It’s that time of year! January is the big push to get all of your tax forms out to employees and sub-contractors
The bookkeeping team at Gold Standard is always very thorough when categorizing your labor costs. If this is done correctly, you can deduct all 1099 subcontractor work! That can be a huge deduction depending on your industry.
Tax law states that compensation for services rendered to your business is a deductible business expense, provided that your expenses are ordinary and necessary and reasonable in amount. The tax court has stated that the non-filing of required Form 1099s can cast doubt on the legitimacy of the deduction claimed.
Aside from missing out on huge deductions, the cost of not filing Form 1099s could lead to a financial penalty. For the 2019 Form 1099s, the potential penalties are $270 per Form 1099, or $550 per Form 1099 if the IRS determines that you intentionally disregarded the requirement.
On the other hand, our skilled bookkeepers know when it is advantageous NOT to issue a 1099. For instance, you don’t report the following payments to independent contractors on a Form 1099 even if total payments exceed $600 for the year if:
· Payments made to a corporation
· Payments made to a limited liability company taxed as a corporation
· Payments made by credit card or a third-party payment network such as PayPal
These still would be used as deductions, but a 1099 is not necessary.
What is your takeaway?
Having a good foundation for your tax return- including higher deductions- starts with your bookkeeping.
If you would like more information about our bookkeeping services, click here.
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