Square, he says, is about that communications channel, that exchange of value, that merchant-payor communication.
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Whether you are payee or payor, you need a system to record and track these information returns.
In some extreme cases, payor spouses were forced to pay more in alimony than they earned each month.
Well, if you are really miffed you could perhaps sue the payor for issuing this clearly erroneous form.
If you call or write the payor asking for a Form 1099, the payor may issue it incorrectly.
Alimony or spousal maintenance if structured properly is income to the recipient spouse and deductible by the payor spouse.
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Child support is neither deductible to the payor nor income to the child or the recipient spouse with custody.
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There are several categories of payments on a 1099-MISC little boxes the payor fills in like nonemployee compensation or other income.
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However, an increasingly difficult payor environment is likely to make this approach ever more challenging, materially elevating the commercial risk.
Specifically, backup withholding of 28% is required if a payee fails to furnish a correct taxpayer identification number to the payor.
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If you receive an incorrect 1099 (and this is common), contact the payor who issued the erroneous form as soon as you receive it.
And putting yourselves in the shoes of the payor, how easy do you think it is to get the payee to sign that tax form now?
What would you do if you were the payor here?
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First, the average tax payor in the top 0.1% of all earners (the group which includes the vast majority of millionaires and billionaires) pays a tax rate over four (4) times that of an average secretary.
These lump sum payments are neither taxable to the recipient nor deductible to the payor, but the paying spouse will typically try to negotiate a lump sum amount that takes into account the loss of deductibility.
Second, the average tax payor in the top 0.1% of all earners pays as much in taxes as 444 secretaries (the income of these top 0.1% earners is about 102 times the income of the average secretary).
Through a quirk in the tax law, however, there are certain circumstances where a taxpayer can avoid being taxed on what ordinarily would be taxable income by having the payor make the payment directly to a charitable organization.
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Explain the error and ask whether they have already sent a copy of the 1099 to the IRS. If the payor has already sent a copy of the erroneous form to the IRS, you can still ask for a correction.
If your proposed divorce settlement agreement includes alimony payments, in most cases, you will have to declare those payments as taxable income. (Although not commonly done, alimony can be structured as non-taxable income to the recipient and a non-deductible expense to the payor).
Then, the payor has another month (until the end of February) to send all of its 1099s to the IRS. This one month lag means that if you receive a 1099 you know is wrong, there may be time to correct it before the IRS receives a copy.
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