The IRS is offering an amazing deal to those who either fraudulently or mistakenly claimed Employee Retention Credits (ERC) to which they weren’t entitled.
If a taxpayer claimed and received ERC funds, and for whatever reason now realizes that they may not actually have qualified (either for a particular period or for the whole thing) — they can return 80% of the money to the IRS and call it a day.
Considering that more than 3.6 million claims have been submitted, and the IRS refunds run up to $26,000 per employee… we’re talking about big dollars here. As of July 31, 2023, the IRS Criminal Investigation division had initiated 252 investigations involving over $2.8 billion of potentially fraudulent ERC claims.
We were extremely diligent in filing ERC claims for our clients — it took literally months of effort in research, software development, calculations, data collection, interviews and narrative-writing, not to mention preparing the actual tax forms and support. So initially I was extremely frustrated to find that people who filed claims without substantiation could return only 80% of the money and keep 20% for themselves. However, IRS Commissioner Werfel explained the rationale behind this decision, as reported by Journal of Accountancy:
“We could not stand idly by as small businesses were being taken advantage of by promoters trying to get hefty fees,” he said. He later described the 80% figure as “an important incentive to participate in the disclosure program. Participating businesses do not need to repay all 100% of the payment they receive.”
And this makes sense. Not just our clients, but our own firm (which decidedly does not qualify for ERC) was bombarded by calls and official-looking forms designed to lure us in to thinking that we were entitled to this “free money”. And they charged exorbitant fees in the 20-30% range, without providing any of the substantiation a taxpayer would need in case of audit. As a result, these scams topped the list of the IRS “Dirty Dozen” in 2023.
So it’s not surprising that, although the process to participate in the voluntary disclosure program is quite easy and simple — one of the requirements is that the applicant must provide names, addresses, and phone numbers of any advisers or tax preparers who helped with the claim, as well as details about the services provided. I’m hoping that this will cause some of these “mills” to get what they deserve for defrauding small businesses and our government.
Taxpayers wishing to participate in the ERC voluntary disclosure program must notify the IRS by completing and submitting Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. Program participants will not be charged underpayment interest, and the IRS will not assert civil penalties against them for underpayment of employment tax attributable to the ERC. And those that cannot repay the required 80% might be considered for an installment agreement.
If you are among those who has submitted a claim that hasn’t been approved yet (or received your checks but have not yet cashed them), you can still withdraw your claim, following instructions on the IRS ERC FAQ (#5 under “Correcting an ERC Claim”). They even include a sample withdrawal form.
I’ve interviewed countless ERC claim companies and narrowed it down to only two with whom I have trusted my colleagues and their clients. (It’s truly stunning how many out there have no idea what they’re doing, even the ones that aren’t intentionally skirting the rules.) One of them, Tri-Merit, recently released an episode of Randy Crabtree’s Unique CPA Podcast that dives into the biggest ERC changes for 2024. The service of theirs I recommend the most often (for which I can offer a referral link) is their “ERC Verification” offering, where they take a look at what you’ve claimed and either verify that it was done correctly, or recommend changes and help process the amendments. They stress that it is never too late to fix a claim that has already been paid.
And for those of you who have filed accurate ERC claims and are still waiting for the IRS to end its moratorium — still no information on when processing will begin again. Keep your eye on the AICPA’s ERC Resource Center; or check in with my blog — I’ll be one of the first to joyfully report it when the time comes!
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.
Thanks so much to Insightful Accountant — a leader in news and education for our industry — for inviting me to join a truly exceptional group of colleagues on the inaugural advisory panel.
“The primary purpose of the panel is to help us stay in touch with the audience we serve and to continue to provide the content you want. The panel members will also be instrumental in helping us shape the future of Insightful Accountant by identifying areas of improvement, new opportunities and being a collective sounding board for us as we explore what is next for our business.“
I’m looking forward to getting to know some new friends and reconnecting with old ones… and most importantly, helping shape a future for Insightful Accountant that addresses the needs of our industry. It’s through these connections that we can truly understand and address the evolving needs of accountants, bookkeepers, tax preparers, advisors, apps and vendors, and of course — the small businesses that we serve.
Read more about the rockstars on this year’s panel here!
And if you’re a member of our community, please reach out and let me know what you find valuable about the content, education, and opportunities Insightful Accountant affords you, as well as what you’d like to see improve.
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.
QB Ledger was announced at QB Connect a few months ago.
If you’re like me, March is that special month from hell where clients that have ignored your pleas for four quarters in a row suddenly show up again… and lucky you. Because now they’ve got a new AirBnb rental property in tow! Or yet another side gig! Or even better: an estate that they have to manage until it settles, and it’s caught up in probate!
To be honest, I’ve been slowly weeding these folks out of our client list – and I feel like a jerk about it – but it just doesn’t make sense for us to spend time during our busiest season getting them caught up on a year’s worth of transactions. Especially because these are the same characters that tend to be super price-conscious, and are somehow convinced that because they have a low volume of transactions, they shouldn’t have to pay for the monthly QuickBooks Online subscription – “can’t you just use our bank statements or a spreadsheet?”
For anyone reading this who isn’t intimately familiar with these classic dance moves already – no, we can’t just use bank statements or a spreadsheet. There’s no double-entry bookkeeping, no debits and credits, no Balance Sheet, and far too many potential lurking mysteries to be uncovered only after all the manual data entry is already complete. At some point we put a stop to these shenanigans… only to find ourselves sitting in QB Desktop, doing all the write-up work on behalf of our clients – a total reconstruction job. More reliable, but not less effort. (And moot at this point, since QB Desktop has gone subscription and is slowly asphyxiating.) And yet – I was a tiny startup at one point, too! I get not wanting to spend big bucks on a full-featured bookkeeping package for an activity that’s not earning much money.
By this point we’ve filtered out most of these types of clients, raising our minimum to price out some of the potential clients we really did (in theory) want to help – itty bitty start-ups or serial entrepreneurs, those that can’t resist a good deal on real estate, or people who sadly lost a loved one and are adrift as to how to handle the demands of bookkeeping for the estate. (I did this for both of my grandmothers back in the day, using my accountant’s copy of QuickBooks Desktop. It was not fun, but boy was my family relieved that they had a knowledgeable QB ProAdvisor handy.) But some remained. Clients who we really like who have been with us for ages, or who have another full-on business that we support, or whose side-gig really serves our community and they deserve a break.
(You read the title, right? I mean… you can see where this is going?)
Those who know me know that I don’t mince words about Intuit as a company. They’ve created a core product that I love, which I’ve been using in some form or another since 1993 (oof, that dates me) – but when they cross me (and they do, more than I’d like), I call ‘em out on it. I don’t like the constant price increases (though I do see the constant improvements), nor the aggressive marketing of corollary products to us and to our clients. I don’t understand why they haven’t fixed some basic functionalities we’ve been asking about for literally years. But the only reason I bother complaining is that I truly believe in QuickBooks products, and the ecosystem they’ve built, and that other software companies have built around them. Which is why it was delightful to be there when QB Ledger was announced at QB Connect in November (see photo above), and all the more delightful that since then, I’ve been able to honestly say I’m in love with this new product.
Why? What’s the hype?
Nothing. There’s no hype. That’s what’s so great about it. It’s just plain old reliable QB Online that we know and love, but without all the bells and whistles, and therefore totally affordable for uncomplicated files. It basically strips down the system to the core functionalities but retains the tools that are the most timesaving. And therefore, they only charge you for the basics. It’s $10/month per client.
At this price, and with the connected bank feeds, rules and reconciliation features, we can blow through an entire year of transactions on a cash-basis filer in literally a couple hours, and still make it affordable for the client, while maintaining plump margin for our firm. Since the bank and credit cards are connected, we don’t have to rely on the client for statements before we get started, so we can take care of most of the work well before tax-season begins. In most cases, the client won’t ever need access to the system, because it’s not about managerial insights and analytics – it’s just a compliance engagement that gets us to the point where we can file an accurate return. But unlike QB Self-Employed, this is real accounting software that gives us double-entry accounting, adjusting journal entries, and spits out proper financial statements. And also unlike QBSE, it allows for a full-on easy upgrade should the side-hustle turn into a more full-fledged business, or the real estate toe-dipper turns full-on house-flipper. (And yes, two accountants can be connected, just like the other QBO products, so if you’re not doing CAS and tax in-house like us, you can have a bookkeeper firm and tax prep firm both connected.)
Things to know before you dive in: – It seems like QB Support staff haven’t all been trained yet on what it can and can’t do, how many and which types of users can be attached, and which use-cases make the most sense, so be aware of that. It’s also sometimes tricky to get the client added (to set up the bank feeds) because the accountant user gets assigned both as accountant and admin; as with other versions, when this happens it can bea pain to switch that over to the client. So, make sure not to check the box to make yourself primary admin when setting it up. – And… they’ve got a weirdo situation where you can’t use a Customer name anywhere in the file (presumably they deactivated this because there’s no invoicing, which is fine… but we still need that field). I’ve got it on good authority that this isn’t a bug. I suspect this was done with the expectation that those who have customer reporting needs will just upgrade, but I don’t personally think that it will serve the purpose of moving them to Simple Start. They’ll just use an external invoicing or scheduling program to track income by customer instead of upgrading – especially because those third-party apps do in fact create these customers in the app – and then they’ll be hooked on that invoicing feature… instead of tracking things by customer in QB Ledger and eventually upgrading to Simple Start. I have clients in all walks of QBO and there are startups that can’t initially afford Simple Start who will eventually get there… but they’re going to need customers to make that happen. Another workaround: some folks are using the Vendor field with a “-Cust” after the name to get around this. – And lastly, bummer – you can’t downgrade, you can only start a new QB Ledger file or upgrade that file. (Yeah, they were thinking about all the reluctant clients who we had to talk into paying for Simple Start that don’t actually need A/R and A/P and would be fine on Ledger… really wishing they’d released this version years ago.)
Hector Garcia just released a half-hour complete tutorial on QB Ledger for accountants and bookkeepers, so if you want a deep dive on the specifics, then you’ve found your instructor.
Start-ups, trusts, estates, once-a-year write-up or tax prep clients, small side-hustles, AirBnB and other rentals, your glam diva marching band (ok, maybe my glam diva marching band)… the list goes on. Intuit has finally taken the core functionalities that are the reason we celebrate QuickBooks Online, and packaged them into an affordable option. It’s earning them goodwill, providing a pipeline for future upgrading customers, and will surely make the switch from Desktop to Online more attractive for the masses. For us, it fits seamlessly into our strategy to shift away from once-a-year rush work. For bookkeepers just getting their start, it allows them to take on small freelance and hustle clients. Welcome to the QB family, Ledger! We’re glad you’re here.
(What’s that, you want to learn more about QB Ledger? I knew you were gonna want to know how – so I’ve conveniently set it up for you to check out this page here.)
Note! As my readers know, I am downright fanatical about transparency and full disclosure (often to my detriment, as you may have noticed that I have a wildly popular award-winning blog that is non-monetized). Though this particular post is a paid partnership with Intuit, I want you to know that a) I wanted to write an article on QB Ledger anyway, but couldn’t find the time; getting paid allowed me the break from client work I needed to make it happen; and b) they didn’t edit a single thing when I presented it. In fact, they were totally cool with all my Intuit-bashing… which made me pretty impressed with them, to be honest. I might just do this again sometime. We’ll see.
I first came across the concept of “Open Book” management (OBM) for restaurants back in 2009, when I purchased Zingerman’s Guide to Good Eating from a local food & wine retail client of mine and we were discussing their recent adoption of this business philosophy — first popularized by Jack Stack in his excellent 1992 book, The Great Game of Business. Having lived in Ann Arbor for 10 years and attended the University of Michigan, I was of course a fan of their world market and pricey-but-delicious deli salads and sandwiches. But it wasn’t until 2012, when I took a deep dive into restaurant accounting and attended a series of seminars by the former Restaurant Seminar Institute, that I made the deeper connection between healthy financial communication and healthy small businesses. The class instructor had referenced various approaches to management, and included OBM among others on the list. A year later, I began working with local restaurant Honey Butter Fried Chicken — whose owners, as it turns out, had taken Zingerman’s OBM course and were in the process of implementing it in their fledgling project.
I spent the next few years working with them as they fine-tuned their metrics, delivery, and compensation structures, as well as trained their managers and the rest of the staff on why any of it mattered. First-hand, the benefits of this transformative approach were made apparent, and I became an eager proponent of OBM. Later, as I began to specialize in co-ops, I saw the same lessons filtered through a lens of cooperative management and policy governance that in some cases fit nicely with the OBM framework (though not always — check out this excellent Columinate article on lessons learned the hard way; an illuminating quote: “Getting the responsibility into the hands of the staff each week is an important transition in making it successful. Yet, many times, we see managers hanging on to the reporting lines for too long, which leads to disengagement and disinterest on the part of the staff. They won’t learn it or care about it until they are responsible for it”).
So imagine my delight when I read this month’s Plate online magazine and saw that my former clients are participating in a free webinar on Open Book Management — and how to determine whether it’s a fit for your restaurant! From PlateTalks: “These owners will talk about what it takes to get your books in order, how they share key data points with their teams, and what their staff has gained from the model.”
According to Zingerman’s — and this lines up with my personal experience — OBM can lead to better results: but more importantly, it lines up with the values of many small business owners. Side benefits include building commitment, better business decision-making, and teaching everyone to think like an owner.
Open Book Management isn’t something that can be implemented in a silo, however — a concept summarized well in a case study by the non-profit International Council on Hotel, Restaurant, and Institutional Education (CHRIE), “…small to medium enterprises can greatly benefit from open book management, the creation of a strong and qualitative mission statement, and a cohesive organizational culture that blends well with the external macro culture. Any one of these elements appears to be dependent upon another. For example, Zingerman’s, or any other company could have an open book management style of operation – but without a clear mission, the company would not do as well in the marketplace. Zingerman’s could have a great organizational culture, but without open book management, employees would not take ownership of their jobs, and therefore the bottom line would suffer.”
There are loads of articles and courses out there on Open Book Management — and plenty of restauranteurs who are glad to network and share their experiences. For a short introduction, I encourage you to check out Josh and Christine and their colleagues, as well as the folks at Plate, on March 5, 2024 from 1-2 pm Central. This is not a referral link — I’m just excited to get the word out, to help as many small business restaurants as I can in my time. I’ve always maintained — and as our mission goes — we believe the vibrancy and character of our neighborhood depends on thriving small businesses lending their unique vision to our communities.
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.
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.
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.
