As a CPA, if you’re preparing Form 1099-NEC for your clients, then you need to know the latest best practices. Start preparing for tax year 2020 now with these tips.
Review How Your Clients’ Income is Mapped
With the return of Form 1099-NEC, you will need to pay close attention to how you map your clients’ income. You will need to adjust how you map their income and adjust your routine from previous years to split non-employee compensation and other miscellaneous payments.
Ideally, you will map out whether your current process for Form 1099-MISC is accurate, adjust it accordingly, and then split off the necessary variables for Form 1099-NEC. Accurately mapping your clients’ income ensures that you report the correct amounts on the right forms at the right time.
Specific situations that you may want to pay close attention to include:
- Lawyer payments
- Other income
- Real estate payments, such as rent
Be Aware of Penalty Increases
Among the many changes that the return of Form 1099-NEC brings, the penalties are changing, too. In general, they continue to increase for late or inaccurate reporting.
According to Moss Adams, “For 2019 filings, penalties are applied at $50 for information return reports filed after the deadline but within 30 days, and they increase to $110 for returns filed after 30 days beyond the deadline but before August 1, 2020. Information return reports filed incorrectly after August 1, 2020, or not at all, will have a penalty of $270 per form.”
Encourage Payment and Withholding Tracking
Whether you’re meeting with clients before tax year 2020 or not, it’s important to inform them that they need to separately track nonemployee compensation and other 1099 payments. The sooner you tell your clients this and show them how to do so, the easier the next tax season will be for you and your clients.
Equally as important is to note the difference for state income and withholding as it relates to nonemployee compensation starting tax year 2020. This will also look different for your clients as they will not be able to attribute all miscellaneous payments to Form 1099-MISC.
You may want to recommend that your clients open a separate general ledger liability account to track their nonemployee backup withholding. This will in part be determined by the reports you need for proper reconciliation and reporting for your purposes.
Monitor State Reporting Changes
At this point, the IRS has not released whether Form 1099-NEC will be adopted into the IRS Combined Federal/State Filing Program, so it’s best to monitor state reporting changes going forward, especially in which state(s) your clients reside.
Starting calendar year 2021 (tax year 2020), you will need to e-file for clients with 100 forms or more. If they have 99 forms or less, you can paper file on their behalf.
If you are paper filing, you will need to complete and mail Form 1096 on behalf of each client.
File your clients’ 1099-NEC and other 1099 forms using eFile360. Sign up for a free account here. You can manage multiple forms for your clients within one account. Plus, you can repurpose their information next year, too, saving you time while offering them a great customer experience year after year.