1099-NEC Question

[Donald Hughes]

I have always used the approach that if you use a "contractor", no business cards, not listed as a business in the state he/she does their business in then you must have a 1099-NEC for any work performed and paid for over $600. I have always disallowed the deduction. Your thoughts please.

Also, is there a setting in this program where I can get an email notification when answers are given by y'all?

[jklcpa]

1 hour ago, Donald Hughes said:

is there a setting in this program where I can get an email notification when answers are given by y'all?

I see you are already "following" this topic.  There is an additional notification setting too.  Click on the icon at top right that looks like a bell. On the box that opens, you should see a gear icon at the top right labeled "notification setting."  Click on that to set additional ways the system contacts you with content and frequency.
I don't know how often this site cycles through to send those notifications because I don't use that feature.
 

[jklcpa]

1 hour ago, Donald Hughes said:

I have always used the approach that if you use a "contractor", no business cards, not listed as a business in the state he/she does their business in then you must have a 1099-NEC for any work performed and paid for over $600. I have always disallowed the deduction. Your thoughts please.

The fact that 1099s aren't issued doesn't mean that the deduction isn't a valid expense of the business, but that the taxpayer isn't compliant with reporting and backup withholding requirements. You may also have clients that have unreported income because some people believe that amounts below the $600 threshold aren't taxable income because the IRS form wasn't issued. I'd suggest that you review the reporting requirements with each of your affected clients that are disregarding the rules and then decide how to proceed ewith those clients, if at all.

[Lee B]

1 hour ago, Donald Hughes said:

I have always used the approach that if you use a "contractor", no business cards, not listed as a business in the state he/she does their business in then you must have a 1099-NEC for any work performed and paid for over $600. I have always disallowed the deduction. Your thoughts please.

 

I'm confused.   Who is "you" and what "deductions"???

[BulldogTom]

1 hour ago, Donald Hughes said:

I have always used the approach that if you use a "contractor", no business cards, not listed as a business in the state he/she does their business in then you must have a 1099-NEC for any work performed and paid for over $600. I have always disallowed the deduction. Your thoughts please.

I generally inform the client that they have a reporting requirement and offer to prepare the 1099s for them (for a fee, of course).   If they decline my offer, then we have the discussion about deductibility and audits and losing audits and paying taxes and paying penalties and paying interest and possibly finding someone else to prepare their returns.  I like to educate, and it is not my job to disallow deductions - that happens at audit by the IRS or the tax court.   If it is a one off oversight, then we do what we can to make the return correct for filing.

Tom
Longview, TX

[Pacun]

On 9/20/2024 at 3:02 PM, Donald Hughes said:

I have always used the approach that if you use a "contractor", no business cards, not listed as a business in the state he/she does their business in then you must have a 1099-NEC for any work performed and paid for over $600. I have always disallowed the deduction. Your thoughts please.

Also, is there a setting in this program where I can get an email notification when answers are given by y'all?

Not clear if you are a practitioner or an auditor. If you work for the IRS as a revenue agent or such, you are correct.

[jklcpa]

3 hours ago, Pacun said:

Not clear if you are a practitioner or an auditor. If you work for the IRS as a revenue agent or such, you are correct.

A practitioner. In another post it said he's been with ATX since 2006 and had forgotten about this site until very recently.  Also, I can see the email that confirms that he is a tax & financial professional.

[Gail in Virginia]

On 9/20/2024 at 3:02 PM, Donald Hughes said:

I have always used the approach that if you use a "contractor", no business cards, not listed as a business in the state he/she does their business in then you must have a 1099-NEC for any work performed and paid for over $600. I have always disallowed the deduction. Your thoughts please.

Also, is there a setting in this program where I can get an email notification when answers are given by y'all?

I am not sure what the business cards and listed as a business in the state where the do business has to do with this.  If they are a contractor and are not incorporated, I would expect a 1099 NEC for amounts over $600.  If they don't have business cards or otherwise show that they are a business, then perhaps they should have received a W-2 for all the amounts they received and not be considered a contractor.  Is that the point that you are trying to make?  I do agree that it is not my job to allow or disallow deductions but to point out what they need to do to be in compliance with the law. 

[Medlin Software, Dennis]

Would this be of little concern these days? Meaning with the card processors creating 1099 reports and it being foolish not to use a rewards card to pay for things, the real chance of on purpose supporting underground economy being nil.

The real issue, to me, it the unwavering failure to follow 1099 rules correctly, such as blindly sending them to all, even when clearly not required. I have one customer, every year, who wants me to send them my info (for 1099) before ordering. I refuse each year. I am a corp, and I have nothing which would cost someone more than $600 per year.

[Lee B]

Not all smaller contractors accept credit cards, so it could become an issue.

The times that I have had business cards and business licensing come up is during Unemployment Tax Audits and Workers Compensation Audits,

when the Auditor is looking for workers being treated as contractors when they really should on the payroll as employees.

[Sara EA]

On 9/20/2024 at 3:02 PM, Donald Hughes said:

I have always used the approach that if you use a "contractor", no business cards, not listed as a business in the state he/she does their business in then you must have a 1099-NEC for any work performed and paid for over $600. I have always disallowed the deduction.

How would you know if the contractor has business cards or a state listing?  If a client's records show payment to a plumber, say, do you look up the state records and call the guy for a card?  I can see denying the deduction when a client says their nephew helps out once in a while and gets paid under the table.

[jklcpa]

Mod note: 2 posts hidden as O/T.

Please stick to the OP's topic of 1099 reporting and if non-issuance makes that expenditure nondeductible for tax purposes.

Anyone wanting to discuss accepting or paying for services in cash/check v. plastic or any other side issue should start a separate topic of its own.

[Corduroy Frog]

This issue of paying people for services rendered confronts most of us as tax preparers.

First of all, NO ONE wants to have a payroll.  I don't blame them because of the administrative time, expense, and penalties that the IRS jumps on them.  No one wants a payroll, but the fact remains that in many cases, a payroll is the proper manner because the payer is determining the task and methods.

Secondly, in lieu of anything better, I will offer to prepare 1099-NECs.  If they don't want to do this, I give them the choice:  either forego the deduction or find another preparer.  As stated before, the deduction is still valid, but the failure to report is the violation.  In spite of this, I take the position to force the client to comply with the need.

The IRS can force the issue by making more audits.  At my last seminar I was told that they would be examining 1099-NECs and looking for recipients that received only one 1099.  If they are not receiving multiple 1099s then they are not really in business for themselves.

[jklcpa]

Please don't take this discussion to contract "employee" that SHOULD be payroll instead of 1099 reporting. 

Plenty of small businesses and rental owners pay contractors and attorneys that require 1099s to be issued that have nothing to do with being on payroll at all!