1099 Season is Here - What You Need To Do
It’s almost January, and that means Form 1099 season.
Companies big and small are about to start churning them out and you can’t
afford to ignore them. If you’re in business, that is you file a Schedule C, E,
F, Form 1065, Form 1120 or Form 1120S, you need to pay attention to issuing
them or face penalties.
New in 2011 to all federal business tax
returns was a box asking whether any payments were made during the year that
would require Form 1099 to be filed and
a box asking whether or not you filed all required Forms 1099.
By asking the two
questions prominently on the return, the IRS isn't only reminding taxpayers of
their obligations but also setting a snare for taxpayers that habitually
violate the law. If a taxpayer answers "no" and an audit shows he
should have sent the forms, the answers could be evidence in favor of higher
penalties.
So what are my Form 1099 obligations?
You need to send a Form 1099 to all service
providers that you paid rent, interest, dividends or royalties to in 2012. You must also send Form 1099 to any
independent contractors that you paid for services in 2012. Vendors that are incorporated, unless they
are an attorney, are exempt from this requirement. This could include an accountant, a plumber,
a website designer or a consultant.
You are only required to send a Form 1099 to
anyone meeting the above requirements if you paid them $600 or more in 2012. Since the threshold is cumulative that means
you have to keep track of all the small payments throughout the year.
All 1099s are to be distributed to the
recipients no later than January 31, 2013, in order to avoid penalties. In order to prepare the necessary forms, you
have several options available to you:
- You
may prepare all Forms 1099 for any person or business to whom you paid
more than $600 in 2012 using forms from an office supply store.
- Kinzey
and Arndt, CPA will prepare Forms 1099 for you. We will need copies of all completed
W-9s and the total paid to each person or business paid $600 or more in
2012 no later than January 15, 2013 in order to guarantee completion
before January 31, 2013.
- If
you are an accounting client of Kinzey and Arndt, CPA we will let you know
who to request Form W-9 from and prepare all necessary Forms 1099 at year
end. We can provide assistance in
collecting Forms W-9 from service providers.
Why do you need to obtain a W-9?
A W-9 form asks for the name, address, type of
business and taxpayer identification number of a service provider to whom a
business paid money. This form protects
you in two ways:
- The
form is used to identify vendors subject to the Form 1099 rules. There are
penalties for failing to issue a 1099 when one is required.
- The
form asks the service providers to certify that it is a U.S. citizen not
subject to backup withholding.
Failure to withhold and remit backup withholding when required by
law will subject the payer to liability for these taxes, plus interest and
penalties.
What if a service provider refuses to complete
Form W-9? The IRS requires you to start backup withholding at a flat rate of
28%. This means you are required to keep
28% of what you otherwise would have given the service provider and instead
give it to the government. The threat of backup withholding is usually enough
to ensure cooperation on the part of the entity completing the W-9.
If you have questions about this information
or whether or not a vendor qualifies, please feel free to contact me.
If you are already a client, we need a signed
engagement letter before we proceed with preparing 1099’s this year. An engagement letter will be emailed to you no
later than January 2, 2013. If you don’t receive one by then, please contact
our office.
