Who Needs a 1099-MISC?

With the end of January approaching, we’re busy preparing forms 1099 for our clients.  One of the questions we get most often is: “Who needs a 1099, and why?”

Form 1099-MISC is used to report a number of different payments, but for this posting, we’ll discuss the most common one, nonemployee compensation.

Nonemployee compensation is a technical term for payments to subcontractors.  If you pay $600 or more to a subcontractor for services to your business in a year, you may be required to issue them a Form 1099-MISC.  Only subcontractors that are incorporated are exempt from the reporting rules.  This means they need to be a legal corporation – an LLC is still required to receive a 1099.  Family members who provide $600 or more in services are also required to get a Form 1099.

Remember, these are for services provided to your business – you don’t need to worry about issuing a 1099 to people like your personal cleaning lady or your occasional babysitter, nor do you need to issue a 1099 for payments for products like office supplies or computer purchases.

You should always make sure you have a completed Form W9, Request for Taxpayer Identification Number and Certification, from your subcontractors before you make the first payment to them.  This form will give you all the information you need to determine if you are required to issue them a Form 1099, and the name, address, and tax ID number to use when doing so.

The forms are due in the mail by January 31st of each year.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Do You Have A Job Or A Business?

Most people that start their own businesses do it because they are good at what they do, they enjoy it, and want the challenge and opportunity to put their individual spin on what they do every day.  In addition, many believe that owning a business leads to having more freedom both financially and in how you spend your time away from work.

Unfortunately, many people who run their own business end up with a job and not a business.  Sure, they probably have employees that work for them, an office or storefront, and their name listed as the owner of the business.  But in many cases, the business would cease to function without the daily interaction of the business owner.  The owner is the only one who knows how to do everything, and insists everything be done as well as they can do it themselves, which usually means they end up doing a little of everything.

One of the keys to building a business that can work well without your constant interaction is to become OK with the idea of having something done 80% as well as you can do it yourself.  Hiring the right people and training them well can put them in the position of being able to do what you’re doing almost as well as you do, which will then allow you to work more on your business rather than in your business.  It will also allow for better balance between running your business and your personal life.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Best Practices for Organizing Your Tax Documents

As we approach the middle of January, many people have already begun to receive documents used to prepare their taxes.  We see people employ all kinds of different way of organizing documents to bring to us, some are great, while others could use a little nudge in the right direction.

Below are some best practices to use when you’re getting ready to see your tax preparer, or to prepare your taxes yourself.

  • Group documents by type, such as W2s, 1099’s, Mortgage Interest Statements (1098), etc.
  • Remember in some cases that your forms 1099 from investment companies may be included with your year end statement.
  • If your tax preparer provides an organizer, take the few minutes to fill out at least the question and answer section, as well as to check the demographic information to be sure it’s still up to date.
  • Take a few moments and summarize your charitable contributions into two totals, one for cash contributions and one for non-cash items, like clothing and household goods.  Be sure that you have receipts for the donations, but in most cases your tax preparer won’t need to see them.  The same can be done with medical expenses.
  • If you’ve gotten any tax notices during the year that you’ve not provided to your tax preparer, be sure to include a copy with your information.
  • You won’t need the statements from your employer-provided retirement plans, like 401(k) and 403(b) accounts.

By following the few simple tips above, you’ll make the preparation of your taxes, whether by a professional or yourself, a much smoother and more efficient process.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Is College Worth It?

For many years, there has been a certain expectation among those graduating from high school.  Whether it’s put on student by their parents, teachers, or themselves, the expectation is that once you leave high school that you will continue on to college, preferably a four year college and the eventual Bachelor’s degree.

In more recent years though, that nearly automatic decision to continue on in education has come under increasing scrutiny due to the cost of a college education.  Others believe they don’t need a college degree for their future career.  To that point, 57% of American workers reported that they do not need a college degree to do their jobs.

Since 1982, the cost of a college degree has increased a staggering 740%, while earnings of college graduates have increased just 145%.  More and more families are falling into the “financial aid gap”, finding themselves too wealthy to get much, if any financial aid, but without the resources to finance a college education.

This increase in costs has led directly to an unprecedented level of student loan debt for college graduates as they and their families try to finance an increasingly expensive education.   A recent survey of college graduates shows the average student loan debt to be $35,200.  Student loans are relatively inexpensive in terms of interest costs, but they are one of the most difficult debts to be relieved of.  Most cannot be discharged in bankruptcy, and many private loans require a creditworthy co-signer who can be left on the hook for the loans if they student fails to make the payments.

Due to the cost and hazards of taking on student loans, it’s important to weigh the monthly payments that will result from borrowing against the income the graduate can reasonably expect to make.  For example, taking on significant debt to attend an expensive private college in order to work in a rewarding though relatively low paying profession, like social work or the fine arts may not be the best use of resources.

Not all the news is bad when it comes to higher education though.  Those with a Bachelor’s degree make on average $1.1 million more than those with only a high school diploma, while those with a graduate or master’s degree make $1.4 million more.  Those with a college degree experienced an unemployment rate during the height of the last recession that was roughly half than those with a high school diploma, and routinely report they are more satisfied in their work than those without advanced education.  The benefits continue into retirement, where those with a college degree typically earn 3 to 4 times more in retirement than those without a college degree.

With pros and cons on both sides of the debate, the key is to shop around and know what you’re trying to get out of your education.  Private schools generally have smaller class sizes and more manageable campuses, but the cost of tuition is on average three times as much as a public school.  Many less expensive public schools have large campuses and larger student bodies, making it easier for a student to feel lost among their peers.

When a student it working to find the right college for them, it’s important to take a hard look at the economics of the decision in addition to the academic reputation of the school and how well the student feels they would fit in socially.  Once that balance is struck, they can undertake what for most is the most exciting and eye-opening time of their lives.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.