
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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.
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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.
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© Avalara
OTHER INFORMATION RETURNS
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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
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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
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See IRS Pub 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities)
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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
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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!
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POLLING QUESTION # 3
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
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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.
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Report Gambling Wins on Form W-2G
NOTForm 1099-G
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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.
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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
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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.
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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.
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