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. Find out more about 1099 penalties here. 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 …
Continue Reading about Form 1099-NEC Best Practices for CPAs →