Sunday, January 17, 2021

Dry (Tax)

 "File and furnish a copy of Form 1099-NEC on paper or electronically by February 1, 2021."

So says the IRS. That's new, and different. Does it affect you?  It might, if you are a writer. Writers who make a profit from their writing in three out of five years are deemed to be professional writers (as opposed to hobbyists).  
 
Writing for profit might make you a small business owner, and as such, you should have an EIN (employer identification number). An EIN is a good idea, because you want as few persons as possible to know your social security number. For more information on getting an EIN free:
https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers

If you do business as an LLC (even a single member LLC), you need to file an annual report with your state, and pay a nominal annual filing fee.  You may  also need to file informational filings. 
 
In past years, authors would file a 1099-MISC  (line 7, the Non-Employee Compensation box) with any lawyer to whom you'd paid any amount, and to any non-incorporated business or individual (perhaps a webmistress or a researcher or a cover artist) that you'd paid $600 or more.
 
Also--which may come as a nasty surprise to authors and their fans--if you paid $600 or more (or equivalent value) in prizes and awards to a lucky contest winner, you have to file an informational return about that.  I am not clear if that is still 1099-MISC or 1099-NEC.
https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return
 
For 2020, the Non Employee Compensation box is gone from the 1099-MISC. Instead, you have to use Form 1099-NEC. You can get the forms free from the IRS, online if your equipment qualifies, or by mail if you file paper.
https://www.irs.gov/forms-pubs/order-products

With the 1099-MISC, you had until Feb 28th to file.  Now, you have to get your forms in the mail and postmarked by January 31st (except the USPS is not going to be doing any postmarking on Sunday Jan 31, so the deadline is Monday Feb 1st this year.)

The info is a little confusing about whether payments to lawyers still go on 1099-MISC or 1099-NEC. The Taxpayer "Relief" Act of 1997 appears to have been written by lawmakers deeply distrustful of lawyers, but all should comply with the super onerous requirements!

Resources:
https://www.thebalancecareers.com/hobbyist-vs-pro-tax-guidelines-for-book-authors-2799859
 
All the best,
Rowena Cherry 
 
Posted by RowenaBCherry at 10:33 AM
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