The tax code allows individuals to deduct donations to charities only if they itemize on Form 1040’s Schedule A. They can’t claim contributions when they use the standard deduction amounts that are available to filers who don’t itemize.

A recent law change authorized a one-year suspension of those rules for calendar year 2020. The temporary change permits taxpayers who aren’t itemizers to claim as much as $300 for charitable contributions and also take the standard deduction.

Here are some FAQs about the new deduction.

Q. Where do filers claim the $300 on 2020’s version of the 1040 form?

A. According to the draft version that the IRS released in late August, they claim it on line 10b (“Charitable contributions if you take the standard deduction”) of the 1040’s Schedule 1 (Additional Income and Adjustments to Income).

Q. Why Schedule 1?

A. Because Schedule 1’s adjustments (they used to be called above-the-line deductions) authorize write-offs that all filers can claim—for, instance, their contributions to IRAs. It makes no difference that they’re itemizers or take standard deductions.  

Q. What’s in it for filers who claim the $300?

A. They also get to use the standard deduction amounts—something they couldn’t do under the old rules for 2019 and earlier years. 

Q. Will filers be able to claim the $300 on their 1040s for 2021?

A. No, unless there’s another one-year suspension for 2021.

Q. The rationale for $300 write-offs is that they encourage donations to charities. Is that going to happen?

A. Probably not. Savvy donors are aware that diminutive incentives trim their taxes by diminutive amounts.

To illustrate, joint filers John and Blanche expect 2020’s top bracket to be 22 percent (taxable income between $80,251 and $171,050). A $300 write-off decreases their taxes by $66.

Q. Deductions on Schedule 1 affect what they’re allowed to claim for medical deductions on Schedule A. Would there be a further decrease in their taxes?

The post Q&A: Tax Code Changes for Individuals in 2020 appeared first on Salt Lake City's CPA's.

In actuality, the new Form 1099-NEC isn’t entirely “new.” It’s an updated version of a form that was discontinued in the 1980s. But this new form may cause some unexpected headaches for business filers next year.

Background information: Previously, business entities used Form 1099-MISC to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. Yet, there are numerous other uses for Form 1099-MISC.

For instance, a business must report other income, like bonuses paid to salespeople at car dealerships, in Box 3. The nonemployee compensation paid to outside workers was reported in Box 7.

Now Form 1099-NEC has been reintroduced to avoid confusion caused by separate deadlines for Form 1099-MISC reporting of nonemployee compensation in Box 7 and all other Forms 1099-MISC. As a result, the IRS announced last year that it was resurrecting Form 1099-NEC for the 2020 tax year and thereafter. Note that this change applies to businesses of all sizes ranging from corporate conglomerates to neighborhood delis and bakeries. 

Generally, payers must file Form 1099-NEC by January 31 of the year following the year in which the services were performed. In 2020, the filing deadline will be February 1, 2021 as January 31 will fall on a Sunday. Although there’s no automatic 30-day extension to file Form 1099-NEC, an extension to file may be available for taxpayers experiencing hardships.

Another wrinkle: According to Publication 1220 recently released by the IRS, the restored Form 1099-NEC won’t be covered by the IRS 1099 Combined Federal/State Filing Program (CF/SF). Under the CF/SF Program, the IRS forwards data from certain key forms to the appropriate states.

Without this assistance, business entities may end up scrambling to meet state filing requirements or deadlines. The exact rules vary from state-to-state. Be forewarned!

For more information please visit: https://www.accountingweb.com/tax/irs/form-1099-nec-officially-replaces-1099-misc-for-reporting-payments-to-nonemployees

The post Form 1099-NEC Officially Replaces 1099-MISC for Reporting Payments to Nonemployees appeared first on Salt Lake City's CPA's.