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Our specialty is working with individuals and small to midsize companies in the Minneapolis and St
Paul area
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- Tax News & Info
Businesses that pay independent contractors, royalties, or other non-employee workers must file 1099 forms with the IRS and issue copies to the contractor
These forms are due as early as January 31 (or the next business day) to both the IRS and recipient
Beginning in 2020, non-employee compensation of $600 or more is reportable on form 1099-NEC
These payments had been reported in box 7 of the 1099-MISC in prior years
While form 1099-NEC presents an additional filing, the underlying rules concerning who should be issued a 1099 has not changed
Include fees, commissions, prizes and awards for services performed as a non-employee, and other forms of compensation for services performed for your trade or business by an individual who is not your employee
Businesses are generally not required to file 1099s for payments made to an entity taxed as a corporation, but this exemption from reporting payments made to corporations does not apply to payments for legal services
What is non-employee compensation? If the following four conditions are met, you must generally report a payment as non-employee compensation
- You made the payment to someone who is not your employee;
- You made the payment for services in the course of your trade or business
(including government agencies and nonprofit organizations);
- (including government agencies and nonprofit organizations);
- You made the payment to an individual, partnership, estate, or, in some cases, a corporation; and
- You made payments to the payee of at least $600 during the year
Additionally, businesses should be aware that payments for rent should be reported on form 1099-MISC box 1, and interest payments to individuals or non-corporate entities need to be reported on form 1099-INT
Penalties can be as high as $560 per 1099 filed late, incorrect, or missed
2018 Tax Planning – Individuals
As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next
Year-end planning for 2018 takes place against the backdrop of a new tax law—the Tax Cuts and Jobs Act—that make major changes in the tax rules for individuals and businesses
For individuals, there are new, lower income tax rates, a substantially increased standard deduction, severely limited itemized deductions and no personal exemptions, an increased child tax credit, and a watered-down alternative minimum tax (AMT), among many other changes
We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end
Not all actions will apply in your particular situation, but you (or a family member) may benefit from many of them
- 3
- 8% Surtax – Higher-income earners must be wary of the 3
- 8% surtax on certain unearned income
- The surtax is 3
- 8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over a threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case)
- As year-end nears, a taxpayer's approach to minimizing or eliminating the 3
- 8% surtax will depend on his estimated MAGI and NII for the year
- Some taxpayers should consider ways to minimize (e
- g
- , through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI
- 0
- 9% Medicare Tax – The 0
- 9% additional Medicare tax also may require higher-income earners to take year-end actions
- It applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of an unindexed threshold amount ($250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case)
- Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income
- Self-employed persons must take it into account in figuring estimated tax
- There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax
- For example, if an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year, he or she would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don't exceed $200,000
- Long-Term Capital Gains – Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer's taxable income
- The 0% rate generally applies to the excess of long-term capital gain over any short-term capital loss to the extent that it, when added to regular taxable income, is not more than the "maximum zero rate amount" (e
- g
- , $77,200 for a married couple)
- If the 0% rate applies to long-term capital gains you took earlier this year—for example, you are a joint filer who made a profit of $5,000 on the sale of stock bought in 2009, and other taxable income for 2018 is $70,000; then before year-end, try not to sell assets yielding a capital loss because the first $5,000 of such losses won't yield a benefit this year
- And if you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains sheltered by the 0% rate
- Reduce current year income – Postpone income until 2019 and accelerate deductions into 2018 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2018 that are phased out over varying levels of adjusted gross income (AGI)
- These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest
- Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances
- Note, however, that in some cases, it may pay to accelerate income into 2018
- For example, that may be the case where a person will have a more favorable filing status this year than next (e
- g
- , head of household versus individual filing status), or expects to be in a higher tax bracket next year
- Consider using a credit card to pay deductible expenses before the end of the year
- Doing so will increase your 2018 deductions even if you don't pay your credit card bill until after the end of the year
- Consider using a credit card to pay deductible expenses before the end of the year
- Doing so will increase your 2018 deductions even if you don't pay your credit card bill until after the end of the year
- Roth IRA Conversion – If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so
- Keep in mind, however, that such a conversion will increase your AGI for 2018, and possibly reduce tax breaks geared to AGI (or modified AGI)
- Employer Deferrals – It may be advantageous to try to arrange with your employer to defer, until early 2019, a bonus that may be coming your way
- This could cut as well as defer your tax
- Itemized Deductions – Beginning in 2018, many taxpayers who claimed itemized deductions year after year will no longer be able to do so
- That's because the basic standard deduction has been increased (to $24,000 for joint filers, $12,000 for singles, $18,000 for heads of household, and $12,000 for marrieds filing separately), and many itemized deductions have been cut back or abolished
- No more than $10,000 of state and local taxes may be deducted; miscellaneous itemized deductions (e
- g
- , tax preparation fees) and unreimbursed employee expenses are no longer deductible; and personal casualty and theft losses are deductible only if they're attributable to a federally declared disaster and only to the extent the $100-per-casualty and 10%-of-AGI limits are met
- You can still itemize medical expenses to the extent they exceed 7
- 5% of your adjusted gross income, state and local taxes up to $10,000, your charitable contributions, plus interest deductions on a restricted amount of qualifying residence debt, but payments of those items won't save taxes if they don't cumulatively exceed the new, higher standard deduction
- Some taxpayers may be able to work around the new reality by applying a "bunching strategy" to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good
- For example, if a taxpayer knows he or she will be able to itemize deductions this year but not next year, the taxpayer may be able to make two years' worth of charitable contributions this year, instead of spreading out donations over 2018 and 2019
- If you expect to owe state and local income taxes when you file your return next year and you will be itemizing in 2018, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2018
- But remember that state and local tax deductions are limited to $10,000 per year, so this strategy is not a good one if to the extent it causes your 2018 state and local tax payments to exceed $10,000
- Some taxpayers may be able to work around the new reality by applying a "bunching strategy" to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good
- For example, if a taxpayer knows he or she will be able to itemize deductions this year but not next year, the taxpayer may be able to make two years' worth of charitable contributions this year, instead of spreading out donations over 2018 and 2019
