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Preparing for 1099 Reporting

The year 2007 is over. Are you ready to file 1099’s? Has your business previously reported 1099 Payees? (If you are my regular client the answer is yes). 

You’ll want to continue reading to find out if you are in compliance and the possible consequences if you are not. You may also want to print this e-mail for future reference.

Many businesses do not report payments made to 1099 Vendors. Perhaps they are not aware of their obligation or they do not realize the possible consequences of non-reporting. In either case, it is important that Business Owners are aware of the requirements and the consequences for non-compliance.

Important Information About 1099 Vendors

• What is a 1099 Vendor?

A 1099 Vendor is anyone you have made a payment to (a Payee) in the course of your trade or business who is not a “Corporation”. Corporations do not require 1099 reporting with the exception of Attorneys. Attorneys receive a 1099-MISC whether they are incorporated or not.

The threshold for reporting is accumulated payments made to a particular vendor (Payee) totaling $600.00 or more in a calendar year.

• Who is required to report 1099 Vendors

Anyone engaged in trade or business for gain or profit. Non-profit Organizations who are considered to be engaged in business are also subject to these reporting requirements.

• Why do I want to report 1099 Vendors?

First, it is required by law. Second, if you don’t report 1099 Vendors, you risk losing the tax deduction for the amounts paid to 1099 Vendors, and you are subject to penalties of up to $50.00 per information return (each Payee per year is one information return) to a maximum of $250,000.00. In some cases, the penalties can be $100.00 per information return with no maximum.

Penalties are assessed for “Failure to File Correct Information Returns by the Due Date”. This means you are assessed penalties for not filing, for filing late, and for filing incorrect information.

• How do I file 1099’s?

Your Bookkeeper or Accountant can file your 1099’s. Or, for detailed Instructions on how to file 1099’s please refer to IRS “Instructions for Form 1099-MISC” and “General Instructions for Forms 1099, 1098, 5498 and W-2G. (see below for download instructions)

• What information will I need to provide to my Bookkeeper or Accountant in order to file 1099’s

You will need to provide the Payee’s legal name, address and Tax ID number. This information is obtained by providing your Payee’s with a W-9 form to complete and sign. You can download the current form at: http://www.irs.gov/pub/irs-pdf/fw9.pdf

You will want to have the completed and signed Form W-9 on file to protect yourself from penalties in case the Tax ID number or Payee address submitted on the 1099-MISC form is incorrect or invalid.

You will also need to provide the total payments made to the Payee for the calendar year. A summary per Payee, as well as a detailed breakdown of check numbers, dates and amounts, is important.

If you use QuickBooks, and QuickBooks is set up properly, you can automatically generate the information and print 1099s’ from QuickBooks.

• What happens if the Payee does not return the W-9 form?

You are required by law to withhold 28% from payment if the Payee fails to provide you with the completed and signed W-9 form, including their Tax ID No. The money withheld is considered “backup withholding” and is reported to the IRS.

I suggest you provide your Payee/Vendor with a W-9 form immediately upon engagement and before submitting payment to avoid scrambling to gather this information at year-end.  If the vendor is not in compliance it will be too late to withhold the amounts required by law.

• When are 1099’s Due?

The copies sent to Payees are to be submitted and postmarked by January 31st of each year.

The original 1099-MISC forms and Form 1096 need to be submitted to the IRS by February 28th.

This e-mail is to provide you with general information. Please refer to IRS “Instructions for Form 1099-MISC” and “General Instructions for Forms 1099, 1098, 5498 and W-2G” for detailed and more specific information. You can download these forms at: http://www.irs.gov/pub/irs-pdf/i1099msc.pdf and http://www.irs.gov/pub/irs-pdf/i1099gi.pdf.

Note: You will need Adobe Acrobat Reader in order to view these documents. You can download Adobe Acrobat Reader, free, from the following site: http://www.adobe.com/products/acrobat/readstep.html

Please do not hesitate to contact me if you have any questions, or if I can be of assistance to you.

I hope you enjoyed this article. Please do not hesitate to contact me Click Here! if you have any questions, or if I can be of assistance to you.

Warmest Regards,

Victoria L. Lenhardt
Bottom Line Enterprises

A very important part of reducing taxes is tax planning. This article will help by providing a financial planning perspective for your overall tax situation.

1. Be aware of the different types of taxes

Many people are not aware of the different types of tax systems that we have, such as:

• Income: Federal, State and Local. Real estate tax.
• Tax on Investments:  Dividends, interest, capital gain, and passive income on stocks, bonds, mutual funds, and investment real estate.
• Estate or Inheritance Tax: Federal and state tax due on the estate or the inheritor.
• Gift tax: tax on larger gifts.
• Entitlement Tax:   Social Security and Medicare (FICA), Federal Unemployment (FUTA). Sales, self employment, state unemployment (SUTA), state disability (SDI), and corporate taxation.

2. Consider working with a qualified tax professional

Tax planning can be complex for many people, therefore it may be wise to work with a trusted professional tax advisor.

Tax advisors not only prepare your taxes but can help make decisions that will affect your future. They can serve as advisors for a whole host of matters and they can represent you if you face the dreaded audit. Consider the following when selecting a tax professional:

• Personable:  Someone that you can interact with and who cares about you AND who will offer suggestions and tips on business matters that you might not be aware of.
• Proactive:   Some tax preparers simply look at your previous year’s return and plug your current numbers into last year’s format. This of course assumes that last year’s preparer knew what he/she was doing. Try to find a preparer who knows your situation.
• A proactive professional will ask questions that will help you anticipate changes in your tax situation to help you properly plan in advance
• Reputable:  Find a professional with a good reputation. Ask for referrals.
• Skilled:  Look for an accountant that is very competent. You have to be smart to obtain a degree in accounting or law.
• Fees:  Find out up front what they estimate their fees to be, what they charge to file electronically and whether they will represent you in an IRS audit.
• Avoid any ‘early refund’ ploys. Some well known tax preparation companies ‘provide’ this service which charges a hefty fee (with a lot of small print) and a lot of advertised hype for you to get your refund ‘early’. It is basically a high-interest loan. Just waiting for your actual refund will save you a lot of money.

3. Remember, tax preparation entails both art and science

The science involves the mathematical calculations that in most instances can be figured using calculators and software, and the infinite number of complex tax laws.

The art of tax planning comes into play with interpretation of any special circumstances. There are some areas of tax law that leave the government’s intentions unclear. No law can completely anticipate each person’s situation. You could call a dozen different IRS agents with the same question and get as many different answers. A proactive planner will research any unusual circumstances you may have and help you plan a course of action.

4. Doing Your Taxes Yourself?

I firmly believe in getting professional tax assistance. The professional could find tax deductions and income reduction strategies you aren’t aware of.

I realize that many people prefer to do their own taxes, perhaps thinking to save money, or perhaps having to clean up the mess a low cost preparer made, and vowing to do their own.

Yet, often, the professional tax preparer’s fee will be offset by the tax savings.  And the peace of mind that the taxes are done right has a value all its own.

People who have prepared their own taxes with paper and pencil or software usually understand taxes better. However, If you self-prepare your taxes, consider having a qualified accountant review them before you send them in. They may find things you or the software might have missed.

You can usually file your taxes electronically for free through the IRS website at www.irs.gov/efile/.  Some States allow you to ‘phone in’ your State return for free.

If you use tax software and wish to e-file be aware of the fees so that you can budget and compare prices properly.

If you choose to mail your return, go to your local post office and send it ‘Certified Return Receipt’ mail to insure that you have a record that the IRS received your paperwork. This will cost will be worth every penny should the IRS contest the receipt of your return.

5. Keep great records

If you are already very organized you may read this section just to feel great about your organization skills or skip to the next section. If, however, you are the type of person who balks at the idea of organizing that mess of receipts, just remember how you felt last year as tax time approached.

You could become organized in only one evening of television viewing with the right tools. Arm yourself with an accordion file with at least 16 sections. Label them according to your situation or use the following sections:

Auto
Bank
Business
Credit Cards
Dental
Medical
General Receipts
Grocery
Income
Insurance
Mortgage
Utilities
School
Taxes

Now file your receipts into these sections. Organizing your receipts will help you “Take the mystery out of…” your financial situation. Use a new accordion file every year. Not only will this help you find needed information, it will also help you find a receipt in case you need to return an item you purchased.

Your tax professional should be sending you a tax organizer the end of December or the first of January. In this organizer will be a list of information that you will need to gather. Becoming organized will help you easily gather the information you need to fill out your tax organizer.

6. Start early

Do not procrastinate on your taxes. Tax professionals are unbelievably busy January through April. Firms who prepare business returns also have a March 15 business deadline. We are providing this information because we want you to get the most attention from your preparer during their craziest season.

As soon as you get your organizer begin gathering the needed papers. If you are only missing one or two pieces of information return the organizer to your accountant with a note that says what is missing. They will begin entering the information in their software.

Try to get an October or November meeting with your accountant in preparation for year-end. These months are the best to meet because they will have more time to spend with you and they will be able to think proactively.

Another reason to start early is allowing yourself time to look for records, ask financial institutions for copies of lost information, or calling investment companies for statements.

If you are looking for a professional, find one now!

7. Prudent Paycheck Tax Withholding

Many people like to overpay their taxes so that they get a nice refund in time for vacations or other wants and needs – kind of like a forced savings. Overpaying taxes is like a giving the government an interest free loan of your money.

Good financial management involves developing savings habits so that you set aside money in an interest bearing account from each paycheck for future needs, wants and emergencies. This helps you to avoid using credit cards for those things and not having to wait until refund time.

Secondly it then allows you to manage how much you can afford or are able to put into 401(k) plans at work. This accomplishes two things, first you are managing your money better and you are saving for retirement. Saving for retirement in tax deductible retirement plans like 401(k)s will also lower your taxes, enabling you to save more for retirement and everyday needs and wants.

If you want to lower the taxes that are being withheld from your paycheck, file a new W-4 form with your employer to claim an additional withholding. Make adjustment for getting married, divorced, having children and for increasing contributions to tax deductible retirement plans. Your accountant will help you estimate this.

8. Tax planning can save you hundreds, if not thousands, of dollars

Taxes consume a large if not the largest single percentage of your income, therefore good financial planning should strive to lessen them, by whatever means possible as allowed by law.

Don’t delay.  Start today!  After all…”It makes more sense to look ahead and prepare than to look back and regret!”

I hope you enjoyed this article. Please do not hesitate to contact me Click Here! if you have any questions, or if I can be of assistance to you.

If you have a business, be sure to sign up for my “Keep It Simple” Tips & Tricks and www.victorialenhardt.com

Warmest Regards,

Victoria L. Lenhardt
Bottom Line Enterprises