Form 1099

Form 1099-NEC Makes a Comeback

In 1982, singer Steve Miller had a chart-topping song called Abracadabra.  The last time Form 1099-NEC saw the light of day? It was as well, 1982. Can you guess which one of these two things is making a comeback? Luckily, it’s not the song, it was pretty bad. However, for Form 1099-NEC it is making its return in the 2020 tax year.

For the last few decades, business owners have been responsible for using Form 1099-MISC to report nonemployee compensation. But with Form 1099-NEC, employers can say hello to a revamped form and goodbye to reporting nonemployee compensation on Form 1099-MISC.

Form 1099-NEC, which stands for Nonemployee Compensation, is a form that solely reports, wait for it… nonemployee compensation. Form 1099-NEC however, is NOT a replacement for Form 1099-MISC. Form 1099-NEC is only replacing the use of Form 1099-MISC for reporting independent contractor payments.

What does this mean?

Form 1099-MISC, Miscellaneous Income, is an information return that businesses use to report payment types, such as payments made to independent contractors. You can also use Form 1099-MISC to report other payments, like royalties and rents. Form 1099-MISC is like Form W-2 but for independent contractors and thus independent contractors use Form 1099-MISC to make tax payments based on what businesses paid them during the year.

Why are they bringing this form back?

Before the Protecting Americans from Tax Hikes Act (PATH Act), taxpayers could file one Form 1099-MISC to report nonemployee compensation and miscellaneous income items by February 28 each year. In 2015, the PATH Act changed the Form 1099-MISC due date to January 31 for reporting nonemployee compensation.

Because of the due date change for nonemployee compensation, taxpayers had to begin separating nonemployee compensation using two Forms 1099. This change not only caused a lot of confusion for employers and taxpayers, but it also caused the IRS to mistakenly treat forms received after the January 31 deadline as late returns. The IRS has brought back Form 1099-NEC to separate nonemployee expenses and clear up the confusion.

A couple of caveats

It is important to note that the 2020 Form 1099-MISC and the 2020 Form 1099-NEC are to be used for reporting payments made in 2020 during the 2021 tax season. Do not use these forms for reporting 2019 payments during the 2020 tax season. In addition, do not use Form 1099-NEC to report personal payments. It is only to be used for payments if you are in a trade or business for profit. Form 1099-NEC must be given to nonemployees by January 31, the year after the reporting year. For example, you must give 2020 forms by Feb. 1, 2021 (because Jan. 31, 2021, is a Sunday). The forms must be filed with the IRS before Feb. 1, 2021.

The bottom line is this: Fill out Form 1099-NEC if you have any workers you paid $600 or more to in nonemployee compensation and if you’re going to listen to anything from 1982, you can’t go wrong with maybe some Eddie Money or Stevie Wonder.

For more information on how Flexi software can help your company power through your accounting challenges, reach out to us 24/7 because as you know accounting never sleeps! Happy Filing.



Category: Uncategorized

Tags: ,

period accounting

What Exactly Is Period Accounting?

To understand, analyze, and strategize your business, you need first to ensure that your period accounting is correct. Period accounting is the time covered by your financial statements in the reporting period. 

Your period accounting is correct only if you ensure you are correctly deferring revenue and recognizing associated costs. Failing to correctly claim costs will cause a spike in your profit and loss accounts, rendering your analysis null and void. Analyzing numbers without considering their relationship does not provide you with the multidimensional analysis you need to succeed as a business.

It is common for businesses to split their accounting systems between two platforms, one for invoices and one for accounting. Neither platform on its own can provide you with enough information to fully analyze your business. For example: your invoice engine isn’t concerned with period accounting, and your accounting system only indexes costs by supplier, not split between contracts and projects or against sales.

Adopting a PSA (professional services automation) tool can act as a key differentiator for period accounting. A PSA tool will offer indexing capabilities that a traditional accounting system does not. Adopting a system to connect prices and asset values for all financial transactions is a necessary step. Being able to cross-index against the project or customer on which you’ve incurred costs gives visibility to the true customer margins. 

A PSA tool allows you to capture and control business processes to provide a full picture of your company’s profitability. These accounting events need to also wind up in your accounting system.

By using a model like the ‘null’ model, the invoice line trigger model, the invoice post model, or the journal post model, you can use your PSA tool to drive accounting processes to help you fully analyze your business. 

Flexi aims to simply accounting processes

Simplifying accounting processes to make analysis and strategy easy is Flexi’s goal. Trusted by enterprises for 25+ years, Flexi is among the most experienced accounting software providers in both the cloud and on-premise markets.

Submit your information and get a demo of the Flexi suite today. 


Category: Blog, Uncategorized

Tags: , ,