 Income tax 2021-2022, information returns. Get ready to get refunds to the max, diving into income tax 2021-2022. Most of this information can be found in Publication 334, Tax Guide for Small Business 2021. We're looking at the top line of the income tax formula, but there will be a subschedule and essence and income statement with income and expenses, expenses basically being deductions and net then flowing in to the top line of the formula as well as the first page of the Form 1040, on line number eight, which we are looking at now. In essence, bottom line of the Schedule C flowing into the Schedule 1, which then goes into page one of the Form 1040, line number eight, which we see now. This is the Schedule C profit or loss from business, basically an income statement. We're now looking at information returns, which may be returns that basically aren't gonna have taxes related to you possibly at the point in time that you're making the return, but possibly giving information about either you or about payments that you're making to other people so that the IRS can basically have that information and verify that everything's going the way they want and that the taxes are being paid by someone somewhere. So if you make or receive payments in your business, you may have to report them to the IRS on information returns. The IRS compares the payment showing on the information returns, which each person's income tax return to see if the payments were included in income. So if you're giving a transaction to somebody else, for example, then you might have to give that somebody else an information return, possibly a 1099, so that the IRS, and you also give it to the IRS, so that the IRS can kind of double check that the person receiving the payment is reporting their income. This falls in line with our general rule. How does the government work? How does the income tax system work? The IRS has leverage on the person paying. There's two sides to every transaction. One side is the payer, the other side's the recipient. The recipient is the one that has to record income, which is bad for taxes. The payer wants to get a deduction, which is good for taxes. The government has then leverage on the payer to get them to write out, in essence, who they paid so that they make sure that the other person reports the income. So you must give a copy of each information return you're required to file to the recipient or payer. In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. For more details on information returns and when you have to file them, see the general instructions for certain information returns you can find on the IRS website. So we have the form 1099 miscellaneous, the famous form 1099 mis, use the form 1099 miscellaneous, miscellaneous information to report certain payments you make in your business. These payments include the following items. Now a couple of years ago, this was a form more used more often, but now they kind of broke out the non, or like the contractor work, which we'll see shortly in another miscellaneous form. So this has all the other stuff. So it might not be quite as common. And they made a change on that, like last year or the year before that, rent payments of $600 or more other than rents paid to real estate agents, prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. I'm not sure where they got 600. You know, it's like 500. Nah, let's put it, let's put another 100 on 600. Sounds good. Royalty payments of $10 or more, $10 payments to certain crew members by owners of operators of fishing boats, amounts paid for the purchase of fish for resale from any person engaged in the business of catching fish. Then you got the form 1099 miscellaneous continued. You also use form 1099 miscellaneous to report your sales of $5,000 or more of consumer products to a person of resale anywhere other than in permanent retail establishment. We've got the form 1099 NEC. This is the newer form, which has a more restrictive kind of component to it that used to be reported on the 1099 miscellaneous, which if you're not quite aware of, you might still think it would be on the miscellaneous form, but now we've got the 1099 NEC. Yeah, file the form 1099 NEC, non-employee compensation for each person in the course of your business to whom you have paid at least $600 during the year-end services performed by someone who is not your employee. So that would mean that basically you're thinking about a contractor and that's that kind of situation where you got that gray area as to whether you wanna hire an employee or should they be categorized as a contractor? If they're a contractor and they're not incorporated and you paid them over a pretty low dollar, amount $600, you might then have to issue them not a W-2, but still possibly a 1099 NEC. So include the parts, including parts and materials, you have that in box one. So you're including anything you paid them, whether it be for their wages or for them to spend on parts and materials because they're the ones, if they're a contractor that are in charge of purchasing their own parts and materials, that's the point. If you were the one purchasing the parts and materials and whatnot, then you would be like the employer, right? So it's income to them and then they get the deduction of whatever they had to spend that money on in order to get the job done, those are expenses. So cash payments for fish or other aquatic life, you purchase from anyone engaged in the trade or business of catching fish box number one. That's it, I haven't seen that one personally, but if you're in the fish catching business, which is a big business, I suppose, I live by the ocean, but I should know this stuff. But anyways, payments to an attorney box number one, form 1099NEC, you must also file form 1099NEC for each person from whom you have withheld any federal income tax report in line four. So normally, if you have the 1099NEC, you don't have to have withholdings. And so you're not the one that's gonna be responsible for that because they're not your employee that's part of the benefit of them not being an employee who's responsible for that. They are, they're gonna pay their own taxes with estimated tax payments, but if they don't give you something like information, you might be required then to do the withholding anyways. And so then you would report that in box four or if they request it to be withheld for whatever reason, maybe you would withhold their federal income tax box four. So under the backup withholding rules, so you can look up backup withholding rules, regardless of the amount of the payment. In general, the backup withholding rules would kind of be like, if you asked the contractor for their social security number and they didn't give it to you or their EIN number and they didn't give it to you, then you can't rat them out to the IRS on how much you paid them. In other words, you can't fill out the form 1099NEC the way the government wants you to because the government sees them as a number, either a social security number or an EIN number. And if you don't have that, then you can't rat them out. You can't give them the form so that the IRS can verify that they record the income and pay the tax. So the IRS wants you, in that case, this is one of the more common cases to make a withholding of the money and pay their taxes on their behalf, kind of like you do on the W2 employee situation, which wouldn't make the contractor happy if they weren't aware of that kind of situation. So you wanna be upfront with getting their information. You're gonna say, hey, I need the deduction. You're a contractor. I wanna be in compliance with the law so the government doesn't hit me with the sticks that they like to swing at people. So I need your social security or EIN number if you're gonna be doing business with me at the starting point so that I can fill out this form in 1099 NEC so that I don't get hit by the stick that the government has. If you use Form 1099 NEC to report sales totaling $5,000 or more of consumer products, then you are required to file Form 1099 NEC with the IRS by January 31st. Then we've got the Form W2. The form we all know, and I'm not sure we love it, but we know it. I know that form pretty well. And you must file Form W2 to report payments to your employees such as wages, tips, and other compensation withheld income, social security, Medicare taxes. You can file Form W2 online for more information about Form W2. See the general instructions for Forms W2 and W3. So if you have employees instead of contractors, then you have a larger reporting requirement which is the W2 form. And then you are required to make withholdings for federal income tax, social security, Medicare taxes, the payroll taxes, possibly state taxes. And you gotta report all that stuff and you're more responsible for a bunch of stuff which we won't get into more detail here, but you got that. Penalties, the law provides for the following penalties if you do not file Forms 1099, miscellaneous Forms 1099 in EC or W2 or do not correctly report the information. So here's the stick that they wheeled around. You can just imagine them winding up with like a stick that they're gonna hit you with. This is them. This is it. For more information, see the general instructions for certain information returns. Failure to file information returns. This penalty applies if you did not file information returns by the due date. Do not include all required information or report incorrect information. Failure to furnish correct payee statements. This penalty applies if you do not furnish a required statement to a payee by the required date. Do not include a required information or report incorrect information. Waiver of penalties. These penalties will not apply if you can show that the failure was due to reasonable cause and not willful neglect. So they're winding up. You can imagine the situation. They're trying to hit you with these penalties. They're winding up the stick. And you say, no, don't hit me. I have a waiver. I have a reason, a waiver. And so you're gonna have to plead your case here. In addition, there is no penalty for failure to include all required information or for including incorrect information on a de minimis or small number of information returns. If you correct the errors by August 1st of the year the returns are due, a de minimis small amount, number of returns is the greater of 10 or one and a half of 1% of the total number of returns you're required to file for the year. Form 8300. You must file form 8300 report of cash payments over $10,000 received in a trade or business if you receive more than $10,000 in cash in one transaction or two or more related business transactions. So now they got the dollar restriction amount where you gotta say, and this number is getting actually lower and lower these days in terms of real dollars due to inflation and whatnot. So you get this higher payment the government saying that's like a lot of money. We wanna make sure that we're getting our piece of that. So then you got the information. So cash includes US and foreign coin and currency. It also includes certain monetary instruments such as cashiers and traveler's checks and money orders. I believe that part of the year they were trying to they were thinking about lowering this reporting requirement so they can see transactions that were really low. I was like six, but I don't think that happened. In any case, I will get into that. Cash does not include a check drawn on individuals personal account personal check for more information. You can see publication 1544 reporting cash payments over $10,000. Penalties, here's the stick. What, but what if I don't IRS? What if I don't? Well, I'll tell you what'll happen IRS says you'll get hit with this penalty stick. There are civil and criminal penalties including up to five years in prison for not filing form 8300. What are you in for? I didn't file form information return 8300 filing or causing the filing of a false or fraudulent form 8300 or structuring a transaction to evade reporting requirements.