IT'S IN THE MAIL!

 

Most of the information returns you will need to properly prepare your 2021 Form 1040 (or 1040-SR) are in the mail.

As you receive your 2021 information returns – W-2s, 1099s, 1098s, K-1s, etc. - you should check the amounts reported on the forms against your own records.  And it is important to verify that the Social Security numbers on all forms are the correct numbers.  If you discover an error, or something you don’t understand, contact the employer or financial institution for an explanation or a corrected return.

A bank may issue one 1099-INT for all accounts – savings, money market, CDs – belonging to the same name and Social Security number.  Verify each account listed on the form to make sure they all belong to you.  A few years back one of my clients received a 1099-INT with someone else’s account included. Had he not carefully checked the form he would have paid close to $100.00 in federal and state tax on another person’s income.

Some information returns may come attached to other documents. Check the contents of each envelope carefully. Your Form 1098 for mortgage interest may arrive attached to the January or February monthly mortgage statement. Some year-end dividend checks have a Form 1099-DIV attached. Don’t separate the check and throw out the 1099-DIV thinking it is a stub. And check 1099-DIVs you receive to see if there is a check attached. I can’t tell you how many times I have found checks attached to 1099s given to me by clients. 

Just because you didn’t receive a 1099 for income does not mean that one was not submitted to the IRS. You must report all taxable income, whether or not you have received a Form 1099. 1099-DIV and 1099-INT does not have to be issued if the amount is under $10, and Form 1099-MISC or 1099-NEC may not need to be issued if the amount is under $600, but all taxable dividends, interest and “miscellaneous” income must be reported regardless of the amount received.

When asked about a Form 1099-INT for an account, banks often tell depositors that you only have to report interest on your 1040 if it is $10 or more. This is wrong! Banks may not have to issue a Form 1099-INT if the interest is less than $10, but you are required to report all interest on all accounts from dollar one.

Many states will no longer mail out 1099-Gs for state tax refunds or unemployment benefits. You may need to go online to your state tax department’s website to download the form.

TTFN

INFORMATION RETURNS

Soon you will be receiving the information forms you will need to prepare your 2017 tax returns in the mail – W-2s, 1099s, 1098s, K-1s, etc.   Here is a list of the forms you could be receiving –

Income Related Documents:

•  Form W-2 = wage and salary income

•  Form W-2G = gambling winnings

•  Form 1099-A = foreclosure of a home

•  Form 1099-B = sales of stock, bonds, or other investments

•  Form 1099-C = canceled debt

•  Form 1099-DIV = dividends

•  Form 1099-G = state tax refunds and unemployment compensation

•  Form 1099-INT = interest income

•  Form 1099-K = business or rental income processed by third party networks

•  Form 1099-LTC = benefits received from a long-term care policy

•  Form 1099-MISC = self-employment and other various types of income

•  Form 1099-OID = original issue discount on bonds

•  Form 1099-PATR = patronage dividends)

•  Form 1099-Q = distributions from an education savings plan

•  Form 1099-QA = distributions from an ABLE account

•  Form 1099-R = distributions from retirement savings plans

•  Form 1099-S = proceeds from the sale of real estate

•  Form 1099-SA = distributions from health savings accounts

•  Form SSA-1099 = Social Security benefits

•  Form RRB-1099 = Railroad retirement benefits

•  Schedule K-1= income from partnerships, S corporations, estates, or trusts  

Deduction Related Documents:

•  Form 1097-BTC = bond tax credit

•  Form 1098 = mortgage interest

•  Form 1098-C = charitable contribution of vehicles

•  Form 1098-E = student loan interest)

•  Form 1098-MA = homeowner mortgage payments

•  Form 1098-T = tuition for higher education

Medical Coverage Documents:

•  Form 1095-A = Health Insurance Marketplace Statement

•  Form 1095-B = Health Coverage

•  Form 1095-C = Employer-Provided Health Insurance Offer and Coverage 

The Form 1095-B and 1095-C are NOT necessary to prepare your returns - so do not hold up doing so, or giving your “stuff” to your tax preparer, until these arrive.  These forms may not arrive in the mail until mid-March.  However, Form 1095-A is most definitely needed to prepare your return.

Most information returns are required to be delivered to you by January 31st.  However, Form 1099-B, Form 1099-MISC reporting attorney fees and “substitute payments”, and Form 1099-S are required to be delivered by February 15th.  The deadline for filing partnership returns, and corresponding K-1s, is now March 15th, but the partnership may request an automatic extension until September 15th.

Brokerage houses (Merrill Lynch, Wells Fargo, UBS, etc) will usually provide a “Consolidated 1099 Statement” that combines the information of 1099-DIV, 1099-INT, 1099-OID, and 1099-B.  There is an excellent chance that the brokerage will issue at least one, if not two, corrected statements.  The final corrected 1099 may not arrive until mid-March.

Many states no longer send out Form 1099-Gs for state tax refunds and unemployment compensation.  You will need to go to the website of your state's tax department or unemployment agency to download these forms.  State tax refunds are not necessarily taxable, but unemployment compensation is.

As you receive information returns you should check the amounts reported on the forms against your own records.  And it is important to verify that the Social Security numbers on all forms are correct.  If you discover an error, or something you don’t understand, contact the employer or financial institution for an explanation or a corrected return.

Some information returns may come attached to other documents. Check the contents of each envelope carefully. Your Form 1098 for mortgage interest may arrive attached to the January or February monthly mortgage statement. Some year-end dividend checks have a Form 1099-DIV attached. Don’t separate the check and throw out the 1099-DIV thinking it is a stub. And check 1099-DIVs you receive to see if there is a check attached. I can’t tell you how many times I have found checks attached to 1099s given to me by clients. 

Remember – you are required to report ALL INCOME, whether or not you receive a Form 1099 or other information return.  And just because you have not received a Form 1099 does not mean that one was not sent to the IRS.

TTFN

F**KED AGAIN!

It looks like the Form 1098-T – now required to claim an education tax benefit – will remain as useful as tits on a bull for another year!

 

The week-day daily "Checkpoint Newsstand November 18, 2016" brought this bad news on my 63-rd birthday (highlights are mine) -

 

“No penalty for 2017 Forms 1098-T. IRS will extend the relief from penalties under Code Sec. 6721 and Code Sec. 6722, as described in Ann. 2016-17, to 2017 Forms 1098-T. Eligible educational institutions, therefore, will continue to have the option of reporting either the amount of payments of qualified tuition and related expenses received in Box 1 of Form 1098-T or the amount of qualified tuition and related expenses billed in Box 2 of Form 1098-T for the 2017 calendar year without being subject to penalties.

 

This relief is limited to 2017 Forms 1098-T required to be filed by eligible educational institutions by Feb. 28, 2018 (or Apr. 2, 2018, if filed electronically) and furnished to recipients by Jan. 31, 2018.”

 

The IRS had previously rendered most 2016 Form 1098-Ts totally worthless –

 

“Earlier relief. Following the enactment of the PATH Act, numerous eligible educational institutions informed IRS that implementation of the law change will require computer software reprogramming and other changes that cannot be implemented in time to meet the applicable filing and furnishing due dates for Form 1098-T for calendar year 2016. Accordingly, in Ann. 2016-17, IRS provided that these penalties would not be imposed on eligible educational institutions with respect to Forms 1098-T required to be filed and furnished to individuals for the 2016 calendar year if the institution reports the aggregate amount billed for qualified tuition and related expenses on Form 1098-T instead of the aggregate amount of payments received. 

 

And now the bulk of 2017 Form 1098-Ts will also be totally worthless -

 

Continued difficulty. Representatives of eligible educational institutions have informed IRS that, despite diligent efforts, the changes to accounting systems, software, and business practices that eligible educational institutions must make to implement this law change cannot be accomplished in time to apply these changes for calendar year 2017.”

 

Hopefully more than the usual handful of 2016 and 2017 Form 1098-Ts will actually provide useful information - but there is no incentive to make this happen.

 

Bad move by the IRS. 

 

They want tax pros to become Social Workers and do their work for them, and at the same time make it more difficult for us to do our work.  They have added multiple hours to the preparation of returns for lower-income clients who can least afford the appropriate additional fees we should be charging for this extra work.

 

The tax preparation community needs a unified lobbying voice in Washington!

 

 

 

 

 

 

NEW 1098-T REQUIREMENTS COULD POST A PROBLEM

Professor Annette Nellen brings up an interesting issue in her recent post “New Rules Can Produce New Problems - AOTC and 1098-T” at 20^th CENTURY TAXATION.

As Annette points out, beginning with tax year 2016 –

“A 2015 law changes requires an individual to have received a Form 1098-T from the university in order to claim the tax benefit.”

The purpose of this new requirement is to enhance the IRS matching program.

Thankfully, the required 1098-T also must now include an entry in Box 1 to indicate the amount of payments received “from any source” – basically by the student (or the student’s family) or for the student (such as student loan proceeds) for qualified tuition and related expenses during the calendar year.  Previously most colleges only reported the amounts billed – making the majority of Form 1098-Ts as useful at tax time as tits on a bull.  In preparing the tax return I don’t give a rat’s hind quarters how much the college billed – I need to know how much was paid by or for the student.  My clients are, after all, cash-basis taxpayers.

However, the American Opportunity Credit is based on qualified tuition and fees paid during the year, now properly reported on the Form 1098-T, and required books and supplies, which are not reported on the Form 1098-T.

The issue that Annette brings up goes like this –

You cannot claim an American Opportunity Credit for 2016 unless the college issues a Form 1098-T.  If a student who is graduating in May of 2016 was billed, and paid for, Spring 2016 tuition (the student’s final semester) at the end of 2015, then there will be no payments made to the college in 2016 and, I expect, no Form 1098-T issued for 2016.  But the student will still be purchasing books for the Spring 2016 semester in 2016, an expense that is eligible for the AOC.  It looks like the student will be screwed out of a legitimate AOC for 2016, based on qualified book purchases, because no Form 1098-T was issued. 

Annette illustrates the problem with a recent court case.

The problem would be fixed if colleges were required to issue Form 1098-T for all students enrolled at a college at least half-time during the year, regardless of whether or not any tuition or fees were paid.

It also occurs to me that a matching problem might also appear.  Since qualified book and material expense are not reported on a Form 1098-T the amount of expenses, if less than the maximum $4,000, reported on the tax return could be more than the amount reported on the Form 1098-T.  An extra line on the Form 8863 to separately identify tuition and fees per Form 1098 and nor-reported books and materials would fix this potential FU.

TTFN

2015 INFORMATION RETURNS

In the next few weeks you will be getting the information forms you will need to prepare your 2015 tax returns in the mail – W-2s, 1099s, 1098s, K-1s, etc.  You may have already started to receive these items.

Here is a chart of the delivery due dates for various IRS information returns (you may need to click on the image to read better) –

 

As you receive 2015 information returns you should check the amounts reported on the forms against your own records.  And it is important to verify that the Social Security numbers on all forms are the correct numbers.  If you discover an error, or something you don’t understand, contact the employer or financial institution for an explanation or a corrected return.

A bank may issue one 1099-INT for all accounts – savings, money market, CDs – belonging to the same name and Social Security number.  Verify each account listed on the form to make sure they all belong to you.  A few years back one of my clients received a 1099-INT with someone else’s account included. Had he not carefully checked the form he would have paid close to $100.00 in federal and state tax on another person’s income.

Some information returns may come attached to other documents. Check the contents of each envelope carefully. Your Form 1098 for mortgage interest may arrive attached to the January or February monthly mortgage statement. Some year-end dividend checks have a Form 1099-DIV attached. Don’t separate the check and throw out the 1099-DIV thinking it is a stub. And check 1099-DIVs you receive to see if there is a check attached. I can’t tell you how many times I have found checks attached to 1099s given to me by clients. 

Just because you didn’t receive a 1099 for income does not mean that one was not submitted to the IRS. You must report all taxable income, whether or not you have received a Form 1099. 1099-DIV and 1099-INT does not have to be issued if the amount is under $10, and Form 1099-MISC may not need to be issued if the amount is under $600, but all taxable dividends, interest and “miscellaneous” income must be reported regardless of the amount received.

When asked about a Form 1099-INT for an account, banks often tell depositors that you only have to report interest on your 1040 if it is $10 or more. This is wrong! Banks may not have to issue a Form 1099-INT if the interest is less than $10, but you are required to report all interest on all accounts from dollar one.

Many states will no longer mail out 1099-Gs for state tax refunds or unemployment benefits. You may need to go online to your state tax department’s website to download the form.

If you have a brokerage account there is an excellent chance that you will receive at least one, if not two, corrected “Consolidated 1099 Statements” to report revised taxable dividends, interest, and gross proceeds after the initial statement arrives in late January. The final corrected 1099 may not arrive until mid-March.

I tell all my clients to wait until they have received all of their information returns – W-2s, 1099s, 1098s, K-1s, etc – until giving me their tax “stuff”.  See "What I Need to Prepare Your 2015 Returns".

 

Do not hold up having your return prepared if you have received all other information returns and are just waiting for a 1095-B and/or 1095-C form.  You  do, however, need Form 1095-A, if applicable, in order to properly prepare your 2015 return.

TTFN

 

 

 

OH NO THEY DIDN'T!

Oi vey – by accident I came across this bad news from the NJ Department of Labor and Workforce Development website over the week-end (highlights are mine) -

“Tax Form 1099-G ‘Certain Government Payments’ will no longer be mailed to recipients of Unemployment Insurance benefits in New Jersey.  You will be able to obtain this information by using our online 1099-G Income Tax Statement application.

Form 1099-G reports the total taxable unemployment compensation paid to any individual who received New Jersey Unemployment Insurance (UI) benefits for a specific calendar year.

The online 1099-G application will be available in late January 2014 and it will provide you with your New Jersey Department of Labor and Workforce Development (LWD) 1099-G Income Tax Statement, which you can view and print through the online application.  LWD will update our website when this information becomes available.

To use the online 1099-G application, go to the Unemployment Insurance page of the LWD website at www.njuifile.net.  Once you have signed into the application, click on View/Print 1099-G Tax Statement and then simply click continue after reviewing the instructions.

You will need your online user ID, password and Personal Identification Number (PIN) to access your tax information.  Before trying to access your tax information, you must have a PIN.   If you cannot remember your PIN or are having difficulty with it, please contact one of our Regional Call Centers for assistance.

If you received Disability Benefits During Unemployment (DDU) or Paid Family Leave Insurance (FLI) benefits during the tax year 2013, you will still receive your tax information on form 1099-G by mail.  If you also received unemployment benefits during that same period, you will have to visit the website to obtain the 1099dG tax information.”

What brain decided on this?  A very bad idea!

NJ stopped mailing out 1099-Gs for state income tax refunds a few years ago.  But this is not a problem.  It is easy to see if a client should have received a state tax refund by simply looking at the prior year return.  And it is easy to access these 1099-G forms online for verification with basic taxpayer information.  It is a different story with unemployment benefits.

I will now have to ask every single client if they received NJ unemployment benefits at any time in 2013, and tell those who did to go to www.njuifile.net to download the form, or ask if they still have, or know, their user ID, password and PIN so I can access the form ourselves.

More work for me, and my fellow NJ tax pros, and more wasted time when there is no time to spare!

This is going to cause a lot of agita for the IRS.  Many taxpayers erroneously believe that you only have to report income if you get a Form 1099 – so there is going to be a lot of non-reporting of unemployment benefits by NJ taxpayers on 2013 Form 1040s and 1040As!

I only learned it by accident.  It was not reported by the NJDOT speakers at the recent NJ-NATP state tax update.  How will taxpayers know that they must go online to get their 1099-G?  Is the NJDOLAWD going to mail a notice to all unemployment recipients?  And if so, why not just mail out the 1099-Gs?

I predict there will be tons of CP-2000 notices sent to NJ taxpayers in 2014!

NJ does not tax unemployment benefits.  So this does not affect the NJ-1040.  It is obvious that the cafones in Trenton do not give the proverbial tinker’s damn about the substantial inconvenience this decision will cause NJ unemployment recipients, NJ tax preparers, and the IRS.

Regular visitors to TWTP probably know by now that I do not suffer fools well – hence my disgust with the idiots in Congress.  It seems that Washington is not the only city full of idiots – there are apparently a lot in Trenton as well!

TTFN

 

RANDOM THOUGHTS ON THE 1099-K REPORTING REQUIREMENTS

The reason behind the creation of the new 1099-K reporting requirements was clearly to raise revenue.  The IRS says – “Third-party information reporting has been shown to increase voluntary tax compliance, improve collections and assessments within IRS, and thereby reduce the tax gap”.

I do not think that reporting payments made by credit and debit cards will result in substantially increased gross proceeds, and therefore also increased net taxable income, reported by small businesses.

It is a general rule among small businesses that you report as income to Uncle Sam what you deposit into the business checking account.  Of course this rule is only valid if you also deposit all receipts - all cash, checks and credit/debit card payments – to the business checking account.  But, also of course, this does not always happen – though it is usually cash that does not make its way to the checking account.

Credit and debit card payments made by customers are deposited, directly or otherwise, into the business checking account.  So these payments are, I expect, already being included in gross proceeds.  

Where I see the benefit of the reporting requirements involves the “Third Party Network Payments” from PayPal and similar services.  This should help to identify those small businesses that are truly “off the grid” and operate within the underground economy – especially those that involve selling products or collectibles on eBay and similar sites or via websites – and force them into reporting their income.

Unfortunately the IRS “exempts the reporting of transactions settled by a third-party settlement organization of a payee in a third-party payment network if the aggregate payments to the payee do not exceed $20,000 or if the aggregate number of transactions does not exceed 200 within the calendar year”.  This threshold, correctly, does not apply to credit and debit card payments.

This leaves out the true hobbyists and those who are selling used personal items similar to a garage sale – where no real taxable business activity exists.  But it also exempts many of the smaller underground businesses whose transaction activities fall under the minimums.  I would think the threshold for total payments should be $5,000 and the number of transactions should be 50 or even less.

THE NEW FORM 1099-K CREATES NEW PROBLEMS

Beginning with tax year 2011 payments made to businesses by credit card companies and “third-party networks” (resulting from customers using a credit card or PayPal to pay a vendor for merchandise or services) during the calendar year must be reported to the business, and to the IRS, on new IRS information return Form 1099-K.  

As a result of this new requirement the IRS has revised the 2011 Schedule C, in its current draft version, to break down gross receipts into three (3) separate categories -

Line 1a = Gross merchant card and third party network receipts and sales (see instructions)

Line 1b = Gross receipts or sales not entered on Line 1a

Line 1c = Income reported to you on Form W-2 if the “Statutory Employee” box on that for was checked

Line 1d = Total Gross Receipts

The instructions for Line 1a state –

“Enter on this line payments you received in your trade or business through merchant cards and third party networks.  These payments should have been reported to you in Box 1 of Form 1040-K, Merchant Card and Third Party Network Payments.  Also include on this line payments received through merchant cards and third party networks that may not have been reported on Forms 1099-K that you received.  Merchant cards include, but are not limited to, Visa and MasterCard.  Third party networks include, but are not limited to, Paypal and Google Checkout.”

FYI, the draft instructions for Form 1099-K have not yet been released.  However Box 1 of the Form 1099-K is identified as “Gross amount of merchant card/third party network payments”.

The separate reporting of income directly from Box 1 of Form 1099-K will cause problems to many Schedule C filers.  As fellow tax blogger Russ Fox EA points out in his TAXABLE TALK post “What the New Form 1099-K Hath Wrought: Changes on Business Tax Forms” –

“. . .the amounts on the Form 1099-K’s will not match true sales. First, these amounts will include sales tax, shipping, and other non-sales charges. Second, the amounts on the Form 1099-K’s will be reported using cash basis. Any business that is accrual basis will have matching issues. Third, the reporting will likely be meaningless for any business that reports on a fiscal (non-December year-end) year {although I should point out that a monthly breakdown of gross receipts is included on the draft 2011 Form 1099-K Boxes 5a – 5l - rdf}.”

I expect that, for expediency sake, Schedule C filers, and tax professionals should do as Russ suggests -

“The solution that I expect most businesses to use is to just use the Form 1099-K to populate this line. It’s simple, and guarantees that there will be no matching problems. Of course, that puts the cart before the horse but if you’re a business owner or a tax professional this solution is likely the one that lessens the risk of an audit.”

I expect this is what I will do for the very few clients where this will apply.

If a business determines that it has $100,000 of gross sales for 2011, and it receives Form 1099-Ks whose Box 1 total $48,000, it would enter $48,000 in Box 1a, $52,000 in Box 1b, and $100,000 in Box 1d on Schedule C. 

This method is not strictly a true reporting.  As Russ mentions, the amount entered in Box 1 of Form 1099-K will be the gross payments made by the third-party, and will include sales tax and other charges.  While shipping and other charges can be deducted out in the expense section of Schedule C, sales tax collections, and the remittance thereof, should not be reported anywhere on the Schedule C. 

If the amount reported in Box 1 is $50,000, and this includes $3,200 in sales tax collected, the true amount entered on Line 1a should be $46,800.  But if the lower amount is entered the number would not “match” the Form 1099-K received by the IRS, and could result in an inquiry or an audit.

I do not know if all third party payers have sufficient information to identify sales tax assessments included in gross payments, so correcting the Form 1099-K to report gross payments less sales tax, or also separately report sales tax included in the Box 1 amount, may not be the answer.

Similar changes have been made to 2011 corporation and partnership returns, and the 2011 Schedule E.  Lines 3a and 3b on the Schedule E are similar to Lines 1a and 1b on the Schedule C, and the instructions for Line 3a are basically the same as for the Schedule C.  While corporations and partnerships will experience the same problems as Schedule C filers, this should not cause problems for Schedule E filers, as there is no sales tax collected on monthly rental payments.

Another problem presents itself.  What about a customer who issues a vendor a Form 1099-MISC for “nonemployee compensation” in the amount of $5000, which was paid via credit card, or PayPal.  The business will receive a Form 1099-MISC from the customer and a Form 1099-K from the credit card processing company, or PayPal, for the same income!  How will this affect the IRS “matching” program?

TTFN