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IRS Form W9,1099,W4 and 1040

The IRS is actively targeting enforcement measures on accounts payable operations. Penalties for non-compliance are indexed and increase each year. It is more important than ever that IRS Forms be prepared correctly, filed and furnished timely, and that filers perform due diligence procedures to avoid or mitigate penalties.

Form W-9     Request for Taxpayer Identification Number and Certification is a one-page IRS information form that individuals and businesses use to send their taxpayer identification number to other individuals, clients, banks and other financial institutions. Who has to fill out a W-9?

    You’re a contractor, freelancer or consultant and plan on getting paid more than $600 by one particular client in a tax year. They’ll need you to send them a completed W-9 before they can send you a Form 1099-MISC form. You’ll need that to report your income to the IRS.

    Banks sometimes also need a W-9 when you open a new account with them.
    Your bank or the financial institution you invest with might also need a completed W-9 from you in order to submit one of the other types of 1099 forms, which they’ll use to report things like interest income, distributions and proceeds from real estate transactions (i.e. if you sell your house).

If someone forgives or cancels a debt you owe them, they’ll need to file Form 1099-C with the IRS. They’ll need you to send them a completed W-9 to complete the process.

Penalties?      Misuse of TINs or SSNs – If a business misuses or improperly discloses a TIN or SSN provided on a W­9 this violates federal law and the company may be subject to civil and criminal penalties.      Not Filing 1099s Timely or Filing Incorrect Information – Penalty rates vary based on the size of a business and the time when correct information is received. Fines range between $50 to $530 per 1099. The difference between tax avoidance and tax evasion is the thickness of a prison wall. 
- Denis Healey FORM 1099     Starting in tax year 2020, Form 1099-NEC will be used to report non-employee compensation totaling more than $600 in a year paid to a non-employee for certain payments from the trade or business. Previously, business owners would file Form 1099-MISC with an amount in box 7 to report non-employee compensation.
    For tax pros who have been around for a while, you might be familiar with Form 1099-NEC; it was used until 1982 when the IRS added box 7 to Form 1099-MISC and discontinued Form 1099-NEC to simplify filing.  What is reported on Form 1099-NEC?

    If the following three conditions are met, clients can report a payment as non-employee compensation:
They made the payment to someone who is not their employee (including parts and materials).
    They made the payment for services in the course of their trade or business (including government agencies and nonprofit organizations)

What You Need to Know About Potential for Penalties?

    It pays to mind the tax-filing deadlines, too. Late filing of mandatory 1099s could lead to penalties ranging from $50 to $280 per 1099, with a maximum of $1,130,500 a year for your small business. The amount of the penalty is based on when you file the correct information return, as follows:

  • $50 per 1099, if you file within 30 days of due date; maximum penalty of $197,500
  • $110 per 1099, if you file more than 30 days after the due date but by August 1; maximum penalty of $565,000
  • $280 per 1099, if you file after August 1; maximum penalty of $1,130,500
Taxation is the price which civilized communities pay for the opportunity of remaining civilized.-Albert Bushnell Hart FORM W-4

    The official title of Form W-4 is Employee’s Withholding Certificate. When you complete the W-4 correctly, it informs your employer of how much money to withhold from your paycheck for federal income taxes. Because of this, you need to fill out a new copy of the form anytime you start a new job. As noted earlier, you should also fill out a new W-4 if you get married or divorced, have a child, start a side hustle or paid too little or too much in taxes. The IRS actually recommends filling out a new W-4 each calendar year to ensure that you’re paying the right amount in taxes.

KEY TAKEAWAYS

    Employees fill out a W-4 form to let employers know how much tax to withhold from their paycheck based on filing status, dependents, anticipated tax credits and deductions, etc.

  • If you don't fill it out correctly, you may end up owing taxes when you file your return.
  • The IRS revamped the form for 2020 with the aim of making it easier to fill out.
  • Employees can change their withholding at any time by submitting a new W-4 to their employer.
What Is a Form W-4 Used For? When you start a new job your employer will ask you to fill out a W-4 form. It’s important to complete a W-4 correctly because the IRS requires people to pay taxes on their income gradually throughout the year. If you don't withhold enough tax, you could owe a surprisingly large sum to the IRS in April, plus interest and penalties for underpaying your taxes during the year. What is penalty?     An employee may be subject to a $500 penalty if he or she submits, with no reasonable basis, a Form W-4 that results in less tax being withheld than is required.   FORM 1040     Form 1040 is the standard federal income tax form people use to report income to the IRS, claim tax deductions and credits, and calculate their tax refund or tax bill for the year. The formal name of the form 1040 is "U.S. Individual Income Tax Return." Who Should File a 1040 Tax Form?
  • Self-employment income of $400 or more
  • Income you receive as one of these:
    1. Partner in a partnership
    2. Shareholder in an S corporation
    3. Beneficiary of an estate or trust
  • Tips you didn’t report to your employer.
  • You owe Alternative Minimum Tax (AMT)
  • You owe household employment taxes.
  • You’re eligible for the premium tax credit.
  • Your employer didn’t withhold Social Security and Medicare taxes from your pay.
  • You’re repaying the first-time home buyer credit.
  • You have a foreign account.
  • You received distributions from a foreign trust.
  • You qualify for the foreign earned income exclusion.
  • You qualify to exclude income from sources in Puerto Rico or American Samoa since you were a bonafide resident of either.
What is penalty for filing late?     The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

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