Are you ready for the new 1099 form? Did you know that there was a new form? Use this bookkeeping checklist to prepare in five easy steps.
The IRS has a new form for nonemployee compensation (NEC), which businesses previously recorded in Box 7 of the 1099-MISC form. Technically, Form 1099-NEC isn’t new — it was last used in 1982. It’s been a while since 1982 so we all probably need a fresh look at what is required in Form 1099-NEC. Also, note that the filing deadline for the 1099-NEC form is February 1, 2021. The standard due date is January 31 — this year, January 31 is a Sunday, so the due date is February 1. (That's also the deadline for sending copies of 1099-NEC forms to all affected vendors and independent contractors.)
Form 1099-NEC applies only to nonemployee compensation. For rent, royalties and other pertinent expenses, you will still use Form 1099-MISC. There are changes to Form 1099-MISC, since NEC now has its own form. Many of the boxes you may be used to for reporting rent, gross proceeds to an attorney, Section 409A deferrals and non-qualified deferred comp are in a different place so be sure to pay attention to where those amounts are recorded.
Prepare for the New 1099: A Bookkeeping and Compliance Checklist
What can you do to prepare for the change? Here's a checklist:
- Be sure you've received W-9 forms from all your vendors and independent contractors. Make sure you have up-to-date contact information and addresses.
- Follow your state’s guidelines for classifying independent contractors.
- Review the new instructions for 1099-MISC as well as the revived 1099-NEC form, which you'll need for all vendor or independent contractor payments of $600 or more. Brush up on which expenses belong where. It can be tricky, and the distinctions border on arbitrary at times. "Any fishing boat proceeds" go on the standard 1099-MISC, for example, but "Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish" go on the 1099-NEC. Pay particular attention to provisions that apply to your industry.
- Consult your bookkeeping services provider or your CPA. Bookkeeping services providers and CPAs have been planning for this change and can help you.
- If you are using any type of Form 1099 preparation software, make sure it is up to date with the current changes.
Have a Stress-Free Tax Season With Bookkeeping Best Practices
Knowing that there is a new 1099 form is a great first step in preparing for the upcoming tax season. Keep up to date on your bookkeeping records — you’ll need to know which vendors and independent contractors are above the $600 threshold — and check your W-9 files to make sure you have the forms you need. By taking the time now to prepare, you will be well-positioned for a stress-free tax season.
At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.