Featured Posts, Small Business, Tax

Understanding 1099-MISC and 1099-NEC: Reporting Rules and Key Changes in 2026

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Issuing Forms 1099-NEC and 1099-MISC is a key compliance responsibility for business owners — and also one of the most common areas of confusion. With new reporting thresholds taking effect in 2026 under the One Big Beautiful Bill Act, now is the right time to make sure you understand the rules and prepare your systems accordingly.

This guide covers:

  • When 1099s are required
  • When 1099s are not required
  • How payment method and entity type affect reporting
  • What’s changing starting in 2026

What Are Form 1099-NEC and Form 1099-MISC?

Form 1099-NEC (Nonemployee Compensation)

Form 1099-NEC is used to report payments for services performed by non-employees, such as:

  • Independent contractors
  • Freelancers
  • Consultants

If you pay a qualifying contractor $600 or more in a calendar year (through 2025), you are generally required to issue Form 1099-NEC.

Form 1099-MISC (Miscellaneous Income)

Form 1099-MISC is used to report other types of payments, including:

  • Rent
  • Royalties
  • Prizes and awards
  • Certain legal settlements

These payments have also historically been reportable once they reach $600 in a year.

Important: When 1099s Are NOT Required

Many business owners over-file 1099s because they are unaware of the key exclusions. Two factors determine whether a 1099 is required:

  1. How the payment was made, and
  2. The entity type of the payee

Both must be considered.

1. No 1099 Is Required for Non-Cash or Third-Party Payments

You generally do not issue Form 1099-NEC or 1099-MISC if payments were made using non-cash payment methods, including:

  • Credit cards
  • Debit cards
  • PayPal
  • Venmo
  • Zelle (business accounts)
  • Stripe, Square, or other third-party payment processors

Why this matters:
These payments are reported by the payment processor on Form 1099-K, not by your business.

Key takeaway:
If a vendor or contractor was paid entirely through a credit card or third-party platform, you should not issue a 1099, even if total payments exceed the reporting threshold.

2. 1099s Are Often NOT Required Based on the Payee’s Entity Type

Even when payments are made by check, ACH, wire, or cash, a 1099 may not be required depending on who you paid.

Typically NOT Required to Receive a 1099

You generally do not issue a 1099 for payments made to:

  • C corporations
  • S corporations

Important Exceptions

A 1099 may still be required for certain payments to corporations, including:

  • Legal services (attorneys and law firms)
  • Medical or healthcare payments
  • Certain gross proceeds paid to attorneys

These exceptions are common problem areas and should be reviewed carefully.

Typically REQUIRED to Receive a 1099

You generally must issue a 1099 when thresholds are met and payments are made to:

  • Sole proprietors
  • Single-member LLCs
  • Partnerships
  • Multi-member LLCs taxed as partnerships

This is why collecting a completed W-9 before issuing payment is critical.

Bottom Line

A 1099 is generally required only when:

  • Payment is made by cash, check, ACH, or wire, and
  • The payee is a non-corporate entity (or a corporation subject to an exception)

Standard Filing Rules (Through Tax Year 2025)

For payments made in 2025 (forms due January 2026):

  • 1099s are required when payments total $600 or more
  • Copies must be provided to recipients by January 31
  • Forms must be filed with the IRS by the applicable deadline
  • Electronic filing is required if you file 10 or more information returns

What’s Changing in 2026 Under the One Big Beautiful Bill Act

Beginning with payments made in 2026 (forms filed in early 2027), important changes take effect.

1. Reporting Threshold Increases to $2,000

  • 1099-NEC threshold: $600 → $2,000
  • 1099-MISC threshold: $600 → $2,000

This significantly reduces the number of forms many small businesses will need to file.

2. Threshold Will Adjust for Inflation Starting in 2027

Beginning with the 2027 tax year, the $2,000 threshold will be indexed annually for inflation — modernizing a rule that hadn’t changed in decades.

3. Backup Withholding Threshold Also Increases

The threshold that triggers backup withholding when a payee fails to provide a valid Tax ID also increases to $2,000, with future inflation adjustments.

What This Means for Your Business

  • Less administrative burden due to fewer required filings
  • Improved efficiency for businesses working with multiple contractors
  • Continued need for strong recordkeeping

It’s important to remember:
Income is still taxable even if no 1099 is issued. Reporting thresholds and exclusions do not change the taxability of income — only the reporting obligation.

Best Practices for Business Owners

✔ Collect W-9s before making payments
✔ Track payment method, not just payment amount
✔ Confirm vendor entity classification annually
✔ Review contractor activity before year-end
✔ Update accounting systems for 2026 changes

Featured Posts, Tax

Top 10 Tax Changes You Should Know About from the One Big Beautiful Bill Act

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On July 4, 2025, the One Big Beautiful Bill Act was signed into law, bringing some of the most meaningful tax changes we’ve seen in years. These updates impact high W-2 earners, business owners, families, and retirees alike — and many of the changes affect tax planning decisions starting now.

Below is a clear breakdown of the top 10 changes and what they may mean for you.

1. Individual Tax Rates Are Now Permanent

The individual tax brackets and lower rates that were originally set to expire at the end of 2025 are now permanent.

Why this matters:
This provides long-term certainty for tax planning and helps avoid unexpected tax increases in future years — especially for higher-income earners.

2. Higher Standard Deduction (Indexed for Inflation)

The standard deduction has increased and will continue adjusting for inflation:

  • $15,750 – Single
  • $31,500 – Married Filing Jointly
  • $23,625 – Head of Household

Why this matters:
Most taxpayers benefit from a larger automatic deduction without needing to itemize.

3. New Deductions for Tips and Overtime (Through 2028)

Eligible taxpayers may deduct:

  • Up to $25,000 of qualified tip income
  • A portion of overtime pay

These deductions apply even if you take the standard deduction, with income phaseouts.

Why this matters:
This lowers taxable income for many workers and households with variable compensation.

4. Auto Loan Interest Deduction (U.S.-Assembled Vehicles)

Interest paid on loans for new, personal-use vehicles assembled in the U.S. up to $10,000 annually may now be deductible (through 2028), subject to limits.

Why this matters:
This can reduce the real cost of financing a vehicle purchase — especially when coordinated with other tax strategies.

5. SALT Deduction Cap Increased (Temporarily)

The State and Local Tax (SALT) deduction cap has increased from $10,000 to $40,000 for tax years 2025–2029.

Why this matters:
This is a major benefit for homeowners and taxpayers in high-tax states.

6. New $6,000 Senior Deduction

Taxpayers age 65 and older may qualify for an additional $6,000 deduction, subject to income limits, through 2028.

Why this matters:
This helps reduce taxable income during retirement years and may improve the taxability of Social Security benefits.

7. Child Tax Credit Increased and Indexed

The Child Tax Credit has increased (e.g., $2,200 per child for 2025) and will now adjust for inflation going forward.

Why this matters:
Families with children receive greater and more predictable tax relief year after year.

8. 20% Qualified Business Income (QBI) Deduction Preserved

The 20% QBI deduction for eligible pass-through business owners remains in place.

Why this matters:
This continues to be one of the most powerful tax benefits for small business owners, contractors, and professionals.

9. Bonus Depreciation and Capital Investment Incentives Remain

Businesses can continue to expense certain equipment and capital purchases more quickly through bonus depreciation and expensing rules.

Why this matters:
This encourages reinvestment and can significantly reduce taxable income in high-profit years.

10. Estate and Gift Tax Exemptions Made Permanent

The higher lifetime estate and gift tax exemption is now permanent and indexed for inflation.

Why this matters:
This provides clarity for long-term wealth transfer, estate planning, and gifting strategies.

Tax law is never one-size-fits-all. What creates savings for one taxpayer may require careful planning for another.

That’s why proactive strategy matters.

If you have questions about how these changes apply to your situation, are concerned about potential risks, or want to explore ways to optimize your tax position under the new law, now is the time to have that conversation.

At K Smith Company, we partner with our clients to provide clarity, foresight, and strategic guidance — not just tax filings.

Featured Posts, Small Business

Top Financial Mistakes of Small Business Owners

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Starting and managing a small business successfully is a complex task that requires a good understanding of various aspects of business, especially financial management. Here are some of the top financial mistakes small business owners tend to make in their first five years:

**Lack of a Business Plan**: This is the foremost mistake that many small business owners make. A business plan gives you a roadmap of how your business will operate, including financial projections. Without a plan, you may lack a clear idea of your income, expenses, and profitability.

**Mixing Personal and Business Finances**: Many small business owners fail to separate their personal finances from their business finances. This can lead to a lot of confusion when it comes to tracking revenue, expenses, and tax obligations.

**Not Setting a Budget**: A budget is essential to keep track of your income and expenses. It helps you to understand where your money is going and how you can control your costs.

**Neglecting Cash Flow Management**: Cash flow is the lifeblood of any business. Failing to manage your cash flow can result in not having enough funds to cover day-to-day operational costs or unexpected expenses.

**Underestimating Expenses**: Many small business owners underestimate the costs of running their business, which can lead to financial difficulties. It’s important to consider all possible expenses, including rent, utilities, employee salaries, taxes, insurance, and so on.

**Not Saving for Taxes**: Many small businesses get into trouble by not saving for tax obligations. It’s important to set aside money for taxes and to understand your tax obligations.

**Not Investing in Growth**: While it’s important to control costs, it’s equally important to invest in growth. This could mean investing in marketing, new equipment, or hiring additional staff.

**Poor Debt Management**: Taking on too much debt or not managing existing debt effectively can lead to serious financial problems for a small business.

**Not Tracking Expenses**: Keeping track of all business expenses is crucial for financial planning and tax purposes. Failing to do so can result in a lack of understanding of where your money is going and potential tax problems.

**Lack of Financial Knowledge**: Many small business owners have great ideas and skills related to their business, but they lack knowledge in financial management. It’s important to either learn about business finance or hire someone who can manage these aspects.

Avoiding these mistakes can help small business owners increase their chances of financial success in their early years and beyond. If you want further guidance on how to avoid making these mistakes and a trusted partner in helping your entrepreneurial wealth grow, explore our services today at K Smith Company.

Featured Posts, Small Business, Tax

How to prepare your small business for tax season

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Preparing your small business for tax season involves several essential steps to ensure a smooth and compliant process. Here’s a step-by-step guide to help you prepare:

  1. Organize your financial records: Gather and organize all your financial records, including income and expense documents, receipts, invoices, bank statements, and any other relevant financial documents. Ensure that everything is neatly categorized and easily accessible.
  2. Review tax deadlines: Familiarize yourself with important tax deadlines, including the deadline for filing your business tax return and any estimated tax payments. These deadlines may vary depending on your business structure (e.g., sole proprietorship, partnership, corporation) and the tax jurisdiction you operate in.
  3. Separate business and personal finances: Establish separate bank accounts and credit cards for your business to keep your personal and business finances separate. This separation simplifies recordkeeping, ensures accurate reporting, and reduces the chances of errors.
  4. Classify expenses correctly: Ensure that all your expenses are correctly classified as either business expenses or personal expenses. This includes keeping track of deductible expenses such as office supplies, equipment, marketing costs, and employee wages. Consult with a tax professional or review the IRS guidelines to ensure proper classification.
  5. Understand deductible expenses: Familiarize yourself with the deductible expenses applicable to your business. The tax code provides deductions for various expenses, such as home office expenses, travel expenses, and health insurance premiums. Identifying and documenting these deductions can help lower your tax liability.
  6. Keep track of mileage: If you use a vehicle for business purposes, maintain a mileage log to track your business-related mileage accurately. The IRS provides a standard mileage rate that you can use to calculate your mileage deduction. Alternatively, you can track actual vehicle expenses, such as fuel, maintenance, and repairs.
  7. Calculate and pay estimated taxes: If your business is expected to owe a significant amount of taxes, you may need to make quarterly estimated tax payments throughout the year. Estimate your tax liability and make timely payments to avoid penalties and interest.
  8. Review payroll and employment taxes: If you have employees, ensure that you have accurately withheld and paid payroll taxes, including federal income tax, Social Security tax, and Medicare tax. Verify that your employee records and payroll reports are up to date and accurate.
  9. Seek professional assistance: Consider consulting with a tax professional or accountant who specializes in small businesses. They can provide valuable advice, help you navigate complex tax regulations, and ensure compliance with applicable laws.
  10. File your tax return on time: Complete your tax return accurately and file it by the deadline. If needed, file for an extension in advance to avoid penalties. Double-check all calculations and review your return for any errors or omissions before submitting it.

Remember, tax regulations can be complex and vary across jurisdictions. K Smith Company is always available as a trusted tax professional who can provide personalized guidance based on your specific circumstances. Schedule a consultation with us today!

Featured Posts, Investing, Personal Finance

What Is Your Net Worth?

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How many times have you googled Net worth of *insert celebrity name* ?? I know I’ve done this quite a few times. We often hear people mention the term, but do you know how to calculate your net worth? If not, let’s sip some latté and break this thing down…

Quick Accounting 101 Lesson:

Assets are anything owned of use or value that can be converted into cash. Assets include cash, investments, land, building, equipment, etc. On the other side, we have liabilities. A liability is money owed; an obligation against an asset.

Your net worth is basically everything that you own minus everything that you owe. If you sold all your assets and paid off all debts, how much money would you have left over? Consider this your financial report card. It’s a reflection of your financial health. Calculating your net worth should be one of the first steps to achieving your financial goals. You can’t plot a financial goal map if you don’t know where you currently stand. 

How To Calculate Net Worth:

List all assets and the estimated value.

  • Checking and savings account balance
  • Brokerage/Investment accounts
  • Estimated house/vehicle value
  • Jewelry and collectibles

List all debt.

  • Credit card debt
  • Mortgage balance
  • Car loan balance
  • Medical bills owed
  • Student loans

Subtract your total debt from your total assets. You have now calculated your net worth!!!

Net Worth Analysis:

Okay, so you’ve calculated your net worth. If your assets exceed your liabilities, then you have a positive net worth. Now, if your assets do not exceed your liabilities, then you have a negative net worth. If you calculated a negative net worth, don’t worry. A negative net worth is common for young millennials. This is often due to high student loan debt. This means that you have not earned enough money to offset the debt that you currently owe. The goal is to focus on increasing your net worth. In order to increase net worth, you should increase assets and/or decrease liabilities – paying down debt, building equity in your home, purchasing more investments (stocks, bonds), etc.

There is no standard when it comes to net worth expectations. Every individual has different financial needs and based on his/her lifestyle will have different financial goals. A formula that is often used as a benchmark when it comes to determining your “target” net worth is:

Net Worth = (Your age – 25) × (Gross Annual Income ÷ 5)

Regardless of where you currently stand financially, it is very important to know and understand your net worth. Understanding where your money is going will hopefully help you make better financial decisions, especially when deciding between if something is a need versus a want. Whether you are using an excel file or your favorite finance app, tracking your finances is key. If you need a recommendation, head over to Mint. It’s a free tool, that makes tracking your money easy for all levels.

 

Featured Posts, Investing

What Type of Investor Are You?

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So, you’re ready to start investing… but first, what is your risk tolerance level? WHAT TYPE OF INVESTOR ARE YOU? Understanding your risk tolerance level is one of the most important factors in investing. This will shape your investment strategy and become a guide to building your portfolio. Risk tolerance is the level of risk you are willing to accept. We all get excited about the gains, but can you handle the losses? The three risk tolerance/investor types:

A conservative investor is all about protecting his/her principal (original investment) by minimizing risk. This investor “plays it safe”, similar to the granny who likes to stuff her savings in her mattress as opposed to trusting the bank. A conservative investor is okay with smaller gains between 0-5% because they are taking a smaller level of risk. These investors have likely already built their portfolio to ensure a comfortable and steady income stream or they are just scared to lose money. A conservative investor has a portfolio comprised of:

  • Regular bank savings account
  • Certificate of deposit (CDs)
  • Government bonds (municipal, treasury, etc.)
  • Annuities

A moderate investor focuses on diversifying his/her portfolio in a way that limits risk while pursuing stronger returns. Think of this as a hybrid between conservative and aggressive. A moderate investor may have an expectation of between 5-20% annual return. Moderate is typically the most recommended portfolio for most investors:

  • Equities (focusing on diversification)
  • Mutual funds
  • Exchange-traded Funds (ETFs)
  • Individual bonds

An aggressive investor understands “the greater the risk, the greater the return”… similar to that one uncle willing to risk it all at the casino to triple his paycheck. These investors are able to handle the unpredictable shifts that Wall Street brings. By accepting less diversification in comparison to moderate, this investor is susceptible to far greater levels of risk. An aggressive investor typically looks for returns greater than 20%. This investor’s portfolio could oftentimes include:

  • Equities (individual stocks)
  • Cryptocurrencies (Note: though there have been many success stories, be careful with cryptocurrencies as these are not regulated).
  • Options and other special contracts

Though some portfolios may include the same type of investments (bonds, stocks, etc), they are weighed differently depending upon your investment strategy. Overall, it is typically advised to be more aggressive in your earlier stages of life. The closer an investor gets to the age of retirement, the more conservative the investor should become. Regardless of your investment type, investing in the stock market is a good strategy to provide long-term wealth. Once you have an understanding of what category you may fall under, consult a financial advisor on ways to incorporate your preferred strategy into your respective financial plans.

Featured Posts, Personal Finance

2018 Tax Reform… how does it affect me??

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By now, we are all aware of the new tax reform bill and many have already seen changes reflected in their paycheck. However, the number one question still on the minds of many is: HOW DOES IT AFFECT ME??

The Tax Cuts and Job Act will not affect the 2017 taxes that you are filing in April 2018. This act will impact the 2018 tax year with an April 2019 filing date. Affecting both individuals and corporations, the 2018 tax reform has the most changes the United States has seen in the last 30 years. For individuals, the bill reduced income tax rates, eliminated personal exemptions, and doubled the standard deduction.

The highest income tax rate was reduced from 39.6% to 37%. Please keep in mind that this benefit is only temporary. In 2026, we will revert back to 2017 tax rates. BUMMER!! The standard deduction was doubled from $6,350 to $12,000 for individuals filing single ($18,000 for head of household and $24,000 for married). Due to the increase in the standard deduction, there will be a drastic decrease in the amount of filers able to cross the threshold to itemize their returns (Schedule A form). On a positive note: if you are taking the standard deduction as opposed to itemizing, then your days of keeping track of receipts are over!!!

There were also several itemized deductions either eliminated of limited. Though you can still deduct state and local taxes and property taxes, these are now capped at $10,000. Are you in the market to purchase a new home? Well, the new reform bill has reduced the limit for those claiming a deduction on mortgage interest. In 2017, homebuyers could itemize and deduct the mortgage interest payments for homes with a mortgage that did not exceed $1million. Now, the mortgage amount is limited to $750,000. Please note, this will only affect new homebuyers. So… if you purchased your million dollar home last year… you’re good!!!  

Another major change to note is the adjustment in the child tax credit which increased from $1,000 to $2,000 per qualifying child. Prior to the Act, taxpayers could subtract $4,150 from income for each person claimed. Going forward, personal exemptions are eliminated. This will greatly affect those households with many children.

Other noteworthy changes:

  • Alimony payers can no longer deduct payments and the recipients are no longer required to report income (effective for filings after December 31, 2018).
  • Moving expenses are no longer deductible, excluding military personnel relocating due to military order

I hope this brief overview has given you some additional insight into what to expect with you 2018 tax year. Feel free to contact me through the CONTACT US tab if you have additional tax questions.