Posts Tagged ‘1099-MISC’

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1099-MISC For Dummies

Friday, June 17th, 2011

I got a ques­tion from some­body who read my lat­est blog entry and she said she could barely under­stand it at all. I had no idea.

So… (cornet flour­ish sounds,  “da tadada”) Intro­duc­ing 1099-MISC for Dum­mies.  If you are in busi­ness and pay other peo­ple for ser­vices, Form 1099-MISC & Form 1096 are prob­a­bly “tax” Forms you should be fil­ing. Why? Just like any other “tax” form there are penal­ties for not fil­ing them. If you like liv­ing on the edge, and sneer­ing at the tax man, you don’t have to read any fur­ther, this post is not for you. How­ever if just see­ing a let­ter from the IRS gives you the cold sweats, read on. (more…)

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Expanded 1099-MISC Information Reporting Requirements Repealed

Sunday, June 12th, 2011

If you are involved in trade or busi­ness you should be cheer­ing. On April 14, 2011 Pres­i­dent Obama signed the Com­pre­hen­sive 1099 Tax­payer Pro­tec­tion and Repay­ment of Exchange Sub­sidy Over­pay­ments Act of 2011 into law.  It repealed the expanded 1099 infor­ma­tion report­ing require­ments that were included in the Patient Pro­tec­tion and Afford­able Care Act. (more…)

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December 17: 2010 Tax Relief Act

Sunday, December 19th, 2010

Note: Much of the fol­low­ing is extracted from the Sen­ate Finance Committee’s expla­na­tion of  Reid-McConnell Tax Relief, Unem­ploy­ment Insur­ance Reatho­riza­tion and Job Cre­ation Act, which incor­po­rated the amend­ments to HR4853 that Pres­i­dent Obama nego­ti­ated with the Sen­ate and passed back to the House.  There was some debate in the house about the Estate tax, but the estate tax amend­ment was not passed.  The bill sub­mit­ted by the Sen­ate to the house appar­ently passed the house unchanged.  If it turns out that changes were made, we will update the list below with a strike through…

It is almost the end of the year and con­gress acted on some pend­ing leg­is­la­tion last Fri­day. The tax brack­ets, many tax credits, items of deduc­tion and adjust­ments to income, were tem­porar­ily extended or passed or patched through 2011 or 2012.

Estate tax.  Con­gress passed $5 mil­lion exemp­tion with a 35% tax through 2012; for the estates of 2010 dece­dents there will be a choice between no estate tax & no step up in basis for assets in excess of the $1.3 Mil­lion exempted (2010 rules) OR the $5 Mil­lion exemp­tion & 35% tax arrange­ment (estate tax rules for 2011 and 2012). 

Other items in the exten­ders bill passed by the house late Fri­day night in the 2010 Tax Relief Act:

  • The Bush era tax rates: 10, 25, 28, 33, and 35 per­cent tax rates have been extended through 2012-all would have increase otherwise.
  • The per­sonal exemp­tion phase out as well as the item­ized deduc­tion lim­i­ta­tion have been repealed through 2012. 
  • The 0 and 15 per­cent cap­i­tal gains tax rates have been extended through 2012.
  • The cur­rent child tax credit has been extended through 2012. 
  • Mar­riage penalty relief for the 15% tax bracket, EITC & the stan­dard deduc­tion has been extended through 2012.
  • The expanded child tax credit has been extended through 2012.
  • The expanded adop­tion tax credit and adop­tion assis­tance pro­grams exclu­sion has been extended through 2012.
  • The employer credit for expenses asso­ci­ated with child care assis­tance has been extended through 2012.
  • The credit for the third child with respect to EITC has been extended through 2012.
  • The expanded Coverdale sav­ings accounts have been extended through 2012.
  • The expanded Stu­dent Loan inter­est deduc­tion has been extended through 2012. 
  • The expanded exclu­sion for employer pro­vided edu­ca­tional assis­tance has been extended through 2012.
  • The tem­po­rary exclu­sion from income of cer­tain schol­ar­ships has been extended through 2012. 
  • Arbi­trage rebate excep­tion for school con­struc­tion bonds has been extended through 2012. 
  • Tax exempt pri­vate activ­ity for qual­i­fied edu­ca­tion facil­i­ties has been extended through 2012. 
  • Extend the Amer­i­can Oppor­tu­nity Credit through 2012.
  • Extend tax relief for Alaska Set­tle­ment funds through 2012. 
  • Two year AMT patch: In 2010 exempts $47,450 ($72,450 MFJ) from AMT, and in 2011 $48,450 ($74,450 MFJ). It also allows non refund­able per­sonal cred­its to be used against AMT.
  • Bonus depre­ci­a­tion: For prop­erty place in ser­vice between Sep­tem­ber 8,2010 and Decem­ber 31st 2011 a spe­cial 100% bonus depre­ci­a­tion maybe allowed.  For prop­erty place in ser­vice in 2012 50% bonus depre­ci­a­tion may be allowed. 
  • The Small Busi­ness Jobs Act extended/expanded sec­tion 179 through 2011.  This Act extends sec­tion 179 at the 2007 lev­els at $125,000 with a $500,000 phase out thresh­old indexed for infla­tion for 2012.
  • Emer­gency unem­ploy­ment and extended ben­e­fits have been con­tin­ued for 1 year. 
  • Dur­ing 2011 employ­ees and self-employeds will have Social Secu­rity with­hold­ing reduced by 2%.
  • The fol­low­ing cred­its have been extended through 2011: Biodiesel & Renew­able Diesel, Refined Coal, Energy-Efficient Homes, Alter­na­tive Fuels, Spe­cial rules on the sale of elec­tronic trans­mis­sion prop­erty, spe­cial rule for mar­ginal wells, Sec­tion 1603 of the Amer­i­can Recov­ery & Rein­vest­ment act, Ethanol, Energy-Efficent appli­ances, Energy-Efficient Exist­ing homes, Alter­na­tive vehi­cle refu­el­ing property. 
  • The fol­low­ing indi­vid­ual adjust­ments and cred­its have been extended through 2011: $250 above the line deduc­tion for ele­men­tary & sec­ondary school teach­ers, the deduc­tion of state & local taxes in lieu of state & local income taxes, increased con­tri­bu­tion lmi­its for appre­ci­ated real prop­erty for con­ser­va­tion pur­poses, above the line deduc­tion for qual­i­fied tuition and related expenses, tax-free retire­ment plan dis­tri­b­u­tions (up to $100,000)  to char­ity, estate tax look-thorugh for RIC stock  held by non­res­i­dents, par­ity for mass tran­sit benefits.
  • Refund and tax credit dis­re­gard for means test­ing has been extended through 2012. 
  • The fol­low­ing busi­ness cred­its and deduc­tions have been extended through 2011: R&D, Indian Employ­ment, New Mar­kets, Rail­road track main­te­nance, mine res­cue team train­ing, employer credit for acti­vated mil­i­tary reservists, the spe­cial 15 year recov­ery period for cer­tain retail, restau­rant & leash­old improve­ments, 7-year straight line recov­ery period for motor­sport enter­tain­ment com­plexes, accel­er­ated depre­ci­a­tion of prop­erty on an Indian reser­va­tion, enhanced char­i­ta­ble deduc­tion for food inven­tory, enhanced char­i­ta­ble deduc­tion for con­tri­bu­tion of book inven­tory to pub­lic schools, enhanced char­i­ta­ble deduc­tion of com­puter equip­ment for edu­ca­tional pur­poses, elec­tion to expense advanced mine safety equip­ment, exten­sion of spe­cial rules for US films and TV show pro­duc­tions,  expens­ing envi­ro­men­tal reme­di­a­tion, DPAD in Puerto Rico, spe­cial rules for cer­tain pay­ments made to an tax-exempt entity from a con­trol­ing entity, spe­cial treat­ment of cer­tain div­i­dends of RICs, exten­sion of treat­ment of cer­tain RIC as Qual­i­fied Invest­ment Enti­ties under FIRPTA, the active financ­ing excep­tion, look-though treat­ment of related for­eign con­trolled cor­po­ra­tions, pro­vi­sion that allows S-Corporation share­hold­ers to take into account their pro-rata share of char­i­ta­ble con­tri­bu­tions even if the deduc­tion exceeds the shareholder’s basis in the cor­po­ra­tion, Empow­er­ment Zones, DC Enter­prise Zone, Amer­cian Samoa econ­mic devel­op­ment credit, Work Oppor­tu­nity Tax credit, exten­sion and increased autho­riza­tion for qual­i­fied zone acad­emy bonds, Pre­mi­ums for mort­gage insur­ance ded­cutible as inter­est that is qual­i­fied res­i­dence inter­est, extend the 100% exclu­sion of cer­tain small busi­ness stock acquired in 2011 and held for more than 5 years.
  • NY Lib­erty Zone bonds issue extended through 2011
  • Credit for reha­bil­i­tat­ing his­toric build­ings in the GO Zone extended through 2011
  • Credit for GO Zone low income hou­se­ing placed in ser­vice through 2011.
  • GO Zone bonds issue extended through 2011
  • 50% depre­ci­a­tion allowance for GO Zone busi­ness prop­erty placed in ser­vice through 2011

The pre­ced­ing list was what was in the bill the Sen­ate passed to the house on Decem­ber 15, 2010.  The bill sub­mit­ted by the Sen­ate to the house appar­ently passed the house unchanged. 

Expanded Infor­ma­tion Report­ing: Repeal of the expanded infor­ma­tion report­ing is not likely to happen-the bill intro­duced by Sen­a­tor Bac­cus of Mon­tana to do that very thing was soundly voted down.  The IRS has a year to work out the wrin­kles before this infor­ma­tion report­ing actu­ally begins, so there will be more guid­ance coming.  For more infor­ma­tion on this topic read here.   

The fol­low­ing items were NOT EXTENDED

  • The increase stan­dard deduc­tion for prop­erty taxes. 
  • The waiver of Required Min­i­mum Distributions
  • Mid­west­ern dis­as­ter relief
  • Hope & Life­time learn­ing tax cred­its — they have been replace by the Amer­i­can Oppor­tu­nity Credit

Small Busi­ness Jobs Act: There has been some activ­ity with respect to cer­tain busi­ness cred­its and deduc­tion ear­lier in the year with the Small Busi­ness Jobs Act; you can read about the impli­ca­tions of that act here.

The Busi­ness Mileage rate for 2011 has been announced: 51 cents per mile, med­ical and mov­ing mileage is still 19 cents per mile and char­i­ta­ble mileage is still 14 cents per mile.

Paid Tax Pre­parer Over­sight: Remem­ber start­ing in 2011 all paid tax pre­par­ers must have a Pre­parer Tax Iden­ti­fi­ca­tion Num­ber (PTIN).  All Tax Return Pre­par­ers are now sub­ject to the over­sight of the Trea­sury Depart­ment.  All indi­vid­u­als who pre­vi­ously had a PTIN issued have to renew their PTINs with the IRS before prepar­ing any tax returns in 2011.  Fur­ther­more tax pre­par­ers who file more than 100 tax returns per year will need to obtain an EFIN as they will be required to e-file all tax returns.

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client. 

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, cer­ti­fied finan­cial plan­ner or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to anyone else.

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September 2010 Tax Update

Saturday, September 4th, 2010

Con­gress con­tin­ues to do noth­ing.  There is a lot of spec­u­la­tion about what they might do and when, but basi­cally things are pretty much where they have been for months. Some think that con­gress will act on extend­ing the Bush tax cuts, extend­ing pro­vi­sions that lapsed at the begin­ning of this year and AMT before the Novem­ber elec­tions and some think they will do some­thing in the lame duck ses­sion after the Novem­ber elec­tions. The rea­son for inac­tion is pol­i­tics — the Democ­rats want to make an issue of tax cuts to high income indi­vid­u­als and Repub­li­can oppo­si­tion to other mea­sures that help low income folks, the Repub­li­cans say the Democ­rats’ tax hikes hurt small business. 

In a sim­i­lar vein there is some spec­u­la­tion that con­gress will act to repeal the expanded 1099-MISC infor­ma­tion report­ing it made law with the health care leg­is­la­tion.  Once again, until that actu­ally hap­pens tax­pay­ers must deal with mat­ters as they are now, not as they hope they will be. 

The  Estate tax: short advice is to talk to a pro­fes­sional that spe­cial­izes in Estate taxes.  GOT that? This is not a DYI activ­ity.  The vast major­ity of peo­ple do not wind up fil­ing the Estate Tax Return, Form 706.  But for those that do, proper advice is essen­tial.  What is dif­fer­ent in 2010? Given that in 2010, so far, there is no estate tax, heirs will start with the decedent’s basis for assets (rather than the step up in basis of the assets at the time of death or alter­nate val­u­a­tion date). The execu­tor can then increase the value of up to $1.3 Mil­lion in assets to the date of death val­u­a­tion. Up to $3 mil­lion extra can be allo­cated to the sur­viv­ing spouse.  The basis allo­ca­tion can­not increase the asset’s basis over its value.  That means for very large estates, heirs will have to pay up, but the cap­i­tal gains tax is far less than the estate tax would have been AND the heirs con­trol when they pay the tax because it is not due until the heir sell the asset.

Expanded 1099-MISC Report­ing: Busi­nesses need to have their account­ing sys­tems in place start­ing 2011-they need to have the abil­ity to track the dif­fer­ence between pay­ment via Debit or Credit Card, verses pay­ment Cash, Check or Barter (to cor­po­ra­tions) so they can take advan­tage of the IRS guid­ance.  They will need  Form w-9 or equiv­a­lent from all busi­nesses with whom they exchange more than $600 per year for goods and/or ser­vices in 2011. Real­ize busi­nesses are sup­posed to do 28 % backup with­hold­ing from busi­nesses that refuse to sup­ply their TIN — busi­nesses should col­lect the W-9 as soon as they pay a busi­ness money in 2011, espe­cially if they know it will add up to more than $600 by year’s end.   

With respect to other tax breaks…

State­ment No 1. If your favorite tax break has not been re-enacted, do not plan for it to be.  Set aside some funds to pay the extra tax. 

State­ment No.2. Whether before or after the Novem­ber elec­tions, right now many believe:

  • the tax rate cuts for tax­pay­ers with incomes below $200,000 will be extended,
  • the 15% cap­i­tal gains rate will be extended,
  • there will be an exten­sion of Sec­tion 179,
  • exten­sion of Bonus Depreciation,
  •  exten­sion of busi­ness and indi­vid­ual energy tax credits,
  • exten­sion of the state and local prop­erty tax stan­dard deduction,
  • exten­sion of state and local sales tax in lieu of the state and local income tax deduction,
  • exten­sion of tax free dis­tri­b­u­tion from an IRA,
  • exten­sion of the research credit for businesses,
  • exten­sion of enhanced char­i­ta­ble con­tri­bu­tions for food inven­tory and cor­po­rate com­puter dona­tions for education.

All of these tax cuts are expected to be revived, but see State­ment No. 1.  The best advice is for tax­pay­ers must plan around things as they stand now, after­all no one pre­dicted that con­gress would actu­ally let the Estate Tax expire and yet… it did.

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.  Please note: Our offices will be closed until Octo­ber 1, 2010.  We may respond to emails and calls in the inter­rim, but no staff will be avail­able to meet with you in per­son until Octo­ber 1, 2010. 

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, cer­ti­fied finan­cial plan­ner or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

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Gear up for expanded 1099 information reporting starting for tax year 2011.

Saturday, June 5th, 2010

4/14/2011 Update: Repealed. On April 14, 2011 Pres­i­dent Obama signed the Com­pre­hen­sive 1099 Tax­payer Pro­tec­tion and Repay­ment of Exchange Sub­sidy Over­pay­ments Act of 2011 into law.  It repealed the expanded 1099 infor­ma­tion report­ing require­ments that were included in the Patient Pro­tec­tion and Afford­able Care Act. Here is the leg­isla­tive sum­mary, “Amends the Inter­nal Rev­enue Code to: (1) repeal require­ments for the report­ing to the Inter­nal Rev­enue Ser­vice (IRS) of pay­ments of $600 or more to cor­po­ra­tions that are not tax-exempt and of gross pro­ceeds paid in con­sid­er­a­tion for any type of prop­erty; (2) repeal require­ments for report­ing pay­ments made with respect to rental prop­erty which is not part of a trade or busi­ness; and (3) increase, for tax­able years end­ing after Decem­ber 31, 2013, the advance applic­a­ble dol­lar amount of the tax credit for health care pre­mium assis­tance for tax­pay­ers whose house­hold income is less than 400% of the poverty line. “- source govtrack.us.

It would appear who a busi­ness has to issue a 1099-MISC to goes back to the way it was before. FYI The Way It Was Before: Pay­ments made by a trade or busi­ness, includ­ing non­profit orga­ni­za­tions, tax­able farm­ers coop­er­a­tives, gov­ern­ment agen­cies, trusts of qual­i­fied pen­sion or profit-sharing employer plans, of $600 or more in pay­ments per year for

  • non-employee ser­vices & goods inci­dent to pro­vid­ing those ser­vices e.g. a auto shop repairs a busi­ness vehi­cle, the total pay­ment is reportable as the parts are inci­dent to the repair service,
  • the Fair Mar­ket Value of bar­ter­ing exchanges for busi­ness related ser­vices & mate­ri­als inci­dent to those ser­vices, between busi­nesses, and/or indi­vid­u­als involved in a trade or busi­ness e.g a painter and a lawyer exchange ser­vices, where the lawyer got his office painted, and the painter gets a boil­er­plate con­tract com­posed.  How­ever if the lawyer assisted in the painter’s divorce then pay­ment via bartered ser­vice pro­vided by the painter is per­sonal & not involved in trade or business-the lawyer would issue a 1099-MISC, but the painter would not…
  • non-employee pro­fes­sional fees, e.g. fees paid to a doc­tor, lawyer, etc.,
  • rent,
  • non-employee awards, & prizes, which need not be related to ser­vices received, e.g. the Fair Mar­ket Value of a prize won on a game show,
  • non-employee bonuses, taxable fringe ben­e­fits & other allowances,
  • non-employee reim­burse­ments such as car, fees, mileage and other non-employee expenses,
  • non-employee com­mis­sions, includ­ing golden para­chute payments,
  • pay­ments made to a non-employee’s estate,
  • pay­ments made to rent coin oper­ated amusements,
  • dam­ages, includ­ing puni­tive damages,
  • deferred non-employee compensation,
  • direc­tors fees,
  • fish boat crew payments,
  • Indian gam­ing prof­its paid to tribal members,
  • pay­ments made to experts and other wit­nesses in legal proceedings,
  • OR pay­ments of more than $10 per year in royalties,
  • OR sales by a busi­ness of $5,000 or more per year of con­sumer prod­ucts to a per­son on a buy-sell, deposit-commission, or other com­mis­sion basis for resale (by the buyer or any other per­son) any­where other than in a per­ma­nent retail establishment,

is required.  The 1099-MISC infor­ma­tion report­ing require­ment is for com­pen­sa­tion paid to indi­vid­u­als and non-incorporated busi­nesses. Infor­ma­tion report­ing for pay­ments made to cor­po­ra­tions for med­ical, health care & legal ser­vices as well as those for fish­ing activ­i­ties is required; most other cor­po­ra­tions are exempt from 1099-MISC infor­ma­tion report­ing. Per­sonal pay­ments are not reported, only those involved in trade or busi­ness.  Employ­ees, includ­ing house­hold employ­ees & statu­tory employ­ees, do not get 1099s, they get W-2s. The pre­ced­ing list is not nec­es­sar­ily com­pre­hen­sive and does not include instruc­tions on how to pre­pare the 1099-MISC, merely is to advise the reader of sit­u­a­tions in which a 1099-MISC is likely required.

12/14/2010 Update: Land­lords beware. Unless your rental income derives pri­mar­ily from a tem­po­rary rental of your per­sonal res­i­dence, you need to start report­ing pay­ments of over $600 per year paid to var­i­ous crafts­men etc. via Form 1099-MISC in 2011.  You will need to col­lect infor­ma­tion nec­es­sary to com­plete form 1099-MISC; the usual method is get your con­trac­tors to com­plete a Form w-9.  The best advice is to have the con­trac­tor com­plete the form W-9 before they start work­ing for you, rather than wait­ing until you owe them money for the job. Get­ting the W-9 up from may help avoid con­flict over the 28% backup with­hold­ing you are sup­posed to do if they do not wish to give you a com­pleted w-9.

There may ulti­mately be a list of cer­tain pub­li­cally traded com­pa­nies such as Home Depot, Wal­mart & Sta­ples that may be exempted from the new report­ing requirements. Furthermore elec­tronic funds trans­fers (online bill pay etc.) may also be exempted from infor­ma­tion report­ing  in the same way debit and credit card trans­ac­tion are, BUT as of this date there is NO guid­ance from the IRS along these lines.

7/13/2010 Update: The 1099 report­ing of pay­ment of over $600/year to cor­po­ra­tions will only apply to cash, check or barter accord­ing to the IRS.  It may be time to insti­tute a pol­icy of pay­ing cor­po­ra­tions via credit or debit card. This comes about because start­ing next year credit card proces­sors will be required to report total annual credit card trans­ac­tions to the IRS via 1099-K; the IRS will be able to com­pare a cor­po­ra­tions gross receipts with the report from the credit card processor.

As part of the Patient Pro­tec­tion and Afford­able Care Act signed into law March 23, 2010, by Pres­i­dent Obama, busi­nesses will be required to report pay­ment of over $600 per year of goods or ser­vices made to any­one, includ­ing cor­po­ra­tions, except for enti­ties exempt under 501 (a), which are char­i­ties and the like.  Sec­tion 9006 of the Act amended Sec­tion 6041 of the Inter­nal Rev­enue ser­vice code-go ahead, look it up.  This change in infor­ma­tion report­ing has been dis­cussed for a long time as a means of track­ing down more tax cheats, but until now con­gress had not acted upon it.

The require­ment for infor­ma­tion report­ing starts in 2012.  This start date sug­gests that means your busi­ness will need to be gath­er­ing report­ing infor­ma­tion in 2011, so it can be reported on 2012 1099s.

The law rep­re­sents a con­sid­er­able expan­sion of infor­ma­tion report­ing via 1099-MISC; in the past cor­po­ra­tions were gen­er­ally excluded from infor­ma­tion report­ing; only pay­ment for ser­vices (and goods paid for inci­dent to the ser­vice) over $600 per year, and goods over of $5000 per year need to be reported.

The IRS uses 1099 infor­ma­tion for income match­ing ,which helps them iden­tify busi­nesses that are under report­ing of income and not pay­ing all of their taxes.  Yes, even your busi­ness is com­pelled to be an agent of the IRS under cer­tain circumstances.

So what do you need to do now? Start get­ting w-9s from every­body includ­ing cor­po­ra­tions: you must have a cur­rent address and valid Tax Payer Iden­ti­fi­ca­tion Num­bers (EIN or SSN) for any ven­dor you rou­tinely pay more than $600 per year for goods or services-starting in 2011.  A Form w-9 is the rec­om­mended method for obtain­ing this infor­ma­tion; it is avail­able in PDF for­mat from the IRS.gov web­site (pdfs can be printed out using adobe acro­bat reader which can be down­loaded for free from the adobe.com web­site).  Art and Busi­ness Con­sult­ing LLC and its own­ers and employ­ees are not affil­i­ated with IRS or Adobe.

Be sure your account­ing pro­gram lists pur­chases by ven­dor and amount paid as you will also need this infor­ma­tion to prop­erly pre­pare the 1099s in 2012.  Look at the length of your ven­dor list, and you will see this project is not one to be under­taken at the last minute. If you are like most busi­nesses you prob­a­bly have only been report­ing a very small por­tion of that list.  It’s going to take a while as some ven­dors will be reluc­tant to sup­ply the infor­ma­tion when asked.  In 2011 you will have no choice, you will be required to gather this information.

What do I do if a busi­ness does not vol­un­tar­ily sup­ply the W-9 infor­ma­tion when asked? Your busi­ness is sup­posed to do backup with­hold­ing of 28%, mean­ing you are sup­posed to keep 28% of what you oth­er­wise would have given to them in pay­ment and give it to the gov­ern­ment instead.  The threat of back-up with­hold­ing is usu­ally enough to ensure coop­er­a­tion on the part of the entity com­plet­ing the W-9. Update 12/14/2010: The penal­ties have increased. For will­ful dis­re­guard its $250 for each 1099 you fail to file; the penalty may be reduced to $30-$100 (depend­ing on how late it is) of the you can show the fail­ure to file was not inten­tional. There is a $50 per ven­dor per year fine for fail­ure to 1099.    The fine may be waived if it is not shown to be from will­ful neglect. Since the new infor­ma­tion report­ing require­ment will be for the tax year 2011 do not do backup with­hold­ing on non­com­pli­ant cor­po­ra­tions until then.

What if I don’t’ want issue the 1099s? In addi­tion to the $50 fine per occur­rence for fail­ure to obtain a W-9 (see Form W-9 page 2), the gov­ern­ment comes back to you for all the other business’s taxes; this is called Will­ful Dis­re­gard by the IRS and they take a dim view of it.  So you get to pay the other guys taxes and yours.  Very gen­er­ous.  So either issue the 1099’s and deduct what you paid them, or don’t deduct what you paid and don’t issue the 1099’s.  Mat­ters not to your book­keeper or accoun­tant, you pick.  How many people’s taxes are you will­ing to pay?

As always Art and Busi­ness Con­sult­ing is here to help.  If you need help with this issue another small busi­ness and or tax issue, please give us a call.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

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