1099 Alphabet Soup. Navigating the Information Reporting Maze. Avalara. Avalara

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1 1099 Alphabet Soup Navigating the Information Reporting Maze Avalara Avalara 1

2 Presented by: Marcia L. Miller, MBA, EA Transition Advisors, LLC Weston, Florida Avalara 2

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4 INFORMATION REPORTING REQUIRED FORMS & DESCRIPTIONS Avalara 4

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11 INFORMATION FORMS WITH SIMILAR PURPOSES Avalara 11

12 Forms 1099-A &1099-C Both are used to report debts and/or the loss of property from unpaid debts. Form 1099-A is filed by a creditor in the trade or business of lending money for which a debt was secured by the property of the debtor. Form 1099-C is filed by the creditor in the business of lending money who cancels some or all portions of the debt. Making sales tax less taxing 12

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16 1099-B & 1099-S Both are used to report sales. Form 1099-B summarizes the proceeds from broker and barter exchange transactions including the sale of stocks, bonds and mutual funds accompanied by their respective gains and losses. Form 1099-S reports a detailed statement of the proceeds from the sale of real estate. Making sales tax less taxing 16

17 POLLING QUESTION # 1 What are some of the new cost basis requirement rules? A. An issuer of a specified security must file a new information return with the IRS to describe any organizational action it takes that affects the basis of the security (such as a stock split or merger) within 45 days after the date of the organizational action (unless the action takes place in December, in which case the return must be filed by January 15 of the following year). B. The Act amended the reporting requirements to require the customer s adjusted basis in the securities and whether any gain or loss is either short-term or long-term. C. The requirements apply to both domestic and foreign issuers of securities if the security is owned by U.S. taxpayers, either directly or as a depository receipt. D. Brokers must use the average basis method when determining basis for a stock position if the customer elects this method. They may also choose this method a default selection when determining basis for mutual fund and DRP (Dividend Reinvestment Plan) stock if the customers has not notified the broker of any election otherwise. E. All of the above. Making sales tax less taxing 17

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20 Forms 1099-INT & 1099-OID Both report interest income. Form 1099-INT summarizes interest income and related expenses. Form 1099-OID reports original-issue discount income from securities, such as Treasury bills, zero coupon bonds and commercial paper with a term of more than one year. Making sales tax less taxing 20

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24 Forms 1099-DIV & 1099-PATR Both account for distributions related to a corporation or cooperative association. Form 1099-DIV reports dividends and capital gain distributions relating to stocks. Form 1099-PATR reports patronage distributions paid to the members of a cooperative association. These distributions may be shared profits, revenues or credits. Making sales tax less taxing 24

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27 CHECK BOX 2 nd TIN not. 27

28 B-Notice Facts B-Notices are sent in both the spring and the fall beginning in September (commonly known as B-Notice season). B - Notices are sent in response to errors on six 1099 Forms: 1099-MISC 1099-OID 1099-PATR 1099-INT 1099-DIV 1099-B Should you fail to take the appropriate action, including backup withholding, when required, you become responsible for any unpaid taxes on the payments made as well as any penalties and interest. It is recommended to: Use the TIN Matching System to avoid B-Notices; Send out B-Notices and respond to B-Notices promptly; Backup withhold, if required, and; Document all actions taken. Making sales tax less taxing 28

29 POLLING QUESTION # 2 The penalty for failing to withhold because an employer honestly but wrongly treated their employee as an independent contractor is: A. 1.5% of the wages paid to that employee for lack of income tax withholding. B. 20% of the amount of FICA tax not withheld. C. If the employer fails to file information returns or withholding statements regarding that employee, the liability doubles to 3% of what should have been withheld. D. If the employer fails to file information returns or withholding statements regarding that employee, the liability for FICA doubles to 40% of what was to have been withheld. E. All of the above. Making sales tax less taxing 29

30 Forms 1099-MISC & 1099-K Both are used to report business income. Form 1099-MISC is the broadest information reporting form. It is used to report various types of income that include rent or royalty payments, awards, contest winnings, prizes and compensation for independent contractors, freelancers and service workers. Form 1099-K reports Merchant Card, either debit or credit, and third party network payments with gross payments that exceed thresholds of $20,000 and 200 transactions. Making sales tax less taxing 30

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34 Online Seller Andrea Orelanna TC Summary Sold personal items on E-Bay; $43,000 of underreported income; Claimed to merely have an online garage sale; 7,000 transactions/sales over a 5 year span; Andrea claimed that she was not aware of the taxability of these transactions; And her real occupation was... Making sales tax less taxing 34

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41 Forms 1099-LTC & 1099-SA Both relate to health care. Form 1099-LTC reports the long-term care and accelerated death benefits generally paid by an insurance provider. Form 1099-SA reports distributions made from an HSA, Archer MSA, or Medicare MSA. Making sales tax less taxing 41

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44 Forms 1099-Q, 1098-E & 1098-T All relate to tuition & education expenses. Form 1099-Q is filed if you (a) are an officer or an employee or the designee of an officer or employee, having control of a program established by a state or eligible educational institution; and (b) made a distribution from a qualified tuition program (QTP). Form 1098-E is filed if you receive student loan interest of $600 or more from an individual during the year in the course of your trade or business. Form 1098-T is provided by an eligible financial institution to a student which shows payments received for qualified tuition and related expenses, amounts billed for qualified tuition and related expenses, adjustments made for a prior year, scholarships and grants, and adjustments to scholarship and grants for a prior year. Making sales tax less taxing 44

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48 OTHER INFORMATION RETURNS Avalara 48

49 WHO ARE YOU PAYING? Payee/Recipient: EMPLOYEE U.S. PERSON NON - U.S. PERSON Documentation Required: W 4 W - 9 W - 8 or 8233 Form to Report On: W S Tax Amounts to Withhold: Per Tax Chart 28% Withholding 30% Withholding Annual Reporting Form: Making sales tax less taxing 49

50 1042-S vs S Non U.S. Persons U.S Source Income (Determine where the services are performed) 30% Withholding (unless exception) File Form W-8 BEN / BEN E ECI IMY File Form U.S. Persons Entities organized under U.S. Law Citizens Resident Aliens Greencard Substantial presence test Worldwide Income 28% Backup Withholding or exception basis Form W-9 See IRS Pub 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities) Making sales tax less taxing 50

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55 Top S Processing Errors 1) Box 1 - invalid code (type of income) 2) Box 5 - invalid w/h tax rate 3) Box 7 - inconsistent amount with rate 4) Box 12 - recipient code differs from Box 13 5) Box 13 - recipient name differs from Box 12 6) Box 14 - must show TIN if claim exemption 7) Box 14 - conflicts with Box 12- QI-EIN 8) Box 15 - Country code conflict with Box 16 9) Box requiring entry are left blank 10) Amounts in dollars must be rounded Making sales tax less taxing 55

56 1099 vs & 1098 series forms are information returns that report different types of transactions Forms are prepared by the payors of funds, whereas 1098 Forms are prepared by recipients of money or property. For either series, be sure to obtain a valid Form W-9 prior to issuing any payments! Making sales tax less taxing 56

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58 POLLING QUESTION # 3 If the employer does not receive a valid TIN (Taxpayer Identification Number), it is their obligation to prove their efforts to obtain the TIN to avoid penalties that might have been assessed. However, the employer must still remit the backup withholding and report the amounts paid on Form 945. True or False? A. True B. False Making sales tax less taxing 58

59 Form 1098 & 1098-C Form 1098 is used to report mortgage interest of $600 or more received by you during the year in the course of your trade or business from an individual, including a sole proprietor. Form 1098-C must be filed by a donee organization with the IRS for each contribution of a qualified vehicle (motor vehicle, boat or airplane) that has a claimed value of more than $500. Making sales tax less taxing 59

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68 Report Gambling Wins on Form W-2G NOT Form 1099-G Making sales tax less taxing 68

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71 POLLING QUESTION # 4 What is your opinion as to how to solve our nation s budget crisis and to eliminate the growing tax gap (the difference between the amount of tax that taxpayers should pay and the amount that is voluntarily paid and on time)? A. Raise the Social Security Wage base. B. Withhold a minimum amount on all 1099s not just the 1099 MISC. C. Increase foreign backup withholding requirements. D. Other E. No comment. Making sales tax less taxing 71

72 IRS Advice: Avoid the Dirty Dozen Tax Scams of 2014 Identity Theft Pervasive Telephone Scams Phishing False Promises of free Money from Inflated Refunds Return Preparer Fraud Hiding Income Offshore Impersonation of Charitable Organizations False Income, Expenses or Exemptions Frivolous Arguments Falsely Claiming Zero Wages or Using False Form 1099 Abusive Tax Structures Misuse of Trusts Making sales tax less taxing 72

73 IRS CIRCULAR 230 Any tax advice included in this written or electronic communication was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency. Making sales tax less taxing 73

74 About Avalara We re a team of developers, accountants, support specialists, marketers, salespeople, researchers, and technologists who know we re on to something big. We know we are part of a team that is revolutionizing what is a huge drain for businesses of all sizes: managing the compliance of transactional taxes, from sales and use tax to 1099s and more. Making sales tax less taxing