Teaching Tax Flow: The Podcast

In this episode, listeners will gain a deep understanding of the 10 most prevalent 1099 forms, including 1099-NEC, 1099-MISC, and 1099-INT, among others. Chris Picciurro, CPA, covers the significance of proper reporting for tax accuracy and compliance, noting how modern payment methods and income streams have given rise to newer forms like the 1099-K and 1099-DA.

This episode is a must for anyone looking to protect themselves from common pitfalls in tax reporting and leverage their understanding of tax forms to improve financial strategy.

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  • (00:02) - Understanding 1099 Forms and Their Tax Implications
  • (06:12) - Understanding IRS Tax Notices and Reporting Stock Transactions
  • (09:43) - Understanding 1099 Forms and Their Impact on Compliance
  • (12:16) - Wealth Builders Mortgage Group: Empowering Real Estate Investors
  • (13:48) - Understanding 1099 Forms and Their Impact on Tax Reporting
  • (19:17) - Engaging Community Through Tax Discussions and Podcast Milestones

Creators and Guests

Host
Chris Picciurro
Founder, Teaching Tax Flow
Host
John Tripolsky
VP of Marketing, Teaching Tax Flow

What is Teaching Tax Flow: The Podcast?

Welcome to “Teaching Tax Flow: The Podcast”, the show that’s all about demystifying taxes and helping you keep more of your hard-earned income in your pocket.

Hosted by tax experts from the Teaching Tax Flow team, this unfiltered (but clean) podcast is designed to empower you with the knowledge and tools you need to confidently navigate the world of taxes. We’ll cover everything from understanding tax laws and regulations to maximizing deductions and credits.

In each episode, we’ll break down a specific tax-related topic in a clear and accessible way, providing practical tips and strategies you can use to optimize your tax situation. We’ll also answer listener questions, share the mic with amazing guests, and share real-world examples to help illustrate key concepts.

Whether you’re a freelancer, small business owner, real estate investor, or just looking to understand your taxes better, this podcast is for you. So tune in, take notes, and start building your confidence in taxes today.

Produced and hosted by Teaching Tax Flow.
www.TeachingTaxFlow.com

John Tripolsky:

Hey, everybody. Welcome back to the Teaching Tax Full podcast. We are on to episode 188. As you see here in the title or in the show notes, we are gonna talk about the most common form ten ninety nine. So ten ninety nine, you've probably heard this number a lot.

John Tripolsky:

We know we are not talking about the number of years experience that my cohost on this podcast actually has. So Chris Picciurro, welcome back to your show, sir. Let's dive into this topic, man. It's a good one.

Chris Picciurro, CPA:

Absolutely. I mean, the ten ninety nine form, IRS ten ninety nine form, is a very, very important form from a compliance perspective, and then obviously compliance leads to tax planning. And a lot of times people you know, John, you know most accountants, tax professionals, CPAs, and real agents cringe when people use that term ten ninety nine employee. There's no such thing as a ten ninety nine employee. A ten ninety nine's issued to a subcontractor or contract labor, but there are many different types of ten ninety K.

Chris Picciurro, CPA:

Let's talk about before we dive into our top 10 list, why it's important. Remember that every time you're issued a ten ninety nine, a copy goes to the federal government, the IRS. And the vast majority of IRS tax notices and audits are triggered by not properly reporting what has been issued on a ten ninety nine. So in other words, a ten ninety nine was issued for a transaction. Taxpayer either doesn't know it was issued, lost it, or was doing something nefarious, doesn't report it.

Chris Picciurro, CPA:

Sometimes it's actually to their benefit to report it. And now IRS issues a notice saying, you have income and here's the tax you owe us, penalties, and interest. So it's super important for everyone to understand what ten ninety nines are popular, and it's important to report those ten ninety nines. Now one of the funky things about ten ninety nines is they don't really report expenses. They are designed to report income or monies paid from one party to another.

John Tripolsky:

So when you say things like they're you need to make sure they're properly reported and completed. Right? So I imagine some people might not know what that is, but if I'm just thinking of an example, tell me if I'm wrong here. Right? You might have somebody who's a contractor, not a ten ninety nine employee.

John Tripolsky:

Say you're providing services, a bookkeeper, any of this stuff for somebody. Say that person who's issuing payment to you files a ten ninety nine, but you don't. You know? You forget about it. You don't claim it.

John Tripolsky:

So, basically, in the IRS, there's a mismatch, which is a whole thing.

Chris Picciurro, CPA:

Good question. So the 10 yeah. The ten ninety nine is issued by the person making the payment. And when you receive a ten ninety nine, that doesn't mean you don't go and file it anywhere. You just report that as part of your taxable income on your tax return.

John Tripolsky:

It's like a receipt.

Chris Picciurro, CPA:

Where matching occurs. Lots of matching issues occur. So that's the vast majority of ten ninety nines. Absolutely.

John Tripolsky:

So, yeah. Really, it's a it's a record of a transaction, a receipt at a cashier, you know, or vice versa.

Chris Picciurro, CPA:

And wherever there's matching, there and and there's mismatching, there could be problems. So, the top 10, we're gonna start with ten ninety nine NEC. This is a newer ten ninety nine, but this is the this is the one that's issued to non employee contractors. NEC stands for non employee compensation. So, for instance, I paid you $3.00 to design a website.

Chris Picciurro, CPA:

You're not a corporation. I have to issue you a $10.99 for that $3,000 of service. You have to report that $3,000 worth of income, actually, if I if I give you the ten ninety nine or not. But if I don't issue a ten ninety nine to you, there could be severe penalties from the payer. So that's the $10.99 NEC.

Chris Picciurro, CPA:

It's a little bit of a newer form because that there's another ten ninety nine MISC, so ten ninety nine MISC, and that's different than non employee compensation. The ten ninety nine miss is for rents, prizes, and awards, and, like, health and medical compare Medicare, health and medical care payments, and basically miscellaneous income. Previously, everything was reported on that ten ninety nine miscellaneous, but here's what happened with IRS. They couldn't figure out what portion of that income was subject to self employment tax, meaning it's earned income in a trader business or passive income. So they created the ten ninety nine NEC to try to differentiate that.

John Tripolsky:

So And even though now there's there's a bunch more of them. Right? I think it's kinda nice that they're separated out. I mean, it makes sense. Right?

Chris Picciurro, CPA:

Absolutely. It categorizes the income. And remember, in teaching tax law, tax agencies are involuntary business partners, and tax laws are gonna encourage and discourage certain behavior. So what's happening is there's the IRS was having trouble differentiating what income on the ten ninety nine miscellaneous form was actually subject to self employment or in the self employment tax. So they said, you know what?

Chris Picciurro, CPA:

A few years ago, let's just make a separate this is my personal opinion. Let's just make a separate form so we don't have to figure that out. So yeah. So that's a ten ninety nine miscellaneous. You also have 1099s commonly issued from credit unions or banks.

Chris Picciurro, CPA:

That's a ten ninety nine interest. So if you earned over $10 of interest from a bank account, savings account, etcetera, etcetera, then you're going to you're gonna ish that that financial institution's gonna issue a ten ninety nine to you. That could happen also in private lending. You know, let's say I you loaned me money for a business and I paid you interest. I'm supposed to issue you a $10.99 interest, and that's taxable income to you.

Chris Picciurro, CPA:

There's a $10.99 dividend, so different than the interest. $10.99 DIV. And someone might say, well, interest aren't interest and dividends both reported on Schedule B, which is the same form? Yes. However, dividends are taxed differently than interest because with dividends, you could have qualified dividends taxed at a lower rate.

Chris Picciurro, CPA:

The point is it makes it easier for the IRS to determine what type of income it is. Remember, not all income is taxed the same. We've got a bunch of content on our Teaching Tax Show YouTube channel, but you might be watching this on there or you might be listening on any of the Spotifys and Apple Podcasts, all that. But we have a lot of content that revolves around breaking down your $10,000 worth of income. That's a long term capital gain versus self employment tax versus a qualified dividend versus interest income versus net rental income.

Chris Picciurro, CPA:

They're all taxed differently. So the IRS wants your help. And when we say your help, we mean the community, the tax paying community's help, businesses help, to categorize that for them, and they put it on different forms. So a $10.99 dividend or any dividends or distributions. Ten ninety nine b.

Chris Picciurro, CPA:

This comes from a brokerage account. John, this is one of the most missed deductions and it leads to a high amount of IRS, what are called correspondence audits or letters. Let me give you the fact pattern. It happens every year. John, we're gonna throw you under the bus.

Chris Picciurro, CPA:

You go you get fat and sassy, and you go on Robinhood. Should be a sponsor, by the way. So get it together. We liked Robinhood back in the day. You on Robinhood, buy some stock for $20,000.

Chris Picciurro, CPA:

You sell the stock for $19,000. But Johnny taxpayers like, well, I didn't make any money, so I don't have to report it. Well, guess what gets reported to the IRS? $19,000 sale of stock. The IRS doesn't now it's the cost basis is reported, but the IRS software doesn't pick up that cost basis.

Chris Picciurro, CPA:

And they send you a letter saying, John, you have $19,000 of stock sale. We're giving you credit for no cost basis in US. You now owe us $4,000 But you're you're you're in your mind's like, well, I didn't make any money off it. So I didn't give it to my tax professional to put you know? And, actually, you have a capital loss, which could help you.

Chris Picciurro, CPA:

So the point is glad that

John Tripolsky:

you you brought that up because that is super interesting. Actually, I didn't know that, and it makes total sense. Right? Like, the IRS looks at it basically a cash balance. Right?

John Tripolsky:

They're not matching every single transaction, buy, sell, buy, sell to each other. They're looking at it as a lump. So I'd never thought about it that way. That would a 100% happen.

Chris Picciurro, CPA:

And you'll see some clickbait out there where you've got tax professionals or or or tax resolution firms saying, my client got a letter that they owed IRS 300,000, and I got it reduced by 50 to 50,000. Yeah. Because they probably had a million dollars. Think about people that are, like, day traders or is, like, constantly selling stock, and they just, in their mind, think, well, I didn't make any money, so I didn't give that ten ninety nine b to my tax professional. The IRS sees a million dollar.

Chris Picciurro, CPA:

So they get a letter saying they owe 300. Well, once you properly report the cost basis, they probably owe just a little bit of money.

John Tripolsky:

Right. Yeah. You're not reporting profit. You're reporting movement of of Yes. Assets.

Chris Picciurro, CPA:

So the ten ninety nine b common driver of IRS tax notices when it's not, you know, never part and this can happen too. Like, people that are our parents' age buy bonds. You know, they might buy a $100,000 bond from the city, get paid 8% interest. They're pretty the the they're getting issued a ten ninety nine int I n t for the interest. They report that properly.

Chris Picciurro, CPA:

They sell the bond pretty much at par, meaning a no gain. They still have to report that $100,000 sale.

John Tripolsky:

And

Chris Picciurro, CPA:

if they don't, it could be an honest mistake where they didn't report it, and now you're getting letters from the IRS and notices. So

John Tripolsky:

Damn. I love these topics where I feel like I'm learning something too. This is great.

Chris Picciurro, CPA:

This is it. Yeah. I know. Mean, ten ninety nines, it's really, think about ten ninety nines or they're they're kind of some people think that they're a bad thing, but they're like a seat belt. They actually protect you and keep from getting audited if you just properly report the the amounts, and then you've gotta figure out what your expenses are.

Chris Picciurro, CPA:

All right. Well, we're gonna hit number five ten. No. That was the fifth one, 1099B. We're gonna go to the sixth one, new form, 1099DA.

Chris Picciurro, CPA:

What in the heck? District attorney? Is that for people getting out of jail? No. Digital, it stands for digital assets.

Chris Picciurro, CPA:

So the IRS didn't want digital asset reporting on the 1099B. There's a high level of noncompliance in this field. So they said, let's create our own form. Like I said, it's new, and it's similar to the ten ninety nine b, but specifically for digital assets. The next ten ninety nine is a ten ninety nine k.

Chris Picciurro, CPA:

We've had a whole podcast on that. We called it the Venmo tax. Right? That's when that's issued by credit card companies, third party payment companies. So, John, I mean, frankly, we use Stripe, right, for our businesses, some of our businesses.

Chris Picciurro, CPA:

So we get a ten ninety nine k from Stripe because people are, you know, maybe buying something. Maybe they they, you know, purchased one of our one of our services and paid through Stripe. Stripe collects the money and gives it to us. Stripe issues us the $10.99, and that's on a ten ninety nine k.

John Tripolsky:

And I can see those actually. I know we talked on the previous episode about that. I feel like that's one of those things that certain certain platforms. Right? They they issue these, even Airbnb.

John Tripolsky:

I remember when Airbnb For sure. People were so pissed when they started issuing ten ninety nines. Right? Because they they had to. They they eventually had to, and they're like, oh, now I need to report it.

John Tripolsky:

Well, you should have been before. Now they're just working in cahoots. They're working within the the guardrails of compliance. Right?

Chris Picciurro, CPA:

And there could be right. There could be situations where someone gets issued a ten ninety nine k that's not even in business. Think about I I use this example a lot. Think about the Boy Scout popcorn parent or the Girl Scout cookie mom that sits in front of the grocery store, and they just says, well, just Venmo me the money, and I'll give it to the Girl Scouts. And now they're gonna they have so many transactions that they're gonna $10.99 k.

Chris Picciurro, CPA:

They're not even in business.

John Tripolsky:

I think the best example you ever said was, you know, the person who's the the best, most organized friend who bought all the very expensive tickets to go see Taylor Swift and told their friends to just Venmo them. Right. And then their business, not really, but, you know, there's a lot of money.

Chris Picciurro, CPA:

Can be.

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Chris Picciurro, CPA:

They've got the ten ninety nine r. That's for retirement distributions. Those are gonna be from IRAs, four zero one k's. One of the things is this could really trigger audits if not done properly. So proper reporting for backdoor Roth IRA contributions.

Chris Picciurro, CPA:

Oh, by the way, check that podcast episode out. Roth conversions, indirect raw indirect IRA rollovers. These are all things that in other words, John, let me give you an example. If you wanna roll money from an IRA, from one IRA to the other, and you do a direct transfer, that's pretty easy. That's reported to the IRS pretty clean.

Chris Picciurro, CPA:

But let's say you actually get the money and you put it in your bank account and you have sixty days to, and you put it into another IRA. The IRS has no idea that you actually did the rollover. So you get a 1099R showing that it's taxable when it's really not. So in other words, make sure that you provide your tax professional with all of your 1099s if you think it's taxable or not because there's a way to properly report it. And I see a lot of issues with misreporting of 1099Rs.

Chris Picciurro, CPA:

1099S stands for sale of real estate, and and typically, you're not gonna issue that if you're selling a primary home under a half $1,000,000 but if you're selling investment property, that's something that's gonna be typically issued by the title company and and those are missed sometimes too, John. Like, you might close on a property in February, you get the 1099R. Let's say you're doing a lot of real estate transactions and you forget about it, or you moved and you've got kids and you're like, oh gosh. So that could be missed. And then the ten ninety nine gs that's issued by certain government payments.

Chris Picciurro, CPA:

So that's going to be like unemployment compensation. Or if you got a state tax refund that might be taxable on the federal return. So, yeah, the ten ninety nine gs is is gonna be for mostly unemployment and taxable state refunds because if you deducted the state income tax in one year and got some of that back, you got a federal tax benefit, it's gonna be taxable in the next year. So, those are our top 10 but John, we're we've got just a minute left because and since you're such a excited student today on the Teaching Tax Flow Podcast, we're gonna give you a extra bonus one.

John Tripolsky:

Uh-oh. So I I get nervous when you say that. You saying that to me sometimes is like me asking you or telling you, say, hey. I got a question for you. And, like, doing it in that tone, you you keep a smile, but because we're on camera, but I know under the table, you're probably clenching a fist like, just shut up.

John Tripolsky:

Alright? Sometimes. Let's hear it.

Chris Picciurro, CPA:

Well, you know what? Now so the bonus one, this is a ten ninety nine that is issued that has triggered several IRS correspondence audits, meaning letters, CP 2,000 notices. It is a ten ninety nine SA, and that reports distributions from health savings accounts and medical savings accounts. But most importantly, HSAs, health savings accounts. And here's what happens, John.

Chris Picciurro, CPA:

You know, we you know, I have a love affair with health savings accounts now. We contribute to the HSA. Right? No big deal. We report that properly.

Chris Picciurro, CPA:

Sometimes it goes through your W-two. But when we have that debit card, that HSA card, we go and use it at the doctors. Right? The IRS has no idea if that's a qualified medical distribution for qualified medical expenses or not. And typically the health savings account companies don't mail you a ten ninety nine.

Chris Picciurro, CPA:

So at the end of the year, you may have put in 5,000 in your HSA and you might've spent 3,000. Well, the 3,000 you spent is actually reported on a ten ninety nine SA, and you need to put that on your tax return and then report to the IRS, hey, I had $3,000 of distributions, but don't worry, they're all for medical expenses. And a lot of people, just because you contribute to an HSA doesn't mean that you use the money. Many people use that as a secret retirement account. And a lot of times that gets missed by taxpayers.

Chris Picciurro, CPA:

And what happens is IRS then sends them a notice saying, you took $3 out of your HSA. It's taxable, and we're gonna penalize you. And then you have to go reply to that and prove that you put that use that money for medical expenses. So, again, my point of this is I gave you a bonus. That's 11.

Chris Picciurro, CPA:

Couple things. One, if you're still listening or watching, congratulations. You get a gold star today. Put a comment in. Let us know if you have any questions about ten ninety nines.

Chris Picciurro, CPA:

And then remember, if you receive a ten ninety nine, do not ignore it. Make sure you provide it to your tax professional. Or if you're trying to do your own tax return, make sure you take it into account when doing that preparation.

John Tripolsky:

Awesome. And I couldn't make it up, and I swear that actually that bonus one was I had no clue about that. And here I am. I just know, I had to describe explain to my wife why we spent $8,000 a year funding this account. She has no idea what it is.

John Tripolsky:

The HSA. So there you go. And Chris threw this, and I'm gonna wrap on this. Two things came out in this conversation we had. One of them is I I love how you mentioned just giving everything to your tax professional.

John Tripolsky:

Let them decide kind of what's needed. Like, right, the taxpayer's job is to collect the to present the info. It's the tax professional's job to, you know, disseminate it and see where it goes. But very similar, we talk about things being confusing sometimes. Oh, why are things separated?

John Tripolsky:

I couldn't get it out of my mind that it's almost like a receipt sometimes at a grocery store. Right? Certain things are taxed differently. Prepared foods are one thing. Alcohol's a different rate.

John Tripolsky:

You got all these things. Imagine it being all in a grocery receipt and them not breaking apart which ones are taxable by what, and then using the number at the bottom and trying to figure out what goes to what. I'm sure that's exactly what it was like for the IRS looking at just a regular old vanilla envelope or a vanilla envelope, $10.99 trying to figure it out. They can't. Right.

John Tripolsky:

Right? So it's tough. But

Chris Picciurro, CPA:

Exactly.

John Tripolsky:

And I think that yeah. My little brain's working in overdrive now, so I'm glad I get to edit this and go through it a couple times. But as Chris mentioned too, we'd love to see those comments. YouTube, Facebook, wherever you see this, anything, drop the comments in there because I promise you that I have a lot of the same questions as you guys do. So help me out here for gosh sakes and ask the questions so I don't have to act like a dummy on a recording with this guy asking all of them.

John Tripolsky:

So very self serving. We appreciate everybody being here along for the ride. Again, we're getting close to episode 200, actually. So that's gonna happen in a couple months. We're crossing some huge milestones on community growth, which is incredible.

John Tripolsky:

So please comment. Let us know what you wanna hear. I I love this guy. Literally, he's the closest thing I have to a brother. But, you know, if we got better topics, we have better conversations.

John Tripolsky:

Just throwing

Chris Picciurro, CPA:

it Absolutely. This one came yeah. I I mean, this one came from our Defeating Taxes private Facebook group. We really You appreciate

John Tripolsky:

pick the topics, we have the discussions, and then you get all the knowledge. So thank you everybody for joining us here on the Teaching Tax Flow podcast. See you again next week. Enjoy, guys. See you soon.

Disclosure:

The information in this podcast is educational and general in nature. It reflects the opinions of teaching tax flow and does not take into consideration the viewer's personal circumstances. It is not intended to be a substitute for individualized financial, legal, or tax advice. Consult the appropriate qualified professional prior to making any decisions. Securities are offered and supervised through Cabin Securities Inc member, FINRA SIPC.

Disclosure:

Investment advisory services are offered and supervised through Cabin Advisors LLC, an SEC registered investment advisor. Chris Picciurro is a registered representative of Cabin Securities and an investment advisor representative with Cabin Advisors LLC, teaching Tax Flow as an independent entity and is not affiliated with Cabin Securities or Cabin Advisors.