The IRS is bringing the 80’s back! Moonwalking and shoulder pads?
Thankfully no, the IRS is not making it mandatory for everyone to have big hair, parachute pants or take breakdancing lessons. What they are bringing back is the 1099-NEC, not seen since Fast Times at Ridgemont High came out (1982).
But like everything else that is recycled, it has been redesigned for the 2020 tax year.
How the IRS is directing preparers to use the 1099 NEC is not as shocking as finding out that Darth Vader is Luke’s father.
1099 NEC (Non-Employee Compensation) is used for:
- Non Employee Compensation for Independent Contractors of $600 or more
- Someone who is not an employee, who provided services
- Individual, partnership, estate, or corporation
- Services AND payments for parts or materials used to perform the services
When should you issue the 1099-NEC?
Lawyers (including C-corps), accountants, architects, freelance contractors, commissions paid to non-employee salespeople that are subject to repayment but was not repaid during the calendar year, to the instructor who taught that CPE class on Reaganomics or the graphic designer who created the ode on your website to the last episode of the classic TV show, M*A*S*H*.
What is it not used for? Personal payments – It’s only to be used for
payments if you are in a trade or business for profit. Those afterwork lessons on how to breakdance, would not be applicable for a 1099-NEC.
Filing Due Date: 1/31/2021 (but it is a Sunday so February 1) to both payee and IRS
The good ole tried and true 1099-MISC has not gone away but is being issued for different payments.
1099-MISC is used for:
Royalties, Rents, Prizes and Awards, Other Income Payments, Medical and Healthcare payments, etc.
The royalties you get from being an extra in “Forever Your Girl” with Paula Abdul will continue to be delivered to you on a 1099-MISC.
Filing Due Date: 2/28/2021 to both payee and IRS
See IRS Form 1099-MISC and Form 1099-NEC Instructions for more details https://www.irs.gov/forms-pubs/about-form-1099-nec
First Steps Financial files forms 1099-NEC and MISC for their current clients and occasionally does some moonwalking. If you would like help to simplify processes, organize financials and gain insight utilizing technology and strategies, call us. We love to talk about accounting and we offer a free consultation.