Tax Reminders
January 24, 2022 - 2021 e-filing season starts
Despite a difficult year being behind us, the IRS is working hard to return to normal. What is normal? We have not seen normal in a long time, and I do not think that this year will be any easier than last year. This year may be even harder as many questions are arising from taxpayers regarding various recently passed or proposed rules on which the IRS is still unclear.
I have recently received a number of phone calls from clients asking where their refund is. Tax returns that were not filed prior to November 21, 2021, had to be paper filed. The IRS take a lot longer to process paper returns than to process electronically filed tax returns. CPAs do not have any special connection with the IRS. All we can do is go online and check "Where's my refund?" IRS site to see if the tax return was processed and refund issued. This tool is available to all taxpayers. Also, there are no special privileges that CPAs or CPA firms have with the IRS whenever we call them. We do have a practitioners phone number that we call. However, the wait time is not much different than whenever an individual taxpayer calls. Please be patient this tax season. There are a lot of new changes and updates and the IRS is understaffed. My promise to my clients that I will do my best to stay on track and still comply with my two week turnaround time for the tax returns during February - May months.
E-filing season starts January 24, 2022.
1099-NEC & 1099-MISC & W-2 due dates
January is one of the busiest months for accountants in public accounting as various end-of-year tasks have to be completed as well as deadlines met for various report filings for the prior year. The deadline for having 1099-NEC & 1099-MISC is January 31st. 1099s need to be issued to all vendors to whom you paid $600 or more for services unless they are incorporated, or an LLC taxed as corporation. Please keep in mind that 1099s need to be issued only for payments made to vendors with a check or cash. Payments made with debit or credit cards do not need to be included. Those will be reported by the credit/debit card processing companies on 1099-K. W-2s are also due by the January 31, 2022, for 2021.
Rule of Thumb when hiring service providers
What are my options if I am not able to obtain W-9 for some of the vendors who should be getting a 1099 from me? The rule of thumb should be to not issue payment to any of the service providers until you obtain a signed W-9 from them. If in fact, if you did not obtain W-9 and time comes to file 1099s, you have two options.
Before I get into those two options, I want to mention that whenever you file your personal tax return (Schedule C/E/F) or your business tax return there are two questions that have to be answered: Were you required to file 1099s? Did you file all required 1099s? Ideally, answers on both of those questions should be YES.
Option 1. You take deduction for all payments even though you did not issue a 1099 due to lack of W9 information. Your answers on tax returns will be YES & NO because not all required 1099s were issued. Do YES & NO trigger any audits? Probably, but I have been in public accounting since 2013 (tax field) and I, personally, have not seen any audits on 1099s.
Option 2. You do not take the deduction for payments to vendors for which you did not file a 1099 for. Your answers on tax returns will be YES & YES.
What are consequences if you get audited for 1099s? The IRS instructions do not specify an exact answer on this question. However, various sources say that the IRS will assess penalties which can vary from $50 to $270 per form, depending on how long past the deadline the business issues the 1099 form. If the 1099 form cannot be issued, the duction would be disallowed.
Stay Organized!!!
One of the most asked questions that I get from potential clients is: "How much will you charge to do my individual tax return?" This question seems direct and straight forward. However, the answer is far from being simple. It all depends how much work I will have to do to be able to prepare your tax return. How many states? Do you have any Schedule C/E/F? How do you keep up with income & expenses for your Schedule C/E/F? Those are just some of the questions that I have for my clients. The more organized the client stays, the more effective our conversations will be as I will have good information available to ask the right questions and produce good and desirable results. Please be aware that if you have a Schedule C/E/F your CPA does not need any receipts and detail support to be able to prepare your tax return. All that your CPA would need is summary with the revenue and expenses. All support (receipts) should be retained by taxpayer in case of an audit. CPAs rely on information that is provided by taxpayers for tax return preparation. We are not required to audit and validate the information or numbers that are provided to us. If any of you have questions as to what a summary of revenue and expenses should look like for Schedule C/E/F etc., or what specific expenses you should list on summary sheet that is provided to your CPA, feel free to e-mail me and I will be happy to share an applicable templet with you. It is in my interest to serve my clients to the best of my ability and teach them so that my time and their money is spent on those items that bring value to both sides.
dragana@dcmtax.com