It’s never too early to start preparing for tax filing season. The 2021 tax filing season for 2020 tax returns begins in February. Whether your business plans to file its 2020 tax returns using paper or electronic forms, there are certain updates and information to make sure you know this year.
What is Form 1096?
Filing your business’s 2020 tax returns by hard copy or electronically will determine if you need to use the Internal Revenue Service’s Form 1096. The form is used to transmit paper forms to the IRS. These forms include Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G. The 2020 1096 form should not be used with electronic forms.
Essentially, the 1096 form is used as a cover sheet to mail forms when your business reports non-employee income to the IRS. If you are a smaller business, you will likely submit the Form 1096 with your 1099 filings. These can specifically include the Form 1099-MISC or 1099-NEC.
Since the IRS re-introduced the Form 1099-NEC in 2020 for non-employment compensation, it is likely that you will use the Form 1096 for these filings. The Form 1099-NEC is used instead of the 1099-MISC now to report any non-employee payments, or independent contractor work, that totaled $600 or more from the business or trade.
How to Fill Out the 2020 1096 Form
If your business is filling out the Form 1096, it is important to note that the first section relates to your own information, not the independent contractor who will receive the form. Then, once you reach Box 6, you will mark the box related to the form with which you are filing the Form 1096. Each form needs its own Form 1096.
Additionally, the reason why you cannot submit electronic 1096 forms is because the IRS needs a scannable version to process the form. The forms must be ordered ahead of time from the IRS. Any attempt to submit an online copy may result in a penalty.
For that reason, it is worth pursuing filing your tax returns electronically rather than physical paper copies. Businesses that are filing the 2020 1096 form might not have an accounting software, but utilizing one will prove to be much more efficient.
The Benefits of Accounting Software
The IRS is the first to say that in order to make filing easier, businesses should file electronically and utilize direct deposits for the most efficient refunds. Additionally, if your business needs to file 250 or more information returns of any particular type, it is required that the business file an electronic return.
Nonetheless, while that may not be necessary for a small business, it is still worth considering the efficiency of an accounting software. Advanced Micro Solutions offers such a software and in particular sells a W2 and 1099 Software. The company’s software filer is a database system. It is capable of generating all 1099, W2 and other related forms that will save you the hassle of filling out seemingly endless 2020 1096 forms.