Business owners will find two new questions on their income tax forms this year:
-"Did you make any payments in 2011 that would require you to file Form(s) 1099?"
And,
- "If `Yes,' did you or will you file all required Forms 1099?"
This is a rather pointed reminder to businesses that they're required to send 1099s to people or companies they've paid money to - particularly independent contractors who were paid more than $600. And to file copies with the IRS. The questions are hard to miss on the tax forms. On Schedule C, the form filed by sole proprietors, they're in the top section, right before you start reporting your income.
Here are some things you need to know about 1099s:
THE RULES
It's mandatory to send 1099s to people who you've made payments to. The forms are specific for the kinds of payments. Form 1099-DIV, for example, must be used if you have a corporation and you've paid dividends to shareholders. The most familiar one for small business owners is 1099-MISC, the form used to pay independent contractors.
Neil Becourtney, a certified public accountant with J.H. Cohn LLP in Roseland, N.J., believes the government has included the new questions on tax forms because it wants to get more companies to comply with the tax law.
"They want taxpayers to announce that I as a corporation or partnership or sole proprietor filing a schedule C had reason to issue 1099 forms," he says.
The penalties can be steep if you don't send the forms, they're late or the information on the forms is incorrect. The penalties start at $30 per 1099. The IRS can waive them if you can show "reasonable cause" for not filing the forms. But, Becourtney says, businesses that say they will file 1099s and then don't may find it harder to avoid penalties.
Becourtney says many businesses wrongly believe that 1099s are intended only for individual recipients. If you hired a law or accounting firm and paid more than $600 in fees, you need to send a 1099.
And if you receive a 1099 from someone you've done work for, you have to report the amount you were paid. Don't shrug it off. The IRS will be looking for that income on your return.
ABOUT THOSE INDEPENDENT CONTRACTORS
The government has been paying more attention in recent years to the issue of independent contractors, and whether some businesses are trying to avoid Social Security and Medicare taxes by classifying employees as contractors. A business that does that is violating the law.
Becourtney says many employers call part-time workers independent contractors. But the definition of an independent contractor doesn't have to do with hours worked - it's all about how much control a business has over the worker. The IRS puts it this way: "The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done."
Control is the operative word. If a business can control where the work is done, the hours worked and closely supervises the work, then this is an employee.
The IRS website, www.irs.gov, has more information about independent contractors.
SOME NUTS AND BOLTS
Be aware that you can't download and use the 1099 forms that are on the IRS website. You'll have to order forms from the IRS. The individuals or companies who you've paid must get a copy, and the government gets one too. You can mail paper forms to the IRS or file them electronically. For information about the mechanics of filing 1099s, download "General Instructions for Certain Information Returns." There are also instructions for specific 1099s including 1099-MISC.
The deadline for sending paper 1099s to the IRS is Feb. 28. If you're sending them electronically, the deadline is April 2.
Tuesday, February 14, 2012
Tuesday, February 7, 2012
What You Need to Know About Your 2011 Tax Return
The Internal Revenue Service has some good news for taxpayers this year -- especially for those who procrastinate.
"This year we don't see a lot of tax changes," said Peggy Riley, an IRS spokeswoman. "But at least one good one is because April 15 falls on a Sunday, and April 16 happens to be Emancipation Day in the District of Columbia and Patriot's Day in Maine and Massachusetts, people have two extra days to file this year."
There are some other potentially beneficial changes.
"There is a new form, the 8949, to report your capital gains and losses," Riley said.
What may be of more interest to taxpayers are things that haven't changed -- but might in coming months.
"We did have that payroll tax deduction extended for two months through January and February. Right now we're seeing more in our paychecks, but that could change come March if they don't extend it," Riley said, referring to Congress. "And there are a bunch of benefits that are set to expire unless they're extended."
Those benefits, still available to qualifying taxpayers filing their 2011 returns, include the American Opportunity Credit for people enrolling in higher education, the Enhanced Child Tax Credit, and the Expanded Earned-Income Tax Credit for people with three or more children.
"There are also some energy credits for people looking to make energy improvements to their homes set to expire after this return period," Riley said in an interview. "And we're promoting a health insurance deduction for small businesses that offer a plan to their employees and help pay for it."
Riley also stressed the value of the Earned Income Tax Credit, calling it the most underused credit. It's available to Americans who earned $49,078 or less last year. The income figure and credit are geared to their filing status and whether they have children.
"That's the biggest one because they think it's not for them, they don't know about it, or they haven't heard about it," she said, "It's a fluid amount of people who qualify for it each year.
"It's a credit for only working people, so you have to have some income, and that's an incentive to get people back into the work force and do better for themselves."
Another lesser-known credit -- the child and dependent care credit -- will be of particular interest to parents.
"It's a credit for parents who are paying someone to watch their children while they're working," Riley explained. "Even summer camps and programs, as long as they're not overnight, can qualify as well."
Once the entire amount paid for child care is determined, parents can be reimbursed a percentage.
Riley wants to further promote the fact that the IRS is available for help with filing and other tax-related issues -- in person, by telephone or online.
The IRS Volunteer Income Tax Assistance program offers free tax help to anyone earning $50,000 or less while its Tax Counseling for the Elderly Program offers free tax help to anyone age 60 or older. More information can be found at www.IRS.gov, and people can call the IRS at 800-906-9887 to find the nearest Volunteer Income Tax Assistance site.
"We've also had the free file program for a number of years," Riley added. "We have a list of 20 companies in partnership with us that offer free electronic filing for people earning $57,000 a year or less."
More information is available online at www.irs.gov/freefile.
Riley also cautioned taxpayers against scams and identity theft schemes that always pop up at this time of year.
"We do see a lot of tax-related scams, especially when it comes to identity theft," she said. "Most of them are made to look official regarding refunds rather than people owing the IRS money because people are more apt to respond to a potential refund. They'll typically ask for [personal identification] numbers or credit card numbers or Social Security numbers, things the IRS doesn't normally ask for."
Anyone with questions or concerns about potential fraud or scams is urged to call 800-908-4490.
"This year we don't see a lot of tax changes," said Peggy Riley, an IRS spokeswoman. "But at least one good one is because April 15 falls on a Sunday, and April 16 happens to be Emancipation Day in the District of Columbia and Patriot's Day in Maine and Massachusetts, people have two extra days to file this year."
There are some other potentially beneficial changes.
"There is a new form, the 8949, to report your capital gains and losses," Riley said.
What may be of more interest to taxpayers are things that haven't changed -- but might in coming months.
"We did have that payroll tax deduction extended for two months through January and February. Right now we're seeing more in our paychecks, but that could change come March if they don't extend it," Riley said, referring to Congress. "And there are a bunch of benefits that are set to expire unless they're extended."
Those benefits, still available to qualifying taxpayers filing their 2011 returns, include the American Opportunity Credit for people enrolling in higher education, the Enhanced Child Tax Credit, and the Expanded Earned-Income Tax Credit for people with three or more children.
"There are also some energy credits for people looking to make energy improvements to their homes set to expire after this return period," Riley said in an interview. "And we're promoting a health insurance deduction for small businesses that offer a plan to their employees and help pay for it."
Riley also stressed the value of the Earned Income Tax Credit, calling it the most underused credit. It's available to Americans who earned $49,078 or less last year. The income figure and credit are geared to their filing status and whether they have children.
"That's the biggest one because they think it's not for them, they don't know about it, or they haven't heard about it," she said, "It's a fluid amount of people who qualify for it each year.
"It's a credit for only working people, so you have to have some income, and that's an incentive to get people back into the work force and do better for themselves."
Another lesser-known credit -- the child and dependent care credit -- will be of particular interest to parents.
"It's a credit for parents who are paying someone to watch their children while they're working," Riley explained. "Even summer camps and programs, as long as they're not overnight, can qualify as well."
Once the entire amount paid for child care is determined, parents can be reimbursed a percentage.
Riley wants to further promote the fact that the IRS is available for help with filing and other tax-related issues -- in person, by telephone or online.
The IRS Volunteer Income Tax Assistance program offers free tax help to anyone earning $50,000 or less while its Tax Counseling for the Elderly Program offers free tax help to anyone age 60 or older. More information can be found at www.IRS.gov, and people can call the IRS at 800-906-9887 to find the nearest Volunteer Income Tax Assistance site.
"We've also had the free file program for a number of years," Riley added. "We have a list of 20 companies in partnership with us that offer free electronic filing for people earning $57,000 a year or less."
More information is available online at www.irs.gov/freefile.
Riley also cautioned taxpayers against scams and identity theft schemes that always pop up at this time of year.
"We do see a lot of tax-related scams, especially when it comes to identity theft," she said. "Most of them are made to look official regarding refunds rather than people owing the IRS money because people are more apt to respond to a potential refund. They'll typically ask for [personal identification] numbers or credit card numbers or Social Security numbers, things the IRS doesn't normally ask for."
Anyone with questions or concerns about potential fraud or scams is urged to call 800-908-4490.
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