Accountants’ phones start ringing off the hook in late January every year. Why does this happen? Because it’s 1099 tax form season and clients are asking for help to file 1099s. This happens despite most accountants encouraging clients, several times a year, to get ready for 1099 filing. The fact is, it is easy for QuickBooks users to file when there has been a bit of time spent organizing the Chart of Accounts and Vendors.
I get it. There is always something more pressing than identifying which vendors should receive 1099s and getting the necessary information from the vendors. Well, that’s until the 1099s are due in 48 hours! Then it is a priority!
No more 1099-MISC tax forms
So what if I told you it is possible to never have to prepare, mail, or file another 1099-MISC tax form ever again?
Interested in learning more? You should be once you think of all the time and money you will save, not to mention the aggravation that you just do not need or want in January each year.
But first, I must make it clear that Peak Advisers is not providing tax advice. Even though Peak Advisers believes what we are about to describe is accurate, you must consult your tax accountant before moving forward.
The current 1099-MISC instructions say this:
“Payments made with a credit card or payment card and certain other types of payments, including third party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC. See the separate instructions for Form 1099-K.”
This has been the law since 2008. All that aggravation, all that time, and all that money spent could have been avoided if only you had paid all vendors with a credit card or via “third party network transactions.”
What are “third party network transactions?”
You know what credit card payments are, but what are “third party network transactions?” These are payments made by PayPal, Venmo, or Zelle, for example. They also probably include payments made by Bill.com and other accounts payable management payment networks.
What happens instead is these entities file a 1099-K tax form. What is a 1099-K you ask? The current 1099-K instructions say, “Form 1099-K, Payment Card and Third Party Network Transactions, is an IRS information return used to report certain payment transactions to improve voluntary tax compliance. You should receive Form 1099-K by January 31st if, in the prior calendar year, you received any of the following payments:
From payment card transactions (e.g., debit, credit or stored-value cards), and/or
In settlement of third party payment network transactions above the minimum reporting thresholds of :
Gross payments that exceed $20,000, AND
More than 200 such transactions.“
Those of you with exceptionally sharp eyes might ask, wait, what about when the payments are below $20,000 and less than 200 transactions, don’t businesses have to report those on 1099-MISC? The answer is no. If your business pays every vendor via credit card or “third party payment network,” no 1099-MISC is required.
There are a couple of additional points to consider here. First, Peak Advisers believes this also applies to tax form 1099-NEC but haven’t found anything authoritative. Second, consult your tax accountant. He or she needs to agree with this approach since that is the person who will represent you if the IRS asks about your 1099 tax forms.
But it is possible to never file 1099-MISC ever again. Or at least until the law changes again!
First published March 30, 2021.