This article appeared in the March 2024 issue of the American Federation of Musicians’ magazine, International Musician. I did not write the article and no author was credited. It is a good collection of general tax information as well as a warning about some IRS scams (some of which I have already covered in earlier posts). I am posting it here for a limited time. If you are a member of the AFofM, flip to page 14 of this IM to read the original article. If you are a musician, and are not a member of the AFofM, I strongly encourage you to join your local chapter.
This is the closest thing to a 20-pound box of chocolates from the IRS…
There are very few things in the tax code that are rigged in favor of the taxpayer. The Roth IRA is pretty good…but the one that pulls out all the stops is the Health Savings Account (“HSA”). An HSA is a tax-advantaged account for the payment of qualified medical expenses. It is available to taxpayers who are covered by health insurance that qualifies as a high deductible health plan (“HDHP”)1. There are several reasons why I think the HSA may be even better than that tax-advantaged darling, the Roth IRA. Read on!
HSA Contributions. Contributions to an HSA are deductible in the year of contribution (take that, Roth IRA – ha!). If contributed directly to an HSA account, they are deducted from your adjusted gross income (“above the line” – the good kind of deduction). If they are contributed through an employee’s payroll deferral, they are pre-tax and exempt from employment taxes (i.e., FICA and Medicare). Additionally, employers are permitted to partially or fully fund their employees’ HSA accounts free of tax to the employee. Maximum contributions are based on the type of coverage an employee has under an HDHP:
Type of HDHP coverage
2023
2024
Employee only
$3,850
$4,150
Family
$7,750
$8,300
Age 55+ catch-up contribution
$1,000
$1,000
This allows a married couple with family HDHP coverage and both spouses age 55 or older to contribute a total of $10,300 ($8,300 + $1,000 + $1,000) to their HSA accounts in 2024.2
HSA Distributions. Distributions from an HSA are tax-free if they are used to pay or reimburse eligible medical expenses3. This can include costs for doctors, dentists, hospitals, lab tests, and prescriptions as well as certain over-the-counter items such as NyQuil, Advil, Bandaids, sunscreen, tampons(!), and condoms(!!). The funds can also be used to reimburse certain Medicare and long-term care insurance premiums. These eligible distributions can be taken at any age and can occur either the year the medical expense is incurred or any year thereafter. For a taxpayer under age 65, any distribution in excess of eligible medical expenses will be subject to tax plus a 10% penalty. Taxpayers 65 or older are permitted to take HSA distributions for any reason without penalty, but the distribution in excess of medical expenses will be taxable.
How is this different from flex-spending? So, this HSA sounds pretty good – deductible contributions, non-taxable distributions – but how is it different than a flex-spending account (“FSA”)? If you have an FSA, you are familiar with the concept of “use it or lose it”. Such is not the case with the HSA. The HSA funds belong to the taxpayer and can be kept in the HSA for years, even after separation from an employer.
So what’s the strategy? The strategy for maximum HSA benefit is to treat it just like you treat your other retirement accounts: invest that money and leave it alone! In the meantime, pay your medical expenses out-of-pocket and (this is key) save your medical expense receipts. Then, years later, once your HSA investments have grown, reimburse yourself for those prior year medical expenses tax-free. This way, you maximize the tax advantage of the income and appreciation of your HSA investments.
HSA Summary and Example. The HSA is a triple tax benefit…
Contributions are deductible/pre-tax (and not subject to payroll tax)
Distributions (including any appreciation) for medical expenses are tax-free
Trixie Taxie, 51, and her wife Lexie, 56, are covered by a family HDHP plan at Trixie’s work in 2023. Trixie takes full advantage of the available HSA, contributing $7,750 from her paycheck. These funds come out of her check pre-tax and are not subject to FICA/Medicare payroll taxes. Because Lexie is 55 or older, she is eligible to contribute a 2023 catch-up contribution of $1,000 in addition to the $7,750 Trixie has already contributed. Lexie must establish an HSA in her own name and contribute the additional $1,000 by April 15, 2024. Lexie’s contribution will be deducted directly from adjusted gross income on the couple’s 2023 joint income tax return. Both spouses invest the funds as instructed by their personal financial advisors.
In 2023, Trixie and Lexie have their usual medical expenses and also purchase some over-the-counter medicines and supplies. They pay for these expenses out of pocket and save the receipts, leaving their HSA funds to grow in their investments.
Fast-forward to 2040…Trixie and Lexie are both retired and on Medicare. The $8,750 they put into their HSAs and invested wisely in 2023 has now grown to over $20,000. They can use this money (all $20,000 of it) tax-free to reimburse themselves for their Medicare premiums or for any other prior or current year eligible medical expense. Remember those medical expense receipts they saved back in 2023? They can reimburse themselves for those at any time.
It’s just too good to pass up! If you were covered by an HDHP in 2023, you have until April 15, 2024 to fully fund this miraculous account. Don’t miss out!
Any taxpayer on Medicare is no longer eligible to contribute to an HSA. ↩︎
This would require both spouses to have HSA accounts and at least $1,000 would need to be contributed to each spouse’s account. However, both spouses could be covered by the same HDHP. ↩︎
Expenses must be incurred after the HSA is established to be eligible for reimbursement. ↩︎
Tax-free if distributed for qualified medical expenses; tax-deferred if distributed for any other reason. ↩︎
I provide this for educational and entertainment purposes only. Please consult your own advisors.
You may qualify for dependent care credit, but you need to have all the info.
When you brought that little tax credit…er…I mean bundle of joy…home from the hospital, you knew your life was going to change. You now have this tiny, helpless creature that must be supervised and cared for. All. The. Time. At some point in time, it is very likely that you will need to pay someone to care for your offspring while you venture forth to make money in order to house, feed, and clothe this brand new human. If you do so, you may be eligible for something called the Dependent Care Credit1.
What expenses can I claim for this credit? Subject to a few limitations, it is generally any unreimbursed2 payments you make for child care of a dependent under age 13 while you are working3. This can be self-employed work or W-2 employment. Here are a few examples of unreimbursed child care payments that would qualify:
Great – I paid a ton of money for that. What do I do to get this credit? In order to claim the credit, you need to give your tax preparer the following info on each care provider:
Name of provider
Provider tax identification number (EIN or SSN)
Provider address
Care location (if different)
Provider phone number
Amount paid during the tax year, allocated to each dependent
You noticed the second item – tax ID number. This information is usually listed on the year-end statement provided by most daycare centers, day camps, or other care providers. If you employ a nanny, you should have this from the Form W-4 you collected when you hired them (because you are sending them a W-2, right? <nod with me>). However, if, for example, you paid a neighborhood kid or two to watch your children while you worked, you will need to get a Form W-10 to request the social security number of those providers. If you think you will need a Form W-10, request it as soon as possible.6
I can work with that. How much credit do I get for this? It’s actually a bit disappointing. The credit is figured on a sliding scale based on your modified adjusted gross income. Without getting into a whole bunch of math, I find most people max out this credit at $600 for one qualifying dependent and $1,200 for two or more.7 But, hey, better than nothing. And you never know what those crazy folks in Congress are going to do with the tax code.
So, as you gather up your tax data, be sure to collect those dependent care expenses and all the info that goes with them!
This credit is in addition to the general child tax credit you may be eligible for. ↩︎
Childcare expenses that are reimbursed through an employer’s flexible spending arrangement (“FSA”) are not eligible for this credit. But if you have dependent care expenses in excess of the FSA reimbursement, they can be used to claim this credit. Additionally, your tax preparer needs to report at least the amount of dependent care expenses as you claimed during the tax year. So you still need to give them all this information. ↩︎
This credit is also available for other dependents like disabled parents or disabled older children. However, I am limiting this post to dependent care credit for children under age 13. ↩︎
If you hire a nanny or a related party for child care, there are some additional requirements in order to render these payments eligible for the credit. ↩︎
Seriously, people have tried to pay the other parent to “babysit” their own child. You cannot babysit your own child. It’s called parenting. /rant ↩︎
In the future, it is better to get the Form W-10 from the provider before care commences or payment is made. Also, this does not mean you will be required to issue any sort of Form 1099 to the provider(s). ↩︎
This is calculated based on the tax law in effect at the time of this writing. There is legislation pending in Congress that could alter this and other child-related tax credits. Please consult your tax advisor for the most recent developments. ↩︎
AS OF FEBRUARY 18, 2025 THE INJUNCTION THAT WAS PREVIOUSLY IN PLACE HASE BEEN LIFTED. THE FINCEN WEBSITE HAS POSTED A NEW DEADLINE OF MARCH 21, 2025. PLEASE CONSULT YOUR ADVISOR TO ENSURE YOU COMPLETE THIS REGISTRATION IF YOU ARE REQUIRED.
Who the heck is FinCEN and why do I have to register with them?
Ah, the federal government is at it again…coming up with more hoops for us to jump through. I guess Congress needed to do something to earn their compensation. (C’mon, the holidays, the health insurance, the pension…they should actually have to do some work…) Unfortunately, the “work” they do is actually creating more work for some business owners in the form of FinCEN Beneficial Ownership Information reporting.
What is FinCEN? ”FinCEN” is short for Financial Crimes Enforcement Network (the federal government does love their quirky little acronyms). Their mission, as stated on their website, is as follows:
The mission of the Financial Crimes Enforcement Network is to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.
That is a long sentence with a lot of commas. What does it boil down to? They are a federal agency created to prevent money laundering and identify funding of illegal activities like terrorism. In theory, this sounds like a good thing. However, they have cast a wide net in the pursuit of this mission; a lot of plankton will be tangled up in order to catch the whale.
OK, what did they do? FinCEN implemented a program called “Beneficial Ownership Information” or “BOI”. Under this program, most entities formed through the filing of documents with the secretary of state of a US state or territory (or a foreign jurisdiction) now have a legal obligation to file a Beneficial Ownership Information Report with FinCEN. This applies to you if you are…
a corporation (Subchapter S or C)
a partnership (limited partnerships or other registered partnerships)
an LLC (even single-member LLCs)
Well, am I going to have to file? The short answer to that is ‘probably yes’ if you are organized as one of those entities. There a a number of exemptions, but they are pretty specific so most entities are unlikely to qualify for one. FinCEN BOI reporting does not apply if you are an sole proprietor (even with a registered DBA or an EIN) or an unregistered general partnership/joint venture. But if you are a teeny, tiny single-member LLC, you will likely be required to file a BOI report. Additionally, if you reside in a community property state (like Texas), both spouses will need to register even if only one spouse is the named owner.1 (Like I said, a lot of plankton will be tangled up in this.)
What happens if I don’t file? How good do you look in orange? If you fail to file, you risk fines of up to $10,000 and imprisonment up to 2 years. It is not in your best interest to ignore this.
Ok, ok, orange is not my color.When do I have to file this? Soon…
If your entity was already in existence and registered with a secretary of state on January 1, 2024, you have until January 1, 2025 to file your initial report.
If your entity was set up on or after January 1, 2024, and before January 1, 2025, you have 90 calendar days to complete and file this BOI report.
On or after January 1, 2025, new entities will have 30 calendar days to comply.
Then, if ANYTHING changes (i.e., you move, the business address changes, there is a name change, there is a change in the ownership of the company, there is a change/expiration to the document you used to register) you must file a corrected report within 30 calendar days or risk the abovementioned penalties for noncompliance. (Is orange still the new black?)
Wow, this is crazy.But I’m sure you’ll stay on top of this for me, right o beloved CPA? Nope. Even though I look fabulous in orange, I prefer a muted coral over…um…federal penitentiary orange. At this time, I am not offering this service. However, I point you in the direction of the FinCEN BOI reporting website right here and an instruction guide here. I am happy to answer questions to the best of my ability, and will send out the occasional reminder as we get closer to the end of the year, but I will not prepare or file these reports on your behalf. If you would like to engage a professional to complete this for you, I suggest you consult your attorney.
I provide this for information and entertainment purposes. It is not meant to be advice for your specific situation. Please consult your attorney or other advisor for assistance with your FinCEN compliance needs.
This is applicable if the entity interest is community property. If, for example, it was acquired through gift or bequest, was owned by one spouse prior to the marriage, or was partitioned as separate property as part of a premarital agreement, it may be considered separate property. Generally, in community property states, the default assumption is that all property is part of the community. So please consult your legal advisor if you think your ownership interest might be considered separate property. Additionally, if you have already registered and did not register your spouse as community property owner, consult your advisor. You may need to update your registration as soon as possible. ↩︎
If you are an independent contractor (aka “a freelancer”), chances are good that you have been the recipient of a Form 1099-NEC (or several) somewhere along the way. However, did you know that you may be required to file them too? Read on…
Why, you ask, would I need to file such a form? Well, if you paid any person(s) $600 or more to provide services in the course of your business1 during 2023, you are required to prepare and file Form(s) 1099-NEC2 for them by January 31, 2024.
What do you mean “person”? Well, a “person” in this circumstance is an individual, sole proprietor, partnership, or LLC that is NOT organized as a corporation. So, if you paid Frank the Painter, Inc. (an S-Corporation) $700 to paint your rental house, you are off the hook and do not have to send a 1099 to his corporation. But if you hired Gina Smith, an unincorporated sole proprietor, to repair your rental house plumbing for $600 or engaged Dewey, Cheatham & Howe, LP for $1,000 of legal consulting3 for your self-employed business, you will need to send Gina and/or DC&H a Form 1099-NEC.
What if I paid a guy I found on Craigslist $750 to buy a water heater for my rental? Do I need to send that guy a 1099-NEC too? Nope, 1099-NECs are only for service or labor payments, not purchases of goods or equipment. However, if you are issuing a Form 1099 to a contractor who supplied or installed materials and equipment incidental to the services they were providing, then you would include the entire amount of the payment on the Form 1099.
Okay, well what do I need to do to prepare these 1099-NECs? The first thing is you need to get a Form W-9 from anybody you paid $600 or more during 2023. (Really, it is better to get the W-9 from anyone your business hires before any work commences or money changes hands…but better late than never.) This will give you the person’s legal name, current address, taxpayer identification number/social security number, and a confirmation of their federal tax classification (i.e., individual, partnership, corporation, etc.). Then, if you plan to prepare and file the Forms 1099-NEC yourself, I would take a peek at the IRS Form 1099-NEC filing instructions for some guidance. You can either purchase the special paper 1099 and 1096 forms (no, you can’t download them from the IRS website), fill them out, and mail them in (only permitted if you have 10 or fewer forms to file), or you can use an online service to file them electronically (now required if you have more than 10 Forms 1099-NEC to file).4 Or you can always hire an accountant to help you… <ahem>
So what terrible thing is going to happen if I don’t file Forms 1099-NEC? To be blunt, you will pay penalties and wind up filing them anyway. The IRS hates this, and they have started hating it even more in recent years. If you are supposed to file Forms 1099 and you fail to do so, the IRS deems those Forms 1099 to be late. They then charge late penalties of anything from $60 to $630 per form depending on how late it is. That’s per Form 1099. So if you have 10 Forms 1099-NEC to file, you could be on the hook for up to $6,300 in penalties…and you’ll still have to file the forms. The penalties are severe, so it is really best to get these forms filed timely (that is, by January 31st).
Take a look at your tax records to determine if your business paid anybody $600 or more during 2023. If you did, gather the info and get those Forms 1099-NEC done as soon as possible!
“Business” could mean a trade or business activity (like freelance musician or tax preparer) or a rental activity (like a landlord or an AirBnB host). ↩︎
Yes, Form 1099-NEC. Not Form 1099-MISC. Go back and read my prior post on this. We haven’t been using Form 1099-MISC for “Nonemployee Compensation” since tax year 2019. If you’ve been using Form 1099-MISC for the past three years, well, you’re doing it wrong. ↩︎
There are some special rules for legal fees. Consult your tax advisor if you may have this issue. ↩︎
The IRS has recently unveiled its new online efiling service for information returns like Forms 1099. It’s called the “Information Returns Intake System” or IRIS. So cute…so floral…so, evidently, dysfunctional. Surprisingly (or not), every practitioner I have heard from has had problems with the system locking them out. So, for this year, I would investigate a different filing method (either paper, if eligible, or a commercial efiling service) for your Form 1099 filing needs. ↩︎
I provide this for information or entertainment purposes. It should not be construed as tax advice.Please consult your tax advisor to address your specific tax filing needs.
Why do you keep using the word “gross” all the time…?
You’ve probably heard the term “gross receipts” and wondered what that means. No, it’s not cash register tape that’s…like…sticky. (I hate ‘sticky’…) “Gross receipts” is the total amount of compensation you received before any expenses are deducted. Accounting types (like me!) will also refer to this concept as “revenue” or sometimes “gross income”.
This “gross” concept can pop up in different places on your tax return. We might have “gross wages”, which we find on your Forms W-2. Or there’s “gross rents” which is everything you collected from your renters if you have rental properties. However, the place where I see the most confusion with “gross receipts” is with self-employment income.
Gross receipts from self-employment income generally include every dime you receive in the course of doing business. It may be reported to you on Form 1099-NEC. This form is provided to you if you earned $600 or more from any one payer during the tax year. Guess who else this form is provided to…that’s right – the IRS! If you fail to report gross income from Form 1099-NEC on your tax return (likely on Schedule C), you will get a friendly note from the Federal government that includes a bill for the unpaid tax along with interest and penalties to keep it company. That’s generally not something we want to encourage, so we have to make sure to report all that revenue.
But what happens if you don’t receive a Form 1099-NEC? If you earn less than $600 from somebody, that income is not taxable, right? Yeah, no. The reporting threshold for Form 1099 has nothing to do with whether or not the income is taxable. The $200 you earned at that one-off wedding gig? Taxable. The student that pays you $50 a week in cash for private lessons? Taxable. The Zelle or Venmo payments you receive for providing a service to a client? Taxable. Essentially any money you receive in the course of your freelance business is taxable and should be included with your Schedule C gross receipts.1
But, what if you don’t get 1099s from your students and didn’t get them from several of the gigs you played. How are you supposed to figure this out? Well, gentle taxpayer, you must acquaint yourself with the concept of record keeping. You are running a business, so you have to do some work behind the scenes to keep track of this business. You don’t have to get QuickBooks or take accounting classes (been there/done that). But you do need to figure out a system so you can accurately report your income.
So where should you start? Well, there are a couple things you can do to get organized. The first thing I would recommend is to open a checking account for your self-employed business income only. Deposit all your self-employment gross receipts into that account (and nothing else — keep any W-2 wages or other types of income in a separate account). That way, at the end of the year, you can run a report of the business account’s activity and add up all the deposits. You can also use this account to pay business expenses when possible. Whatever is leftover can be transferred into your personal account.
A dedicated bank account is something the IRS loves. They also love a dedicated credit card. If you are a credit card person, designate one as your “business” card and use it only for business expenses. That will make tax time a little easier too.
Finally, to pull it all together, you can look into a budgeting or accounting program like You Need a Budget (“YNAB”) or Xero. This is kinda for extra credit, but it can give you some insight into how much you’ve earned year-to-date (helpful for estimated taxes) and can give you reports at tax time. And, not surprisingly, it can help you set your budget.
Gross rant: If you give me a stack of 1099-NECs and say that’s 100% of your freelance gross income…but I know you teach and I’m pretty sure I played a gig with you that isn’t on a 1099…I will not believe you and will ask again about your total gross receipts. I’ve got liability too…especially if I believe you’re intentionally underreporting your income. That’s also known as “fraud”. The IRS preparer penalties for me if you (we) are caught are not worth the tax prep fee you pay. I will not think twice about telling you to find another CPA if I know, or strongly suspect, that you are being dishonest about this. /rant ↩︎
This information is for entertainment or educational purposes only. Please consult your tax advisor for advice on your specific tax situation.
Mileage is a tricky one, especially since the IRS can’t seem to make up its mind about it. Here is a basic guide to what mileage is deductible (for Federal tax purposes…state income tax codes may vary) and a few other tweaks…
Miles you drive to/from your home to/from your regular place of business are not deductible. These are “commuting” miles.
Miles you drive to/from your home to/from your W-2 job or from W-2 job to W-2 job are not deductible. (Blame Paul Ryan.)
Miles you drive from place of business to place of business* for freelance/1099 work ARE deductible. These are “business” miles. (*A “place of business” might be your home office.)
Miles you drive to/from your home to drop off charitable contributions or provide charitable services are deductible (subject to itemized deduction rules).
Miles you drive to/from medical care are deductible (subject to itemized deduction rules).
NEW FOR 2022: Business miles (see #3 above) are subject to two different standard mileage rates during 2022. Business miles driven January 1, 2022 through June 30, 2022 are 58.5 cents per mile; business miles driven July 1, 2022 through December 31, 2022 are 62.5 cents per mile.
Finally, the IRS has elevated mileage to one of the items they are examining more closely. If a return is selected for audit, the revenue agent will need to see documentation of the mileage deduction claimed. This can be from a mileage log, a mileage app, or some other reasonable method of mileage computation. “Same as last year” is not a reasonable method, so let’s make sure we are diligent with our recordkeeping. Personally, to track mileage, I keep a spreadsheet of business miles based on the appointments in my calendar. The spreadsheet has columns for date, origin, destination, purpose, round trip miles, tolls, and parking. I update it periodically.
And now I return to my regularly scheduled returns…
This information is for entertainment or educational purposes only. Please consult your tax advisor for advice on your specific tax situation.
Remember that time I wrote about getting IRS notices and how you should not ignore them? No? Go read that post here.
<I’ll wait…>
OK, now that you have read that, you may find an IRS notice sitting in your mailbox.
Don’t panic.
The IRS is sending out notices that say something to the effect of, “You’re getting a stimulus payment. You’re welcome.” This may be the only IRS notice you can nearly ignore. If it says you are getting a payment via direct deposit and you look in your bank account and you received this payment, go ahead and shred the notice (or frame it…whatever). If it says you are getting a payment via direct deposit and the payment doesn’t show up, then you should contact your bank to see if it’s a problem on their end. If everything is OK on the bank’s front, you should contact the IRS. I would first refer you to the IRS website’s “Get My Payment” tool where you can possibly find out the status of the payment. If that doesn’t explain the payment status, contact the IRS using the information on the notice.
Guess who can’t really help you too much with this: me. I can’t do a lot for you because it is not related to your tax return. Without a Power of Attorney, unless it is directly related to a tax return I prepared, I can’t talk to the IRS on your behalf. Additionally, I am not going to be able to get any better information from contacting the IRS than you will. And, finally, it’s the middle of tax season right now. So, if you call me every day asking where you payment is, my answer will be “I don’t know.” And then I will refer you to the IRS website. And then I will probably grumble a little. So, skip the grumbly CPA and head directly to the IRS website for info on that stimmy!
In prior tax years, the charitable contribution deduction has only been available to taxpayers who itemize their deductions. To itemize your deductions, you have to have total deductions (e.g. real estate and sales/state tax, mortgage interest, medical expenses, charitable contributions) in excess of the standard deduction. Recent tax law changes have increased the standard deduction, resulting in fewer taxpayers claiming itemized deductions. This means that many people won’t see any additional tax benefit for their donations. This lead to decreased charitable giving.
In the midst of the pandemic, Congress sought to incentivize more charitable giving though a provision in the CARES act: for the 2020 tax year, taxpayers who take the standard deduction will be able to deduct up to $300 in cash charitable contributions as an “above-the-line” deduction. This means that, if you donate $300 during 2020, you can deduct your full standard deduction plus $300. Right now, for a single person, that means a combined deduction up to $12,700 ($12,400 standard deduction + $300 charitable contribution deduction). At present time, the IRS has not issued guidance on whether a married couple filing jointly will be entitled to a $300 or $600 deduction for 2020 charitable donations. So, a married couple filing a joint return could see a 2020 total deduction up to either $25,100 or $25,400 ($24,800 standard deduction + $300 or $600 charitable contribution deduction).
Of course, some restrictions apply. First of all, you must take the standard deduction to be eligible for this charitable donation “above-the-line” deduction. If you elect to itemize, all of your charitable contributions will be deducted “below-the-line” through Schedule A. Next, the donations must be made in cash. So, cleaning out your closet and taking huge bags of old clothes to Salvation Army will not garner you a deduction for this purpose.* You must make the donation via cash, check, or credit/debit card and follow the IRS’s documentation requirements for cash contributions.** Also, the contribution must be donated outright to a qualified charity; it cannot be a contribution to a donor-advised fund. Finally, the contribution must be completed during calendar year 2020. This deduction has not been made available for 2021.
You are probably wondering how much tax savings you can expect if you max out this new deduction. Well, if you are in the very top tax bracket of 37%, your tax savings on the $300 deduction will total $111. Most people will see a tax savings in the range of $30 – $72. Since it is an “above-the-line” deduction, it will lower your adjusted gross income (“AGI”), which could enhance your ability to claim certain other credits or deductions. If you live in a state with state income tax, the lower AGI could affect your state income tax liability.
So donate some dough to your favorite charity! If you don’t have a favorite charity, donate to a performing arts organization — many of them are hurting right now with the lockdown restrictions due to the pandemic. In any case, don’t miss out on this little gift from Congress!
FOOTNOTES:
* You can still deduct non-cash charitable contributions, but only as itemized deductions on Schedule A. If you elect to itemize your deductions, you are not eligible to take this additional “above-the-line” $300 charitable contribution deduction.
The fine print: This blog post is for educational and entertainment purposes only and is not intended as a substitute for tax advice. Please consult your tax advisor for guidance on your specific situation.
The IRS has done it again! They invented a new form! <Insert light applause here>
Never mind that they can’t get tax returns from March processed…they spent all those long days in quarantine coming up with…more paperwork! Was this the result of a failed IRS drinking game? Did somebody lose a bet? We will never know. What we do know is that the IRS came up with a separate form to replace one box on a very commonly used form because that won’t confuse anybody.
I give you <drumroll please> Form 1099-NEC! This form will replace Form 1099-MISC, Box 7 – Nonemployee Compensation. So, if you made (or think you will be making) payments totaling $600 or more to any independent contractor during calendar year 2020, you’ll need to prepare and file Forms 1099-NEC and 1096 by February 1, 2021. (The deadline to file these forms is usually January 31st, but in 2021 January 31st falls on a Sunday). Do not use Form 1099-MISC, Box 3 – Other Income to report these payments because that is not playing by the IRS’s rules and they really hate that.
To read more about this form, check out this article in Forbes magazine. It gives a pretty good description of the form and who needs to file it. The article was written by my new tax hero(ine), Kelly Phillips Erb, aka “TaxGirl”. Check out her blog here and her podcast here. For additional instructions, you can also consult the IRS’s website for information on Form 1099-NEC and Form 1096.
If you believe you will need to file Form 1099-NEC (or any other Form 1099 and Form 1096), you can order the forms *FOR FREE* from the IRS. Click here to place your order. Do it now because, in a plot twist that no one saw coming, it turns out that the IRS is a little behind on order fulfillment. Hard to believe, I know. The forms they will (eventually) send you are the tractor paper/carbon copy kind that would have probably been useful in like 1987. But they will work if you only have a few forms to fill out and don’t mind writing them by hand. If you need the kind that will go through your laser printer, you will have to purchase those elsewhere (online, Office Depot, etc).
Pro tip: spring for the 1099-specific envelopes at Office Depot. It makes your life easier and looks a whole lot more professional.
Stay tuned!
The fine print: This blog post is for educational and entertainment purposes only and is not intended as a substitute for tax advice. Please consult your tax advisor for guidance on your specific situation.
Meghan Birmingham 