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, 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!

Tax

Tax Credits vs Tax Deductions: Understanding the Difference

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Introduction:

Navigating the complexities of the tax system can be a daunting task for individuals and businesses alike. When it comes to reducing tax liability, two common strategies are tax credits and tax deductions. While both options can potentially lower your tax bill, it is crucial to understand the differences between them and determine which one is more advantageous for your specific circumstances. In this article, we will explore the key distinctions between tax credits and tax deductions and help you make an informed decision.

Tax Deductions: A Brief Overview

Tax deductions lower your taxable income, which ultimately reduces the amount of income subject to taxation. Deductions are typically based on eligible expenses or contributions made during the tax year. Common deductions include mortgage interest, medical expenses, charitable donations, and certain business expenses. The value of a deduction is equal to the deduction amount multiplied by your marginal tax rate. For instance, if you have a $1,000 deduction and are in the 25% tax bracket, your tax bill will be reduced by $250.

Tax Credits: A Brief Overview

Tax credits, on the other hand, directly reduce your tax liability dollar-for-dollar. Unlike deductions, which lower your taxable income, tax credits are applied directly to the tax owed. This means that a tax credit of $1,000 will reduce your tax bill by the full $1,000 amount. Tax credits can be categorized into two types: non-refundable and refundable. Non-refundable tax credits can reduce your tax liability to zero, but any excess credit is not refunded to you. In contrast, refundable tax credits can result in a refund if the credit amount exceeds your tax liability.

Key Differences:

1. Impact on Tax Liability:

   – Tax Deductions: Deductions reduce your taxable income, indirectly lowering your tax liability.

   – Tax Credits: Credits directly reduce your tax liability, potentially resulting in a dollar-for-dollar reduction in taxes owed.

2. Value:

   – Tax Deductions: The value of a deduction depends on your marginal tax rate. Higher tax brackets generally yield greater savings.

   – Tax Credits: Tax credits provide a fixed dollar amount reduction, offering more predictable and potentially significant savings.

3. Refundability:

   – Tax Deductions: Deductions do not directly result in a refund. They only reduce the amount of income subject to taxation.

   – Tax Credits: Refundable tax credits can lead to a refund if the credit exceeds your tax liability, providing an additional financial benefit.

4. Eligibility and Limitations:

   – Tax Deductions: Deductions have specific eligibility criteria and may be subject to various limitations, such as income thresholds or percentage caps.

   – Tax Credits: Tax credits also have eligibility requirements, but they often target specific activities, such as energy-efficient home improvements or child and dependent care expenses.

Choosing the Better Option:

Determining whether a tax credit or a tax deduction is better depends on your individual circumstances. Consider the following factors:

1. Amount: If you have significant eligible expenses that qualify for deductions, and your marginal tax rate is high, deductions may provide substantial savings.

2. Eligibility: If you qualify for specific tax credits, such as those related to education, energy efficiency, or childcare, they can deliver direct and predictable tax savings.

3. Refundability: If you anticipate a tax liability lower than the potential credits you are eligible for