6: What Do I Need To Know About The New 1099-NEC As A Small Business Owner?
In today’s episode, we are diving into the new 1099-NEC form. We will look into what the form is about, who you need to issue the form to, as well as thresholds, exceptions and due dates. We’ll also cover what is still needed on the 1099-MISC form and which part the 1099-NEC form is replacing. We know this form is new for year end 2020 and we want to make sure you have the information you need to file the 1099-NEC form correctly. Listen in and find out if you need to file the 1099-NEC form for your small business.
Link to IRS website for 1099-NEC:
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Have you heard all the noise the new 1099 is making? There have been some changes in the 1099 world that you will need to know about for the end of this year. If you’ve been issuing 1099s in your business, you are going to want to listen in and make sure you are issuing them correctly for the year ending 2020…
Welcome Back…In this episode, we are going to cover what you need to know about the 1099-NEC (nonemployee compensation form). If you’ve heard about this form already and have questions about it, or if you are listening in and thinking…What is a 1099-NEC form, I’m here to help you understand more about it. There’s a lot of valuable information here, so be sure to stay until the end.
First, what exactly is a 1099-NEC form? Well, it is simply the form you will need to use if you have any nonemployee compensation you need to report to the IRS.
You may have used the 1099-MISC form in the past to record this information, but starting in 2020, you will be using the 1099-NEC form. It is not a replacement of the 1099-MISC form, it is only replacing the use of the 1099-MISC form for reporting independent contractor payments.
According to the IRS, you will report this form for each person in the course of your business to whom you have paid at least $600.00 in services performed by someone who is not your employee (including parts and materials) (box 1); Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1)…You might be asking…did she just say cash payments for fish? Yes, I said cash payments for fish…this may or may not apply to your business; and lastly, payments to an attorney (box 1).
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of payment. This will be reported in box 4.
You will only use Form 1099-NEC for payments that are made in the course of your trade or business and not personal payments.
There are some exceptions though. I’m going to cover 4 of the payments for which a Form 1099-NEC is not required and I’ll put a link in the show notes so you can see the other exceptions:
#1 Generally, payments to a corporation (including a limited liability company or LLC that is treated as a C or S corporation).
#2 Payments for merchandise, telegrams, telephone, freight, storage and other similar items.
#3 Payments of rent to real estate agents or property managers – However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
#4 Wages paid to employees – which are reported on Form W-2 (Wage and Tax Statement)
What does this really mean for you as a small business owner?
You are going to need to issue a 1099-NEC form if you paid $600 or more in fees, commissions, prizes and awards for services performed as a nonemployee and other forms of compensation for services performed for your trade or business by an individual who is not your employee. You will report these amounts in box 1 of the 1099-NEC form.
Wow, that’s a LOT of information, some examples that you may see in your business would be payments you have made for professional services, such as attorneys, accountants, contractors, referral fees, or independent contractors.
Are you still with me? I know it may be confusing, but hang in there…you’re doing great!
You might be asking; how will you know if you need to file a 1099-NEC form for one of your vendors? You will want to have each of your vendors fill out a W9 form which will have them list their business name, address, the entity type and either their Social Security Number or their Federal ID number. This is the information you will use to file your 1099-NEC forms. If they select either the C or S corporation, this is how you will be able to determine if the payments you make to them are considered made to a corporation and listed as one of the exclusions I mentioned previously.
How about a little history lesson? If you’ve been around for a while, this form may not be new to you. It’s been absent for about 38 years, but kind of like how bell bottoms come back in style, the 1099-NEC form is back, and you will need to file it for the year 2020.
So, who gets the 1099-NEC when you file it? You will end up filing Copy A with the IRS, Copy 1 with the state department – if applicable, Copy B and Copy 2 go to the independent contractor and Copy C is for you to keep for your records. These copies can either be filed electronically or you can mail them to the IRS. I will put a link in the show notes so you can quickly see where you need to file your forms.
The deadline for filing the 1099-NEC is January 31st
I know this is a lot of information, but all in all, I really want you to be aware of what the 1099 NEC form is, who you need to file it for, and how to file the form.
I also wanted to let you know about my upcoming MASTERCLASS. I will be talking about 7 Mistakes To Avoid In Your Small Business. In this masterclass, you can learn the insider secrets successful entrepreneurs have overcome to raise the level of success in their businesses. If you are interested in attending this free masterclass, please go to FinancialAdventure.com/Mistakes and register today to save your seat.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.