Two simple questions were added to the income tax returns last year. These were:
“Did you make any payments in 2011 that would require you to file Form(s) 1099?”
“If “Yes,” did you or will you file all required Forms 1099?”
These two questions appear on all business returns including Form 1120, U.S. Corporate Income Tax Return, Form 1065, U.S Return of Partnership Income and form 1040; Schedule C, Profit or Loss From Business (Sole Proprietorship) and Schedule E, (Rental).
Taxpayers need to understand the filing requirements of Form 1099 to answer these questions correctly.
2) Issue Form 1099
Taxpayers will need Form W-9, Request for Taxpayer Identification Number and Certification, as the basis to complete Form 1099. The W-9 will list the taxpayers:
Tax Identification number
The Type of Entity
That they are Not Subject to Backup Withholding
The recipient will need to certify the information listed above is correct.
A 1099 will need to be issued to all unincorporated businesses that are paid more than $600. An unincorporated business includes sole proprietorships, partnerships and limited liability companies (“LLC”). Form 1099 generally does not need to be issued to any corporations. A 1099 however needs to be issued to all attorneys, regardless of their organizational structure.
3) Penalties for Failure to File Form 1099
There are penalties for failure to file Form 1099. The penalties vary, starting at $15 and going up to $50 per 1099 that is filed late or is not filed. In the past you might have been able to use ‘reasonable cause’ as your reason to have the penalty abated. With these two simple questions that have been added to the tax returns, this would appear to be much more difficult to obtain.
4) The Tax Gap
Congress is very concerned about the ‘Tax Gap.’ Essentially this is the amount of taxes that are projected to come in versus the amount of taxes that are coming in. In 2006, the last report on this gap, the deficiency was estimated at $385 Billion. According to the IRS, underreporting remained the biggest contributing factor to the tax gap.
ACTION ITEM: Taxpayers that need to issue IRS Form 1099 need to obtain Form W-9 in advance.
If you need assistance with your 1099’s please contact us.
Thomas F. Scanlon, CPA, CFP® is with Borgida & Company, P.C., Certified Public Accountants in Manchester, Connecticut, celebrating 44 years of tax, advisory and accounting services. Call 860.646.2465 for more.
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