If you’re a regular reader, you already know that I’m a huge fan of the National Association of Tax Professionals (NATP), for a bunch of reasons:
Fabulous and affordable education with top-notch instructors
Straightforward “how-to” resources
Practical monthly newsletter with case-studies
On-demand “pay as you go” research service
And a very fun group of folks at the annual conference! (That last one’s a teaser for the final photo in this post.)
I’m especially indebted to NATP because when I first started doing taxes, I wasn’t a CPA yet — and spoiler alert: they don’t really teach you that much about tax preparation when studying for your CPA exams; in fact, three-quarters of the test aren’t related to taxes at all. In those early days, NATP education was the best-quality, most affordable that I could find without being a member of AICPA. (And I tried *all* the groups out, to be clear.)
Anyway, point here is that not only do you not have to be a CPA or EA to take and benefit from their classes — in fact, you don’t even have to be a tax preparer. I am a passionate proponent of teaching bookkeepers what they need to know about taxes to be better at their jobs, coordinate and communicate effectively with their clients’ tax preparers, and level-up by providing value-added advisory services to their clients.
To that end, here’s an upcoming NATP webinar that I suspect will be pretty dang useful for anyone doing client accounting work — bookkeeping, tax, advisory, CAS, and so on. You don’t even have to be a member to attend.
I get a lot of questions and see a great deal of misinformation out there about entity choice… here’s an opportunity to learn more about how to help your clients decide which entity structure is the best choice for them.
(Note: this is *not* a referral link — I’m just really excited about this education getting out there into the world. The presenter, Larry Pon, is a great guy and super-knowledgeable about all the ins-and-outs of this topic.)
From NATP:
Proficient knowledge in selecting the optimal entity structure is vital as it directly shapes a business’s tax outcomes. Strategic choices can enhance deductions, reduce liabilities and ensure regulatory compliance, contributing significantly to a business’s financial well-being and long-term success.
We know you want the best for your clients, so we want to arm you with the knowledge to do so.
As clients start new businesses, one of the major decisions to make is what entity type is best for them? Limited liability companies are by far the most commonly selected type, but did you know, the IRS doesn’t recognize LLCs as an official entity? LLCs can default to a disregarded entity or a partnership depending on the number of members they have, or they can select S or C corporation status.
(Many thanks to the AICPA Town Hall for allowing members to leverage their resources, such as the slides included in this article. The opinions shared here are the author’s and not those of AICPA or CPA.com.)
Tax preparers everywhere spent the past two months gearing up for yesterday’s “opening day” of tax season, January 29th. It was an exciting time for us, as it was finally going to be a return to normal. What does that even mean anymore, you might ask? Well, most of the pandemic financial relief programs have wrapped up (save a straggler ERC claim here or there); amendments resulting from that era have almost all been filed; the odd rebates and credits that no one remembered the amounts for were a thing of the past; there were no last-minute tax extenders; and the season end-date actually lands on April 15th for the first time in ages. It felt like we finally had a handle on things and were back to the “normal” amount of seasonal overwork — rather than a Herculean lift, as was the case for the past four years.
Enter Congress. Despite the fact that The American Institute of Certified Public Accountants (AICPA), National Association of Tax Professionals (NATP) and small business advocacy groups have been lobbying for over a year to get an extension of certain popular tax benefits that expired in 2023, our leaders somehow managed to wait until after year-end to introduce legislation to that effect — Tax Relief for American Families and Workers Act — in a spectacular show of bipartisan ignorance. Never mind that the IRS e-file has been offline since November 18th, because it takes over two months to reprogram the systems for new tax laws, updates, and edits to tax forms.
Some of the anticipated changes if the legislation passes as-written include popular business expensing programs that are designed to be leveraged throughout the year. Making them retroactive does nothing to spur the economy, as the decisions to buy equipment, invest in R&D, or take out loans were already made, last year.
To be clear: I’m not saying these aren’t potentially good changes for tax law, business, and the economy. Just that doing it at this late date is misguided in far too many ways.
And the part I really don’t understand is this: IRS Commissioner Werfel told reporters last Friday, “If there’s a change that impacts your return, we will make the change, and we will send you the update — whether it’s an additional refund or otherwise — without you having to take additional steps.” This is simply impossible for most of the business expensing features of the law, which are voluntary elections on the part of the taxpayer. Presumably this is a reference to the child tax credit provisions in the legislation — which have gotten the most press, but have little effect on small business owners, and are a small portion of the actual bill.
The House Ways and Means Committee released a statement recently indicating that the IRS “confirmed its intention to make necessary systems updates by around six weeks after the date of enactment”. Six weeks. Most refunds are issued within three. Six weeks takes us past the S-Corp and Partnership filing deadline. Six weeks?
Speaking of that deadline, many states announced e-filing would begin on the same date as the IRS opened federal tax season, but it turns out that our state (and I’m guessing others) did not release their S-Corp or Partnership forms with enough advance notice for our third-party tax software to program them into their system, so we are unable to e-file any Illinois business tax returns until February 7th. And we were freaking out about that delay. I can’t imagine what six weeks will look like.
To say nothing of the fact that the next government shutdown deadline is scheduled for one week before business tax returns are due. This should make for an even more laid-back season.
And to add to all of this, that the bill is being funded by an early end to the Employee Retention Credit program, as of January 31, 2024. We spent all of last week scrambling to get the remaining claims in, and won’t know whether that sprint was worth the anxiety or not until this bill passes (or doesn’t) — I feel terrible for those who find out in February that their claim’s due date is suddenly in the past.
Again, some of the provisions in this bill are great ideas — well thought-through, balanced, as well as good for business, families, and potentially the economy. Bad players in the world of ERC mills will finally have to deal with some consequences, and the 1099 burden for small vendors and freelancers will be eased as the threshold is finally indexed for inflation. Some good stuff.
So let’s pass this as 2024 legislation, just in time for the new year, as it should be… and get out of the way of tax season, already!
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
It always feels a bit surreal to watch yourself being interviewed, but KC Brothers and Gaynor Hardy (Meilke) did such an incredible job with this piece — which Canopy recently released in their “Practice Success Podcast” — that I actually found myself revisiting some important points I hadn’t thought about in a while.
It’s not fluff! They asked real questions about issues affecting our industry: we delved into branding your passions, company culture and how we strive to make our firm more human, what that has to do with artificial intelligence — AND the attention we need to give language and training in a world where AI is an integral part of our worklife.
Three Main Themes, as outlined by the producers:
Integrating passions and work: The importance of integrating passion and personal interests into professional work, as seen through Nancy McClelland’s incorporation of dancing into her accounting career.
Creating your own brand: Creating a unique brand and identity in the accounting industry, exemplified by The Dancing Accountant firm helps to build relationships with clients and leave a memorable impression.
Benefits & Challenges of AI: The benefits and challenges of incorporating AI and automation in accounting ensure a balance between technological advancements and human skills. This includes improving efficiency and the need for ongoing evaluation and training within a firm.
And I’m going to add that we talked a lot about company culture and work-life balance as well. We fit a lot into 20 minutes.
It was a great conversation and I hope these themes resonate with you and add value to your day! Find the full episode here, where you can choose your favorite podcast platform: https://ow.ly/vwYQ50QrRRf.
As a CPA whose company works with loads of small businesses that need to process payroll, I’ve used quite a few payroll systems through the years… and Gusto has become our favorite. It’s not without its quirks and issues, but overall it does a great job for a great price, and — key for the work we do — it syncs nicely with QuickBooks Online, as well as their own Benefits company and with Guideline retirement.
(By the way, our referral link will get you a $100 prepaid Visa card if you sign up and run your first paid payroll before Jan 31st, 2024! Bonus! Happy New Year!)
It seems that for 2023, Gusto has slightly changed the details for how they handle distribution of 1099 and W-2 forms — and so that no one ends up without a copy of their important documents, I am sharing the step-by-step process that we went through for our own firm, in hopes that it helps you manage it in your own small business.
Spoiler alert: the process of DIY-ing (aka creating the packet of 1099 or W-2 PDFs, going to the Tax documents section and finding/ downloading these PDFs, printing them, and mailing them) was enough of a pain that for sure next year I will just click the option to pay $3 per form to have them mailed for me for anyone who hasn’t selected “electronic-only delivery”. But before then, I will contact all my employees and contractors and ask them to please change their preferences to be electronic-only delivery next year, since the thing I would be mailing them is literally a printout of the same PDF that they can download themselves from their Gusto account.
And now — here’s the process I went through, in real time, as I walked through the steps myself.
First off, as the company/ employer, I received an email from Gusto (though it incorrectly stated that these are client tasks, rather than firm tasks) stating that I need to distribute important payroll forms to recipients before the IRS deadline of January 31, 2024.
When I click on the “Let’s do it” button for 1099s, it takes me (after logging in) to the screen below, which notes “If you have us mail forms for you, you can choose to exclude anyone who’s consented to have them delivered electronically.” This is pretty important, as I encourage everyone to accept this delivery method, even if they also request a paper copy. I am curious to see if they make this option clear even if I select “I’d like to download and distribute them on my own,” and will give that approach a try.
After selecting the second option — “I’d like to download and distribute them on my own” (DIY), I get this screen:
And then this screen:
And good news! Even in the DIY version, you can select “Only contractors who haven’t requested electronic-only copies,” which is a real win for everyone. It would be nice if they made that clearer on the first page, and simply said, “you can choose to exclude anyone who’s consented to have them delivered electronically.”
I take that back! NOTE: After going through the whole process (you’ll see this below), I never did get a packet that was just for the electronic-only folks. I was only able to download a packet for ALL employees. I will have to pick out which ones selected paper delivery and only print and mail those. Or I can go into each employee and download the form individually. What a pain! I don’t want to reward Gusto for handling this poorly, but if I could go back again, I’d have chosen to have them mail the ones who set their preferences for paper forms, for $3 each.
I clicked on “Create packet”, and nothing happened. However, this box shows on the right-side, so I’m guessing that’s why:
(I think this could have been handled a bit better by the Gusto programmers.)
Now, if you had any contractors who did not select electronic delivery, you would in theory eventually get a copy of that packet, and use the PDFs of the 1099s that were made available to you by Gusto — you would print and mail them yourself. But in my experience with the W-2s (below), I was only ever able to download a copy of ALL the forms, not just the ones that set their preference to receive a paper copy. Or I could go to each employee and download them individually. Therefore, as I keep saying… if I had this to do over, I’d pay Gusto the $3 per form for just the ones that requested paper forms. And in future onboarding, I’d ask them to set it to “electronic-only”.
Next, we’re going to give the W-2 form distribution a try. I clicked “Home” to get to the main page of my Gusto account but got an error message, probably because as an accountant user, it got confused about whether to take me to my own firm homepage or my client dashboard. So I went back to the original email and started from there. As expected, it brought me here:
And after selecting DIY, it took me here:
After clicking “Continue” it took me to a page that nicely spelled everything out for me:
It turns out that four of my employees have requested paper copies. They may have also requested electronic copies, but since that doesn’t matter one way or the other here, it’s not indicated. (Note to self: ask your team members to select electronic-delivery-only!)
So this time when I clicked the “Create packet” button, I got a pop-up.
I clicked on the “Go to Tax documents” button and it took me to a very familiar screen (since I have to download this information on behalf of clients from time-to-time), with a tab for each type of tax document.
I clicked on W-2s and followed the prompt to download my 2023 W-2 packet — but this turned out to be the entire employer-copy of the W-2 packet. So, I clicked below that on the option to “Distribute 2023 W-2s” — but that just took me back to “Choose how to distribute W-2s” starting page.
To be fair, it did say in the pop-up that they’re creating my packet and would email me when it’s ready… I’ll go check email next.
But first I want to point out that this page also makes it clear in the employee list at the bottom what the delivery preference for each employee is, making it easy for me to make good on my “note to self” above and reach out to those who requested “paper and electronic”. (By the way, my own name is on that list. Sigh.)
It’s many minutes later and I still don’t have an email saying my packet is ready.
At this point, I’m wishing I’d just paid Gusto $3 each for them to mail these for me.
I’m going to sign off on this blog post for now and return to it once I get an email from Gusto. And if I don’t, I will shake my fist at them and ask my team members if I really have to spend $3 each to send them a paper W-2 when they already have a PDF.
Update: I never did get an email from Gusto saying my packet of just the ones that need paper copies was ready. And when I went back in to just pay Gusto the dang $3 each, I got this screen:
So apparently that’s not even an option anymore. Heads-up! (This is the part where I scroll back to the top of my post and give everyone a spoiler alert before starting this process.)
The key takeaway I’d like to share with clients and readers is that you should absolutely, unquestionably go into “Tax Documents” and look at the list of people under the W-2s and 1099s tab to see if anyone chose paper-only (I am presuming that’s an option but do not truly know… because it’s 2024 and who would choose that, anyway). If anyone did *not* consent to electronic delivery, then go spend that $3 per employee. For everyone else, reach out and ask if this is really necessary, and suggest they (myself included, whoops) change their settings — not because the $3 per form is a prohibitive cost, but because the amount of time and energy spent in making that happen (any at all) is simply not worth it in this day and age of electronic communication.
I will leave you with a hilarious poem that a dear colleague of mine shared with me recently.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
“What is an IRS Account Transcript and Why Do I Need One?”
During the pandemic, we began requiring all clients to submit a copy of their IRS Account Transcript along with their Tax Organizer and other annual tax prep documentation. Initially, this was to confirm the amounts of stimulus payments and child tax credit payments. But what we found was that it was a great way to confirm how much the client paid to the IRS for quarterly estimated taxes — and to make sure we credited the payment to the correct tax year. As such, we now always require a copy of this particular transcript — and wish we’d done so all along! It’s free, reasonably easy, and reliable. In the end, it saves the clients (and us) a load of potential headaches.
It’s important to note that there is more than one type of transcript, and each meets a different need. For example, if you’re trying to prepare a tax return for a prior-year and need a list of all the informational documents filed with the IRS that are associated with your SSN, you’d want a Wage & Income Transcript. For more info on how to do that, and the various types of transcripts out there, please see the comprehensive article I wrote for MSN on the topic.
An Account Transcriptlists information on payments and credits posted to your account throughout the year, such as quarterly estimated tax payments. The best news where downloading any transcript is concerned? All you need is a photo ID, a mobile phone with a camera, an email address, and an Internet connection.
Keep in mind that the IRS will not email you a transcript; you must go online and create or log in to your account and download it. There are email scams out there that entice folks to click on a link or attachment with the promise of an IRS Online transcript – don’t fall prey.
“How Can I Download My IRS Transcript?”
1. From the IRS website, you’ll need to create an ID.me account. (This is the most involved of the steps, but thankfully you only have to do it once; moving forward, you’ll simply sign into the same account each time.) The ID.me website uses facial recognition to confirm your identity, so you’ll need your phone to take a selfie.
If you need help creating your ID.me account, the ID.me Help Center spells out the process very clearly. You can also watch this video or review these written instructions if you want to review the process first.
One note: if you were using the old IRS account system, you won’t be able to log in with your previous IRS username and password anymore — the IRS sunsetted that program in early 2023 and now you need to use the ID.me system. At this point, most of our clients already have ID.me set up, but this may be new to you if you’ve never downloaded a transcript before.
2. Once your account is created, log in, go to the IRS’s Get Transcript page and click the “Get Transcript Online” button.
The IRS “Get Transcript Online” starting page
3. Select the reason you need a transcript (it’s fine to just select “Other”).
The IRS “Get Transcript” tool reason-selection screen
4. Leave the Customer File Number blank and click “Go.” The screen will display all four (or five, if you have non-filing years) transcript options and the available years.
IRS “Get Transcript” tool – sample options for available transcripts to download
5. Under “Account Transcript”, click the tax-filing year (the top line of the lower-left box — “2023” in this example).
6. After you select your transcript, like magic, a PDF will pop up in a new tab of your browser with all the information you need. (Or it will say “No record of return filed,” if nothing has posted yet.)
7. Print the file to PDF and save it somewhere safe, along with the rest of your tax season documents.
(And if you want to get deep into the weeds, NASFAA has an amazing “Tax Transcript Decoder” that compares the fields on a tax return to the fields on a tax return transcript, and Saving To Invest had fun with highlighters when creating a legend for each row on an account transcript. Tax nerds unite!)
“What About State Information?“
Each state has its own idiosyncrasies, and many have their own system — but quite a few states are using the same software company, so they often look and act similar. Our firm is located in Chicago, so to get a list of the estimated tax payments you’ve made to the state of Illinois, go to https://mytax.illinois.gov/?link=1040EPy (without logging in) and enter your SSN, Name, and the tax year in question.
If you also made payments from a corporation or partnership, you’ll need to log into your company’s MyTaxIllinois business account to get those.
“Now What Do I Do With These Files?”
Seriously? You make sure to use your accountant’s secure file transfer system to send them your PDFs. Please do not ever email sensitive documents. It puts both you and your CPA at risk.
As is the case every year, we’re hearing from lots of folks confused about when to send a 1099 form or other “information returns” to someone. It is true that over time, these forms have continued to change, and the rules have become more specific… but the basics remain the same. The most important point is that only businesses need to issue 1099s — if you paid someone for personal purposes, you are not (yet) required to send them or the IRS a Form 1099.
WHAT’S NEW (or isn’t) FOR 2023: – Beginning in 2022, the 1099-NEC was made so that it’s no longer year-specific; there are no changes to the form for 2023. – The IRS launched IRIS, a new free online portal, for businesses to file 1099 returns. (Beginning January 2024, you will no longer be able to file using a legacy transmitter code using the old FIRE system.) – You must file now file 1099 Forms electronically if you have 10 or more information returns (down from 250). – There are even more complexities regarding whether or not to issue a 1099 based on the payment type, and I expect this area to become even more challenging in future years, as new payment platforms continuously come into being.
Here’s a crash course for each type of form, followed by an FAQ.
1099-NEC This form was new for 2020 and replaces the old Box 7 of Form 1099-MISC. “NEC” stands for “non-employee compensation”. It is due to recipients and the IRS by January 31st (or the first business day after that, if 1/31 falls on a weekend).
If you paid: 1) a NON-corporation (*see below); 2) for services (not products); 3) via check, cash, ACH, Zelle, or wire transfer — but not merchant services or electronic payments (such as credit & debit cards, PayPal Business, Venmo Business (**see below); 4) $600 or more in a calendar year; then you need to send them a 1099-NEC.
(*) A lot of folks get confused and think the rule is if you paid an “individual,” but really the rule is a “non-corporation,” which means that partnerships and LLCs are included. Just because they have a business name doesn’t mean they’re incorporated. You cannot depend on the company’s name to determine corporate status, nor can you rely on the state LLC/Corp database, as it only indicates the entity type at the state level — almost any type of entity may elect corporate status with the IRS.
So, keep in mind that a company can be an LLC but be taxed as a corporation. In this case, you would not need to send them a 1099, because in the eyes of the IRS, they are incorporated. Here’s an example of a W-9 showing an LLC that is taxed as an S-Corp:
This is one of many reasons you should collect Form W-9 from all service vendors before giving them their first check, just to be safe. The person filling out the W-9 will indicate their entity type and whether or not they are taxed as a corporation.
There’s also an exception to the incorporation rule for attorneys and law firms. You must issue a 1099 to a lawyer or law firm regardless of whether they are incorporated. (Law firms and attorneys have so many specialized 1099 issues, they get their own blog post.)
(**) There’s a lot of confusion over Venmo and PayPal, because there are personal-use “Friends & Family” versions as well as business versions of both platforms. Legally, no business should be using the non-business versions of these payment types… but in real life, many do. It’s very hard to distinguish which payments were made using which method — in theory, a 1099-NEC would need to be issued to a vendor who was paid via a personal Venmo or PayPal method, but I’m not sure how this would be tracked. My recommendation (for many reasons) is to only use the business versions, and then the 1099-NEC is a non-issue (because Venmo and PayPal will issue a 1099-K instead).
I know, that’s all very confusing. Here’s a nice, simplified decision-tree provided by our friends over at Bookkeepers.com, courtesy of Bookkeeping Buds.
However, it’s easy to end up with issues like “what if I paid with my credit card, but used PayPal Friends & Family,” or “I use a practice management system that is funded with a bank account, so why do they issue a 1099-K,” or any number of confusing situations based on payment type. There’s simply no easy answer to these questions.
It’s so confusing, in fact, that my colleague Jennifer Dymond saw the need, and created an absolutely incredible resource at 1099problems.io which goes into detail about which payment methods are included on a 1099-K versus which ones you must issue 1099-NEC or 1099-MISC for yourself; it’s maintained regularly and updated as the proliferation of non-traditional payment methods continues. The first 1,099 people to subscribe using code DANCING1099 will receive 10% off their first order (offer expires March 31, 2024).
1099-MISC
Items such as rent payments, royalties, attorney settlements (as mentioned above, not payments for legal services), and medical healthcare payments will still be reported on Form 1099-MISC, though the form has been redesigned and the boxes renumbered.
Report prizes and awards of $600 or more that are not for services performed in Box 3. Include the fair market value of merchandise won. And be careful here, as it is easy to accidentally include these on Form 1099-NEC if the recipient also provided unrelated services.
Rent paid ($600 or more) (Box 1)
Royalties paid of at least $10 or more (Box 2)
Prizes and awards and certain other payments ($600 or more, see instructions for Form 1099-MISC, Box 3 for more information)
Backup withholding or federal income tax withheld (any amount) (Box 4)
Amounts paid specifically to physicians, physicians’ corporations, or other suppliers of health and medical services ($600 or more) (Box 6)
Direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (Box 7)
Gross proceeds paid to an attorney ($600 or more whether or not incorporated) (Box 10) – “made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services”; for example, a settlement agreement.
The deadline for providing this form to recipients is the same as above, January 31st. However, the deadline for filing 1099-MISC with the IRS is February 28 if filing on paper, and March 31 if filing electronically.
1099-K
It’s unlikely that anyone reading this will be in the position of issuing Form 1099-K to vendors — but you should know about this form, for a few reasons: 1) You are likely to receive one. 2) It’s the reason you don’t have to issue 1099-NEC to anyone you pay via credit card/debit card, a business PayPal account, a business Venmo account, or any “merchant service” system. 3) You may need to reconcile this form against the amount of sales income you report on your tax return.
Form 1099-K is for payments made in settlement of “reportable payment transactions”, which is any credit card, payment card or third-party network transaction. So if you receive payments in this way (unless you only accept checks, e-checks, ACH, or zelle/QuickPay, you probably do), then you’ll get a 1099-K for this total.
But because these amounts are reported to the IRS for you, you don’t need to issue 1099-NEC or 1099-MISC forms to vendors whom you paid using one of these methods. In that case, the recipient could end up having the same income reported to the IRS twice.
The rule used to be that this form was issued to anyone who had more than 200 transactions or $20,000 worth of transactions — but starting in 2024, that threshold will drop to only $600. (This implementation has been delayed twice already and AICPA is lobbying for a more reasonable threshold.) The IRS is now planning a phase-in of $5,000 for tax year 2024.
As a bookkeeper, accountant or tax preparer, it’s important to protect your small business clients by making sure all taxable income is being reported on their books/returns. If the 1099-K is for an amount that is lower than what’s on the income section of the Profit & Loss, it’s not likely to be an issue. But if it’s higher, you’ll need to do a reconciliation to show that the difference was due to non-taxable receipts such as sales taxes collected, tips collected, refunded sales, and the like.
1099-INT
This form is issued to anyone who lent your business money, and your business paid them at least $10 of interest in the past calendar year. It includes owners, partners, and shareholders.
Note: do not issue this form for accrued interest; it is only for actual payouts of interest in cash or trade.
The form is due to recipients by January 31 (February 1 in 2021), but isn’t due to the IRS until March 1 if filing on paper and March 31 if e-filing.
If not e-filing, you can use the IRS’s fill-in pdf Copy B for the recipient copy, but for the version that goes to the IRS, you have to order an official form with special scannable ink — they’re free, but they take a while to be mailed, so fill out your request early. Make sure to mark the year you are filing for, not the current year — an easy mistake to make.
Another note: I have had clients reach out confused by the language “You are not required to file Form 1099-INT for interest on an obligation issued by an individual”. This means if the loan were TO an individual rather than FROM one, and the individual paid interest to the company. (This is not usually the case.) In that situation, the individual would not have to issue the company a 1099-INT (although the company would still have to declare the interest income).
1099-DIV
This form is issued to a shareholder of a C-Corporation for dividends or other distributions paid in the past calendar year.
Most folks don’t think this applies to them — but if you own a business that is taxed as a C-Corp, and you took money out that wasn’t W-2 or loan repayments, then you may have issued yourself dividends. (And if it was for a loan repayment, did you pay the required amount of interest? If so, see the “1099-INT” section above.)
The form is due to recipients by January 31 (February 1 in 2021), but isn’t due to the IRS until March 1 if filing on paper and March 31 if e-filing.
If not e-filing, you can use the IRS’s fill-in pdf Copy B for the recipient copy, but for the version that goes to the IRS, you have to order an official form with special scannable ink — they’re free, but they take a while to be mailed, so fill out your request early. Make sure to mark the year you are filing for, not the current year — an easy mistake to make.
1098
This form is to report mortgage interest and real estate taxes. You may not think it applies to you, but if you do the bookkeeping for or are a member of a housing cooperative, you may find that it does. This needs to be issued to housing co-op members for their allocated portion of mortgage interest and real estate taxes paid by the cooperative, so they can deduct them on their personal tax return, Form 1040, Schedule A. If not e-filing, you can use the IRS’s fill-in pdf Copy B for the recipient copy, but for the version that goes to the IRS, you have to order an official form with special scannable ink — they’re free, but they take a while to be mailed, so fill out your request early. Make sure to mark the year you are filing for, not the current year — an easy mistake to make.
Frequently Asked Questions
What do I do if the vendor will not give me their Tax ID Number, which I need to file the 1099?
First off, it’s the business’ responsibility to obtain this number. That’s why I recommend getting the W-9 from the vendor before giving them their first payment. But in the case where it’s 1099-time and you still don’t have that TIN for some reason, respectfully let the vendor know that not having their info will not prevent you from filing the 1099. It just means the IRS will receive it with “REFUSED” written in the field where the number should be (or if you use an e-filing program, you will check the box that the number is unavailable). This will almost always trigger an audit for both the business and the recipient, which no one wants. Presented with this information, I find that most non-compliant vendors are suddenly able to fill out that W-9 form after all.
Do I really have to send one to my landlord? They get angry when I bring it up.
If your landlord is not incorporated, yes, you do. If it makes them mad, then consider why… are they trying to avoid declaring it as taxable income? Is that the type of person you want to rent from?
What if you forgot to issue a 1099 to someone?
It’s never too late! Since the statute of limitations never starts if you don’t file a return, penalties and interest can continue to accrue forever. If you noticed that you forgot to file a 1099, even for a prior year, reach out to the recipient in question and make sure they declared and paid taxes on the income you inadvertently forgot to remind them about — and hopefully they have. In this case, no amended return will be required on their end, and the form’s arrival will not come as an unwelcome surprise. If not, then that’s a bigger concern. It is the responsibility of each recipient of income to declare it on their return, regardless of having received the 1099. Not getting the form does not exempt a taxpayer from declaring the income they earned. So, the business owner needs to evaluate the risk involved to their company in knowingly refusing to comply with tax law, versus the recipient’s desire to evade taxes.
What do you do if you receive a 1099 that is incorrect or unnecessary?
If you receive a 1099 that has incorrect information on it, simply reach out to the issuer to ask for a corrected 1099. Do this as soon as possible, as it will help them to fix it before it is submitted to the IRS.
If they will not correct the total, then declare the full amount on your tax return, but “back out” the incorrect amount as a negative, with an explanation to the IRS for why this amount was inaccurate. If you receive an audit notice, provide the IRS with the documentation showing why your calculation is correct, and the support showing you reached out to the issuer when you realized the form was not right.
If you should not have received a 1099 at all, follow the same advice as above. A good example of this would be if you received a 1099-K for credit card payments, but also received a 1099-NEC from the company that paid you (this is quite common… it is extremely challenging in most bookkeeping software to distinguish how a bill was paid in most reports). In this case, if the customer will not void the 1099 form for some reason, simply declare the full amount on your business’ tax return and “back out” the amount that was double-issued, with the explanation that it was already declared in income via 1099-K or some similar wording.
However, if the reason you should not have received the 1099 was that you are taxed as a corporation, and you’ve already declared this income on your tax return, then you can ignore the form — it will have no effect on anything and was just a waste of time on the part of the issuer.
How do I run the 1099 report in QuickBooks? Won’t it tell me who needs a form from my company?
Most bookkeeping professionals don’t use the 1099 report that QuickBooks generates — it’s too prone to user error when setting up the vendors, accounts, and dollar-thresholds. Instead we use a program like Keeper to help us identify potential 1099 vendors and transactions, or in QuickBooks, we run the detail of the cash accounts and filter by transaction type – Check, Expense, Bill Payment… then sort by Name. The problem may be that there is not a name in there, or it is not a Vendor Name: another great reason to make sure you’re setting up bank rules and being careful about data entry to include vendor information on all transactions.
How does PayPal work?
Oh my goodness, is this ever complicated.
If you pay a business using your personal bank or Paypal account, or pay through “Friends & Family” PayPal you do need to send a 1099 (if over $600), because PayPal thinks this was a personal transaction — because, as I mentioned at the top of this post, personal transactions do not require 1099 forms. If you had used “Business” PayPal, then PayPal would send the 1099-K and there would be no reason to issue a 1099-NEC.
A colleague of mine recently called PayPal support about this and here was their response: If the transaction detail says “money sent”, those qualify as Friends & Family transactions. However, if the transaction says “invoice paid” or “payment”, then it is a business payment — even if it’s within a personal Paypal account.
What about Venmo?
According to Venmo’s term of service, using it for business is a violation, and they can seize whatever money you have sitting in your Venmo account if they catch you using it for business.
However, we know sometimes this is the best way to collect money from folks, or that customers will send you Venmo funds without thinking about it, or that you’ll do the same with your vendors.
Venmo is considered a “peer-to-peer transfer service”, and not a third-party network. Therefore, treat these like cash payments from a business and send a 1099 form to your vendor.
(Side note: Venmo is starting to accept applications from a number of businesses for a new “Business Venmo”, but it’s brand new and very limited. Be careful with this. The problem with Venmo, PayPal, Bento, and other similar companies like that is that they don’t act like they’re banks — and their staff doesn’t realize that banking is actually the primary function of the company they work for — they don’t get the same kind of intensive training that bankers do. I recommend avoiding Venmo for business payments as much as possible.)
The short version here is that not all states have the same rules. Some allow the IRS filing of certain information returns to substitute for state filing requirements, and some don’t. Some require e-filing and some allow physical mailings. Many states participate in the Combined Federal/State Filing Program. The IRS will automatically forward 1099 information to participating states, eliminating the need to file separately with these states.
So please, do your homework when it comes to state filings.
Where can I find more info on due dates, penalties, and real-life scenarios?
And as I mentioned earlier, yet another trusted colleague, Jennifer Dymond saw the need for a resource that details which payment methods are included on a 1099-K versus which ones you must issue 1099-NEC or 1099-MISC for yourself, and created 1099problems.io to help navigate these complexities. It’s updated regularly, as the proliferation of non-traditional payment methods continues. The first 1,099 people to subscribe using code DANCING1099 will receive 10% off their first order (offer expires March 31, 2024).
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Insightful Accountant is hosting their last Future Forward virtual conference of the year on December 5-6, and I’m delighted to be presenting an exciting topic that resonates with the theme of Niches, Trends, and Predictions for 2024.
I love this particular webinar series, as it’s a fabulous opportunity to connect with peers, get the latest industry updates, and explore best practices, new tech, and other developments in accounting. They do a nice job of speaking both to bookkeepers and tax professionals, as well as tech-related and accounting-adjacent firms. This round will comprise 2 days, 9 speakers, and 11 topics as we share our knowledge, strategies and tactics. If you’re focused on launching, transforming, or growing your business — this is for you. Plus, it’s free if you attend live ($25 fee for the recording, which is totally worth it, as they’re able to subsidize the education without your having to sit through vendor commercial plugs).
My session will be held on Day 2 December 6th at 3:30 pm Eastern, and is called “The Confluence of Bookkeeping, Tax, and Advisory: How to Thrive in the New Accounting Landscape“. It was written with two groups in mind — bookkeepers and tax preparers, both running their own practices — who are getting all sorts of pressure to expand into advisory services. It’s about the trend toward co-firming and other ways to work together in order to serve the clients better, add value/charge more, and develop professional relationships that will bring you more business.
I recently attended QuickBooks Connect, and it got me all riled up (again) about the confluence we’re seeing between CPA firms moving into Client Accounting & Advisory Services (CAAS) and bookkeeping firms moving into advisory services… two previously distinct worlds starting to converge. I feel like the bookkeeping and accounting practices are often dancing technology circles around tax firms — and yet CPAs still look down on them as if they were data entry robots.
It’s time to start communicating with each other!
Bookkeepers –> learn how to “speak tax” with CPAs. Own your spot at the table.
CPAs/EAs –> bookkeepers are your friends! They have the personal relationships and tech know-how that you lack!
Let’s talk about co-firming as one of the accounting trends of 2024.
1. Discover how the scope at CPA and bookkeeping firms is starting to overlap and converge, and why that’s a good thing for you and your clients.
2. Identify the potential challenges and opportunities that this new accounting landscape brings, and how to turn them to your advantage.
3. Apply strategies and techniques to partner across or within firms, to update your accounting practice and stay ahead of the curve.
But it’s not just me! There’s an amazing lineup of speakers and sessions:
Day 1 – Dec 5
Checking in with QuickBooks Checking + Envelopes with Alicia Katz Pollock with Royalwise Solutions, Inc.
Strategies For Niching Success with Kellie Parks from Calmwaters Cloud Accounting
Niche to an Ideal Client Roster with Debra Kilsheimer from Profit Creator
Firm of the Future: Unlocking the Power of the Vertical Niche with Gregg Bossen – Creator/President of QuickBooks® Made Easy™
Day 2 – Dec 6
5 Strategies to Maximize Firm Success Through Onboarding Mastery and Strategic Outsourcing with Vanessa Vasquez from QuickBooks en Espanol
Automate Tax Season with AI with Christine Gervais from Epiphany Group
Grow Your Practice with Highly Profitable Reporting for Multi-Entity Clients with Charles Nagel from Qvinci and William Murphy from Insightful Accountant
The Confluence of Bookkeeping, Tax, and Advisory: How to Thrive in the New Accounting Landscape with Nancy McClelland from the Dancing Accountant
The live event is free, the recordings will be made available for a nominal fee. Just click on this link to sign up.
One of my favorite books when I was a kid was “Hail, Hail, Camp Timberwood,” about a girl who goes to summer camp for her first time. She’s standing around, feeling (and probably looking) uncomfortable as all the return campers are running around, hugging each other, excited to be reunited. All of a sudden, someone runs up to her and gives her a big hug and says how happy she is to see her again. After a moment of total confusion, the girl leans in and says, “Don’t worry – we don’t actually know each other. I was just feeling left out and figured I’d join ‘em.” The two of them become fast friends and go off hugging others who looked out of place and letting them in on the joke. Before you know it, the entire place was full of everyone running around hugging each other and laughing.
While I can’t say this is likely to happen exactly like that at the upcoming QuickBooks Connect conference in Las Vegas, I also wouldn’t be that surprised if it did. There will be heaps of people reuniting for the first time since last year, or at least since Scaling New Heights (check out my recent video blog about those amazing takeaways, which includes some bonus QBC suggestions). But there will also be loads of first-timers attending, who are nervous and out of their element. Find the other wallflowers and go up to them – tell them it seemed like maybe they didn’t know anyone there, either, and do they want to eat lunch together or go to a vendor booth or grab a drink? You’ll be delighted and surprised at how many of these folks you’ll stay in touch with through the years. Remember, progressive accountants and bookkeepers such as the kind you’ll find at QBC – especially those who go year after year – are excited you’re there, and they want to help make your experience better. Introduce yourself to someone who looks like they “belong” and say that you’re new, and not sure where to begin. I am sure they’ll point you in the right direction, take you under their wing, or introduce you to someone who might be a great conference buddy.
For today’s blog post, I’m going to be that conference buddy, and share with you my Expert Tips for Attending QuickBooks Connect 2023.
Tip One — PLAN AHEAD
Attend a prep session webinar or podcast for individual insights. There are so many great recordings already out there: Check out the ones from The Unofficial QBC FB Group, Bookkeeping Buds, Forwardly and Uncat & Method, just to name a few. Kelly Gonsalves is hosting a star-studded one with Insightful Accountant – sign up here. Every registered participant will get a recording to watch on the way to Vegas!
Plan ahead, make a schedule, but be comfortable diverging from it; that way you don’t waste time figuring out what to do in the moment, but you also don’t miss the organic opportunities that arise.
Make a list of vendors you’d like to meet; they’re often very busy during open Exhibit Hall time; it might be helpful to set up a time with them to meet during a session when the Hall is less busy. Bring a list of questions you’d like to have answered. Narrow your scope… it’s impossible to visit everyone. Pick a few areas of interest, look into which vendors serve those areas, and focus on them.
Connect on social media with others who will be attending, whether it’s in a Facebook group like The Unofficial QuickBooks Connect Conference Group (where many of us shared short videos of what we’re looking forward to at QBC this year), LinkedIn, or other platform, you can always use #QBC2023 or #QBConnect to find out who you already know that might be going. Engage and make plans ahead of time.
Register for parties that aren’t already in the QBC app!
There are also some customer-specific dinners and get-togethers for RightTool, Synder, and other vendors – check with reps for the apps you already use or are planning to implement, and ask if they are hosting anything. Same with professional associations you might be considering joining, like Bookkeeping Buds, Realize, or Roundtable.
Tip Two — DOWNLOAD AND USE THE MOBILE APP
When you log into the QB Connect website, and once you’ve downloaded and signed into the conference app, you can select sessions ahead of time in the app or on the website; they sync with each other.
If you click on the session, it will show you speaker info. If you click on the speaker it will show their bio and all the sessions they’re teaching.
You can “register” for only one per timeslot, but you can “favorite” many, which is great if a session turns out not to be your cup of tea and you want to bail for another, or if you’re somewhat undecided.
Lines will form for the “sold-out” sessions, and they will let additional people in if there’s capacity, which there usually is – get there early to be near the front of the line.
Tip Three — PACK WISELY AND COMFORTABLY
Wear comfortable shoes – there’s a lot of walking, even though it’s a confined space. (Plus, dance parties!)
Pack an extra collapsible duffle bag for swag if you’re into it – but remember… you can also say “no thank you”. It’s easy to get lost in the freebie frenzy, but do you really need another stress ball?
The breakout rooms are often FREEZING! Bring a wrap or sweatshirt. Also, Vegas is in the desert… it’s chilly this time of year.
Bring a refillable water bottle (or reuse a plastic bottle) and/or coffee/tea mug; there will be dispensers, and also, the water in your hotel room is fine to drink. Pro tip: the gym is 24/7 and has great filtered water.
Bring battery packs and chargers – often the rooms are in a basement and your cell struggles and chews up your battery; plus you’ll want to be on the conference app, your association’s slack, and you’ll probably text a lot.
The hotels are pricey! Buy food & drink at a nearby convenience store if you’re going to want snacks or a bottle or box of wine outside of the usual meals and parties – but there are lots of those, so it’s not strictly necessary. Also, ordering delivery food is a lot cheaper than eating at the casino.
There are no coffee-makers in the rooms, and the line at the café winds through the casino. Bring a portable tea kettle or coffee-maker; this is ours.
Carry small bills for tipping bartenders at the various happy hours, socials, parties and receptions. They work hard and many attendees don’t think to bring cash.
Bring earplugs for sleeping and loud parties.
All that said, don’t overpack. We’re only there for four days and you can re-wear some of your clothing. You don’t want to get stuck spending most of your final night re-packing your whole wardrobe. You’ll probably need less stuff than you think.
There’s usually a spot at QBC where you can store your luggage on the last day, after checking out (rather than with the hotel concierge).
Dress code: BE YOURSELF. Many people are in sweats and jeans, others are in power-suits or dresses, and some of us love dressing up in-costume and wearing tiaras whenever we get the chance. Wear what makes you feel most like yourself.
Tip Four — TRAVEL CONSIDERATIONS
Sign up for the Forwardly/Fyle Shuttle from the airport to Aria on Nov 12 & 13 — The whole city has been torn apart in preparation for the Formula 1 Las Vegas Grand Prix and rideshare surge prices are already insane.
Related: plan for ample travel time while in Las Vegas, whether you’re on foot or in a vehicle. Use cabs instead of rideshares when you must take a vehicle, as they are prohibited from surge pricing. Stick with over-street pedestrian bridges and monorails when possible.
Once you’ve met a bunch of folks at the conference, consider coordinating to share a cab back to the airport when you depart.
Check in early and skip the QBC lines. On Nov 12 from 12 PM-7 PM you can head to the Mariposa Registration Desk on Level 2, and you’ll be automatically entered for a chance to win a meet-and-greet with Ryan Reynolds! Remember to bring your ID.
Tip Five — NETWORKING
Represent your tribe… for example, the Bookkeeping Buds are going to wear our tiaras for one of the sessions where a member is presenting. I also always bring my favorite Bookkeeping Buds bag and use it instead of the conference one (it not only is a nice talking point, but it also is easier to find if you leave it behind somewhere). Many folks love wearing t-shirts from their favorite apps – Kim Noh even has her own tee that has logos of her tech stack!
Stay connected via Slack, social media, and texts throughout the conference.
Bring business cards – digital, paper, or a paper one with a QR code (or QR code stickers). I’m using HiHello for my first time this year, but there are loads of others out there. These days the vendors usually just scan your badge to get your info, but they do sometimes have raffles where you can drop an old-school card in an old-school fishbowl; I have a different set of b-cards I use for these with an email that routes to a different folder.
Prepare your elevator pitch – who are you, what do you do, why are you here, what makes you different? What will I want to remember about meeting you?
Tip Six — TAKE CARE OF YOURSELF
Sleep well the week and weekend leading up to the conference – the sessions start early, the parties go late, and there’s always something happening in the hotel bar.
Put your badge on the inside of the doorknob when you get back to your room, so that you remember to grab it on your way out. They are strict about not letting anyone in without it.
It’s okay to skip the morning session if you were up late, or to take a nap during a mainstage or between events. Give yourself some grace.
But be careful about how late you stay up and how much you drink. You don’t want to miss something valuable or feel sick just because you lost track of yourself. Bracelet trick.
Consider arriving a day early or leaving a day late so you can see the sights in Las Vegas. That’s harder this year because of the Formula 1 race coming up, but if you haven’t been to Absinthe, Lost Spirits, a Cirque de Soleil show, the Fremont Street Experience and the downtown Vegas lights, or the Museum of Neon, I can highly recommend taking the extra time to make it happen.
Tip Seven — SET YOURSELF UP FOR SUCCESS
There are always seats up-front, even when a session looks full. Don’t be nervous about walking right up there, even if it’s a few minutes into the session. No one’s looking at you, and no one cares.
That said, feel free to ditch a class if it’s not what you were hoping for or expected. There are other workshops that will be better worth your valuable time – or maybe it’s an opportunity to visit with vendors or network with colleagues.
Take lots of notes – notebook, e-ink pad, tablet, laptop… however works best for you. Make one page a list of client-specific takeaways and one page a list of actions you’ll perform when you get back to the office. (In fact, as a paper-note-taker, I plan to check out my friends’ Remarkables and Supernotes as one of my research goals for the conference.)
In that notebook, keep one page aside for notes that are about client-specific problems that you will solve when you get back home; and another for non-client-specific items you will address. Try to restrict that second list to only 2-3 things – it’s impossible to implement every shiny new idea you come across. Those will hang around in your head and you’ll get a chance to learn more at the next conference, by which point maybe you’ll have a new set of goals.
Supposedly they are giving out free headshots at the Intuit booth, but I’m not sure where the info is on that.
It’s natural to be nervous, but you can do this! Even extroverts struggle with meeting new people sometimes. Move through that shyness or fear and lean into the fact that almost everyone here came alone; everyone had a first conference where they didn’t know anyone; and everyone is here to meet other people and develop their practices. We have so much in common… sit at a lunchtable where you don’t know anyone and introduce yourself. Ask why they’re here and what they’re enjoying most. Find out where they’re from and what their specialty is. Tell them your goals and ask if they have advice. Ask them what their tech stack is and share your struggles with your choices and vendors and all the things. We will never run out of topics to talk about with each other, because there is so much to learn in our industry. Plus, chances are that these are folks who are as passionate about what they do as you are, or they wouldn’t be here in the first place.
See you next week at QuickBooks Connect!
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
I wrote a fabulously comprehensive article for MSN back in March about the various types of IRS transcripts, what they’re for, why you’d use one versus another, and how to download them. Some of my finest work, if you ask me… but today you don’t care about that. You just need to hurry up and file your tax return by Monday, October 16th, and you can’t find any of the paperwork you carefully saved to your Mac desktop, only to have it be deleted during an update. (Yes, this is a thing. I’ve had it happen to two clients already.)
Whatever the reason for not being able to find your tax documents, you still have to get that return filed by Monday. Lucky for you, most of these documents are listed on what is called a “wage and income transcript”. The beauty of a wage and income transcript is that every one of those documents sent to you – they’re called “information returns” – is also sent to the IRS, with your social security number as a unique identifier. If you download this list of documents from the IRS, you get a summary of everything filed on your behalf.
Can’t find some of your W-2s from working several jobs?
Not sure whether your freelance gig issued a 1099-NEC? Or maybe you lost track of countless different contract work payments?
You’re pretty sure you have an old dividend- or interest-bearing account given to you by your grandparents but can’t ever find the form they mailed?
Do you pay student loan interest, tuition, or mortgage interest and you can’t find the forms because you moved during the year?
Though it takes the IRS a few months to post all these to your transcript (or longer, if the issuing company filed an extension), by this point in the season, everything should be there, and you’ll be able to prepare your tax return after all — even if you lost the originals that came in the mail or can’t figure out where you saved the PDFs.
And the best news where downloading a transcript is concerned? All you need is a photo ID, a mobile phone with a camera, an email address, and an Internet connection.
Keep in mind that the IRS will not email you a transcript; you must go online and create or log in to your account and download it. There are email scams out there that entice folks to click on a link or attachment with the promise of an IRS Online transcript – don’t fall prey.
“How Can I Download My IRS Transcript?”
1. From the IRS website, you’ll need to create an ID.me account. (This is the most involved of the steps, but thankfully you only have to do it once; moving forward, you’ll simply sign into the same account each time.) The ID.me website uses facial recognition to confirm your identity, so you’ll need your phone to take a selfie.
If you need help creating your ID.me account, the ID.me Help Center spells out the process very clearly. You can also watch this video or review these written instructions if you want to review the process first.
2. Once your account is created, log in, go to the IRS’s Get Transcript page and click the “Get Transcript Online” button.
3. Select the reason you need a transcript (it’s fine to just select “Other”).
4. Leave the Customer File Number blank and click “Go.” The screen will display all four (or five, if you have non-filing years) transcript options and the available years.
5. Under Wage & Income Transcript, select the tax-filing year.
6. After you select your transcript, like magic, a PDF will pop up in a new tab of your browser with all the information you need. (Or it will say “No record of return filed,” if nothing has posted yet.)
7. Print the file to PDF and save it somewhere safe, along with the rest of your tax season documents.
As explained above, your wage and income transcript will list all forms W-2, 1099, 1098, and 5498 that have been processed by the IRS so far for the tax year in question.
For most taxpayers, that’s all you need. But some people also can’t remember how much they paid in estimated taxes, or if they took last year’s refund and credited it forward, or they need to review last year’s return to jog their memory about this-or-that. If you’re one of those folks — no worries, I got you covered: but you need to read the longer version of this post that I shared back in March.
No need to panic — you got this. Now go file that tax return on time… for 2023, the extension deadline is Monday, October 16th, by midnight in your time zone. Yes, submitting your taxes is nerve-wracking, but it’s way better than the alternative, and with a handy list from the IRS of all your documents in one place, you’re one step ahead of most of the other taxpayers who haven’t filed yet!
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
We received a few frantic calls and emails in the past month from clients who opened their mail to find a penalty notice from the IRS for their 2022 Form 8955-SSA — some for tens of thousands of dollars.
As background, Form 8955-SSA, also known as the “Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits,” is an report that retirement plan sponsors (the entity that established the plan for a company and its employees — usually the employer itself, or a union) must file with the IRS to report information about certain participants (typically former employees) who have vested benefits that have been deferred according to the plan. It’s a required annual filing with the IRS for those who file Form 5500 and has the same filing deadline (July 31, 2023 for 2022 plans — October 15, 2023 on extension).
But most businesses contract this work out to a plan administrator, a service provider that has expertise in managing 401k plans. So you can only imagine how terrifying it must have been for a bunch of business owners to get these notices — meaning that presumably, their trusted outsourcing agency was not doing their job. (Or… let’s be honest — more likely, very few of the small businesses had any clue what the notice was for, apart from the fact that a-it was from the IRS, b-said they’d done something wrong, and c-they owed money. Scary stuff.)
Thankfully, it turns out that these notices were the result of an IRS glitch in the program that receives and processes these forms. The IRS acknowledged the error, fixed the issue, and updated its records to “reflect the accurate filing status of the affected plan sponsors”.
If you received a CP 283-C penalty notice dated before September 1, 2023, and you are sure that you filed your 2022 Form 8955-SSA on time and completely, you do not need to take any action. You can ignore the notice and rest assured that your filing is in good order. The IRS will not impose any penalties or interest on your account.
However, if you want to verify your filing status, you have a couple options. 1) First off, contact your plan administrator or service provider for confirmation of your filing. 2) You can also request a transcript of your filing from the IRS to double-check the assurance of your provider.
The IRS released a bulletin addressing the mistake and asked readers to contact them at 877-829-5500 with any questions.
At retirement age, the Social Security Administration informs affected individuals that they may be eligible for benefits under previous employers’ retirement plans based on information reported to the IRS on Form 8955-A, explained Allison Wielobob, Chief Legal Officer of the American Retirement Association, so it’s essential that this information is filed accurately and timely.
Take a deep breath. We all make mistakes. Even the IRS.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
