From 1099s to Deductions: How to make tax season stress-free for your business

By Ray Brown, CPA and Garrett Ofenloch

Your business made it through the year and is looking ahead to the next – but first, there’s tax season.

But with proper documentation and planning, tax season needn’t be stressful. The following are some tips to help you confidently sail into the new year.

Sorting through 1099s

Completing 1099s is an annual ritual for many businesses, but not all 1099s are created equal. Different 1099s apply, depending on the circumstances:

• 1099-NEC: Businesses commonly issue 1099s to nonincorporated persons providing $600 or more in services cumulatively over the year. Transactions with incorporated businesses do not require a 1099. The exception is payments to attorneys, who must receive a 1099-NEC even if they are incorporated. LLCs get 1099s unless they are S Corporations, which is indicated on their W-9s.
• 1099-MISC: Also commonly used, the 1099-Miscellaneous applies to rent, royalties, and other income such as prizes or awards.
• 1099-INT: Businesses issue the 1099-Interest of $10 or more paid on loans.
• 1099-R: Retirees who receive distributions from the company plan receive the 1099-Retirement.

Some employment circumstances do not require a 1099. For instance, paying someone for services when you’re not engaged in a trade or business – perhaps hiring someone to perform home repairs – doesn’t trigger a 1099. Note, however, that there is an exception for people hired to perform services on rental properties.

You must submit your 1099s with the Form 1096 cover sheet and on official printed or online forms. Recipients provide all the identifying information needed on the W-9, so getting them upfront prevents having to track them down at the end of the year.

IRS emphasis on 1099s

The IRS is emphasizing 1099 due dates as it tries to track down unreported income. The 1099-NEC is due by paper or electronically by January 31, 2025, with no extensions allowed. Other 1099s are due to the recipients by January 31, 2025, and filed electronically with the IRS by March 31, 2025, with 30-day extensions granted by filing form 8809.

The IRS now requires e-filing for 10 or more tax information forms in the aggregate, including 1099-NEC, 1099-MISC, and W-2.

Noncompliance incurs penalties of $60 per information return for filing 30 days late, $120 for filing from 31 days late until August 1, 2025, and $310 after August 1. Intentional disregard draws penalties of $630 per return. Penalties will rise for tax year 2025.

Electronic filing

Electronic federal returns can be filed electronically by accountants and payroll services and through software programs such as QuickBooks.

The IRS’ new Information Reporting Intake System (IRIS) on IRS.gov is free and requires no special software. Because it requires users to have a transmitter control code (TCC), filers are advised not to wait until the last minute to use the system.

With the TCC in hand, users can access IRIS to create, upload and edit information. Downloadable templates can be filled in and uploaded to the system.

What’s missing

The Boyer & Ritter team often sees these overlooked year-end compliance issues:

• Personal use of company car (PUCC): When owners and employees receive company cars, the IRS considers the mileage accumulated on commuting as personal use, unless the individual is on call 24/7. All personal use of company cars should be reported and go on the W-2.
• Two percent shareholder health insurance benefits: A 2 percent shareholder in an S-corporation must report participation in a group health insurance plan on the W-2 for tabulation as taxable income. However, that same amount flows through to owners as a deduction and can also count as a deduction on personal income taxes. The IRS could deny the deductions if you don't report it as income on the W-2.
• Group term life insurance: Coverage over $50,000 provided to an employee must be reported on the W-2, calculated under a formula based on premiums.

Due diligence

Taking care of a few housekeeping matters for year-end planning can simplify tax-season reporting:

• Reconcile Quickbooks: By reconciling the cash account and bank statements, credit card accounts, and loan balances, you can ensure that nothing is missed and all deductions are captured. If something is off, look for the “why” by reviewing profit and loss reasonableness. Capitalize any large expenditures on tangible assets over $2,500, including proceeds from vehicle trade-ins.
• Break out meals and entertainment: Be aware that Quickbooks’ “meals and entertainment” field doesn’t align with new rules created by the Tax Cuts and Jobs Act. For federal purposes, meals and beverages get a 50 percent deduction, while entertainment gets 0 percent. For example, treating a client to a round of golf or a hockey game ticket is considered nondeductible entertainment, but any meals and beverages bought for the occurrence are 50 percent deductible. One exception: Classify company events such as picnics or holiday parties as “office expenses” because they are 100 percent deductible.
• Employee year-end payroll bonuses: Year-end bonus checks lower company profits and save money on taxes, but they must be paid in the actual year (with the exception of non-officers awarded bonuses on an accrual basis early in the next year).
• Tax bonuses to owners to meet Safe Harbor: In some cases, such as S-Corporations that don’t want to pay varying quarterly estimates, it’s possible to avoid late payments and interest by running owners’ bonuses through payroll, withholding everything for taxes because those payments aren’t subject to underpayment interest owed on quarterly estimates. However, paying quarterly estimates upfront remains preferable.
• Funding employer portion of retirement plans: Retirement plan contributions are often determined at the end of the year based on profit or compensation. Make that contribution before filing the return.
• Equipment purchases: Don’t spend money just to get a tax deduction, however buying something before December 31 helps reduce your tax liability if needed soon.
• Depreciation strategies: The bonus depreciation for the 2024 tax year is 60 percent, while Section 179, a flexible depreciation option, is now accepted in most states, allowing filers to take significant depreciation deductions. Section 179 limitations remain on vehicles and are significantly higher for purchases of vehicles weighing more than 6,000 pounds.

Important tax season deadlines

• January 15, 2025: 2024 quarter 4 estimated payment due.
• January 31, 2025: 2024 payroll-related returns due; 2024 form 1099 due to recipients; 2024 W-2 due to employees.
• March 17, 2025: Partnerships and S-Corporation filing deadline (unless on extension).
• April 15, 2025: C-Corporation and individual filing deadline, unless on six-month extensions. Extensions provide filing grace only. They do not provide additional time to pay taxes owed.

Worth watching

As of fall 2024, two tax provisions are on hold due to court stays. At end-of-year 2024, their status remained uncertain, but businesses should be familiar with the rules in case they have to comply in the future:

• Beneficial Ownership Reporting: Meant to fight money laundering by identifying the owners of illegitimate shell companies, the deadline for Beneficial Ownership Reporting for companies created before January 1, 2024, had been January 1, 2025.

Under the rule, many companies had to report their beneficial owners – those exercising substantial control or owning at least 25 percent of a company – with proof of identity. Notable exceptions included nonprofits and those “large operating companies” with more than 20 full-time employees, operations in the U.S., and $5 million in gross receipts or sales. Although the requirements are on hold, many companies are complying.

• New overtime rules: A Department of Labor rule had called for raising the thresholds for executive, administrative, and professional exemption from overtime pay to $844 a week ($43,888 a year), effective July 1, 2024, and again to $1,218 a week ($58,656 a year), effective January 1, 2025. The court stay reverts overtime pay thresholds to the old salary of $684 a week ($35,568 a year).

Since the 2024 election, watch for these campaign-trail promises to emerge as legislation in the Republican-controlled House and Senate for possible approval by the Republican-controlled White House.

• Tax Cuts and Jobs Act (TCJA): The TCJA helped many taxpayers reduce their tax burdens by lowering tax brackets. However, with one party controlling Washington and the president who championed the original TCJA back in the White House, those tax brackets could be blocked from sunsetting.
• No tax on tips: A hot campaign topic could become law because the W-2 reporting framework is already in place to segregate tip income. However, its passage could stall over revenue concerns.
• No tax on overtime earnings: Eliminating taxes on overtime pay could help fill labor shortages, but the lack of a reporting framework for standard vs. overtime wage reporting could complicate the chances of passage.
• TCJA extension: Other provisions that could be introduced or reinstated. Another cut in the corporate tax rate, reinstatement of 100 percent bonus depreciation, reduction in the long-term capital gains tax rate, repeal of the SALT itemized deduction cap, and an increase in the child tax credit are all possible. Stay tuned!

Need up-to-the-minute expertise in tax planning and preparation? The Boyer & Ritter team is ready to assist you and your business with knowledgeable, precise guidance on the fluctuating world of tax compliance and limiting tax liability.

Your business made it through the year and is looking ahead to the next – but first, there’s tax season.

But with proper documentation and planning, tax season needn’t be stressful. The following are some tips to help you confidently sail into the new year.

Sorting through 1099s

Completing 1099s is an annual ritual for many businesses, but not all 1099s are created equal. Different 1099s apply, depending on the circumstances:

• 1099-NEC: Businesses commonly issue 1099s to nonincorporated persons providing $600 or more in services cumulatively over the year. Transactions with incorporated businesses do not require a 1099. The exception is payments to attorneys, who must receive a 1099-NEC even if they are incorporated. LLCs get 1099s unless they are S Corporations, which is indicated on their W-9s.
• 1099-MISC: Also commonly used, the 1099-Miscellaneous applies to rent, royalties, and other income such as prizes or awards.
• 1099-INT: Businesses issue the 1099-Interest of $10 or more paid on loans.
• 1099-R: Retirees who receive distributions from the company plan receive the 1099-Retirement.

Some employment circumstances do not require a 1099. For instance, paying someone for services when you’re not engaged in a trade or business – perhaps hiring someone to perform home repairs – doesn’t trigger a 1099. Note, however, that there is an exception for people hired to perform services on rental properties.

You must submit your 1099s with the Form 1096 cover sheet and on official printed or online forms. Recipients provide all the identifying information needed on the W-9, so getting them upfront prevents having to track them down at the end of the year.

IRS emphasis on 1099s

The IRS is emphasizing 1099 due dates as it tries to track down unreported income. The 1099-NEC is due by paper or electronically by January 31, 2025, with no extensions allowed. Other 1099s are due to the recipients by January 31, 2025, and filed electronically with the IRS by March 31, 2025, with 30-day extensions granted by filing form 8809.

The IRS now requires e-filing for 10 or more tax information forms in the aggregate, including 1099-NEC, 1099-MISC, and W-2.

Noncompliance incurs penalties of $60 per information return for filing 30 days late, $120 for filing from 31 days late until August 1, 2025, and $310 after August 1. Intentional disregard draws penalties of $630 per return. Penalties will rise for tax year 2025.

Electronic filing

Electronic federal returns can be filed electronically by accountants and payroll services and through software programs such as QuickBooks.

The IRS’ new Information Reporting Intake System (IRIS) on IRS.gov is free and requires no special software. Because it requires users to have a transmitter control code (TCC), filers are advised not to wait until the last minute to use the system.

With the TCC in hand, users can access IRIS to create, upload and edit information. Downloadable templates can be filled in and uploaded to the system.

What’s missing

The Boyer & Ritter team often sees these overlooked year-end compliance issues:

• Personal use of company car (PUCC): When owners and employees receive company cars, the IRS considers the mileage accumulated on commuting as personal use, unless the individual is on call 24/7. All personal use of company cars should be reported and go on the W-2.
• Two percent shareholder health insurance benefits: A 2 percent shareholder in an S-corporation must report participation in a group health insurance plan on the W-2 for tabulation as taxable income. However, that same amount flows through to owners as a deduction and can also count as a deduction on personal income taxes. The IRS could deny the deductions if you don't report it as income on the W-2.
• Group term life insurance: Coverage over $50,000 provided to an employee must be reported on the W-2, calculated under a formula based on premiums.

Due diligence

Taking care of a few housekeeping matters for year-end planning can simplify tax-season reporting:

• Reconcile Quickbooks: By reconciling the cash account and bank statements, credit card accounts, and loan balances, you can ensure that nothing is missed and all deductions are captured. If something is off, look for the “why” by reviewing profit and loss reasonableness. Capitalize any large expenditures on tangible assets over $2,500, including proceeds from vehicle trade-ins.
• Break out meals and entertainment: Be aware that Quickbooks’ “meals and entertainment” field doesn’t align with new rules created by the Tax Cuts and Jobs Act. For federal purposes, meals and beverages get a 50 percent deduction, while entertainment gets 0 percent. For example, treating a client to a round of golf or a hockey game ticket is considered nondeductible entertainment, but any meals and beverages bought for the occurrence are 50 percent deductible. One exception: Classify company events such as picnics or holiday parties as “office expenses” because they are 100 percent deductible.
• Employee year-end payroll bonuses: Year-end bonus checks lower company profits and save money on taxes, but they must be paid in the actual year (with the exception of non-officers awarded bonuses on an accrual basis early in the next year).
• Tax bonuses to owners to meet Safe Harbor: In some cases, such as S-Corporations that don’t want to pay varying quarterly estimates, it’s possible to avoid late payments and interest by running owners’ bonuses through payroll, withholding everything for taxes because those payments aren’t subject to underpayment interest owed on quarterly estimates. However, paying quarterly estimates upfront remains preferable.
• Funding employer portion of retirement plans: Retirement plan contributions are often determined at the end of the year based on profit or compensation. Make that contribution before filing the return.
• Equipment purchases: Don’t spend money just to get a tax deduction, however buying something before December 31 helps reduce your tax liability if needed soon.
• Depreciation strategies: The bonus depreciation for the 2024 tax year is 60 percent, while Section 179, a flexible depreciation option, is now accepted in most states, allowing filers to take significant depreciation deductions. Section 179 limitations remain on vehicles and are significantly higher for purchases of vehicles weighing more than 6,000 pounds.

Important tax season deadlines

• January 15, 2025: 2024 quarter 4 estimated payment due.
• January 31, 2025: 2024 payroll-related returns due; 2024 form 1099 due to recipients; 2024 W-2 due to employees.
• March 17, 2025: Partnerships and S-Corporation filing deadline (unless on extension).
• April 15, 2025: C-Corporation and individual filing deadline, unless on six-month extensions. Extensions provide filing grace only. They do not provide additional time to pay taxes owed.

Worth watching

As of fall 2024, two tax provisions are on hold due to court stays. At end-of-year 2024, their status remained uncertain, but businesses should be familiar with the rules in case they have to comply in the future:

• Beneficial Ownership Reporting: Meant to fight money laundering by identifying the owners of illegitimate shell companies, the deadline for Beneficial Ownership Reporting for companies created before January 1, 2024, had been January 1, 2025.

Under the rule, many companies had to report their beneficial owners – those exercising substantial control or owning at least 25 percent of a company – with proof of identity. Notable exceptions included nonprofits and those “large operating companies” with more than 20 full-time employees, operations in the U.S., and $5 million in gross receipts or sales. Although the requirements are on hold, many companies are complying.

• New overtime rules: A Department of Labor rule had called for raising the thresholds for executive, administrative, and professional exemption from overtime pay to $844 a week ($43,888 a year), effective July 1, 2024, and again to $1,218 a week ($58,656 a year), effective January 1, 2025. The court stay reverts overtime pay thresholds to the old salary of $684 a week ($35,568 a year).

Since the 2024 election, watch for these campaign-trail promises to emerge as legislation in the Republican-controlled House and Senate for possible approval by the Republican-controlled White House.

• Tax Cuts and Jobs Act (TCJA): The TCJA helped many taxpayers reduce their tax burdens by lowering tax brackets. However, with one party controlling Washington and the president who championed the original TCJA back in the White House, those tax brackets could be blocked from sunsetting.
• No tax on tips: A hot campaign topic could become law because the W-2 reporting framework is already in place to segregate tip income. However, its passage could stall over revenue concerns.
• No tax on overtime earnings: Eliminating taxes on overtime pay could help fill labor shortages, but the lack of a reporting framework for standard vs. overtime wage reporting could complicate the chances of passage.
• TCJA extension: Other provisions that could be introduced or reinstated. Another cut in the corporate tax rate, reinstatement of 100 percent bonus depreciation, reduction in the long-term capital gains tax rate, repeal of the SALT itemized deduction cap, and an increase in the child tax credit are all possible. Stay tuned!

Need up-to-the-minute expertise in tax planning and preparation? The Boyer & Ritter team is ready to assist you and your business with knowledgeable, precise guidance on the fluctuating world of tax compliance and limiting tax liability.

Ray Brown is chair of the Small and Entrepreneurial Business Consulting practice. In his practice, Ray serves family-owned and privately-held businesses in Pennsylvania and surrounding states and provides accounting, auditing and tax services. Contact Ray at 717-761-7210 or rbrown@cpabr.com

Garrett Ofenloch provides accounting and tax services for a variety of clients and industry groups.  Garrett supports Boyer & Ritter’s Small and Entrepreneurial Business Consulting group. Contact Garrett at 717-761-7210 or gofenloch@cpabr.com.