After the IRS finalized its tax forms for the year 2011, we became aware of two new questions on business tax returns (including Forms 1120, 1120S, 1065, and 1040 Schedule C):

1. Did you make any payments in 2011 that would require you to file Form(s) 1099?
2. If “Yes,” did you or will you file all required Forms 1099?

Background – what is Form 1099?

Generally, a business issues Form 1099 and its series of forms to report certain payments to the IRS and inform recipients of the amounts reported.  For example, Form 1099-INT reports interest income and Form 1099-DIV reports dividend income.  The most common type of 1099 filed by small businesses is Form 1099-MISC, which reports amounts such as rents and nonemployee compensation.

The rules and thresholds for issuing 1099s vary, but for both rents and nonemployee compensation, a business must issue Form 1099-MISC to report $600 or more paid during the tax year to an individual or partnership for services.  Reportable payments for services include professional fees paid to an attorney or an accountant.  Other examples are payments to independent contractors for janitorial services, information technology consulting, web design and plumbing repairs (just to name a few).  Rent paid to a landlord is another reportable payment that is sometimes overlooked.

Implications of the new questions on business tax returns

Tax returns are signed under penalties of perjury, so it is important to accurately answer the two new questions regarding the filing of 1099s.  We expect nearly all of our business clients to meet the requirement for issuing 1099s and answer “yes” to the first question since they have paid us accounting fees (as a partnership, Wallace Neumann & Verville is eligible for a 1099).  We do not know the consequences of answering “yes” to the first question and “no” to the second question, but one possible outcome is an IRS correspondence audit.  For this reason, we urge all of our clients to timely file all required Forms 1099.

Penalties for filing late and failing to file

The IRS recently increased penalties for failure to file information returns, failure to furnish correct payee statements, and for intentional disregard of the law.  For the year 2011, the penalties for failure to file information returns such as 1099s are as follows:

• $30 per information return if you correctly file within 30 days (by March 30 if the due date is February 28).
• $60 per information return if you correctly file more than 30 days after the due date but by August 1.
• $100 per information return if you file after August 1 or you do not file required information returns.
• If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $250 per information return.

In addition, the penalty for failure to furnish correct payee statements increased to $100 per return.  The penalty is reduced to $30 per return for failures corrected within 30 days after the due date and reduced to $60 per return for failures corrected on or before August 1.

See section O of the Form 1099 general instructions for more detailed information regarding these penalties.

Filing your 1099s

We are happy to prepare Form(s) 1099 for our clients when requested to do so. Typically, clients provide us with either an electronic copy of their accounting data or the amounts required to be reported on Forms 1099, as well as the name, address, and tax identification number for each recipient.

If you decide to prepare your own 1099s, you can buy blank forms at most office supply stores.  If you use QuickBooks, we can walk you through the steps for printing 1099s directly from the software.  Another option is to use an Approved IRS e-file for Business Provider.

The laws for issuing Form 1099 are complex, so please consult with your tax advisor.

See Also

Disclaimer

2011 General Instructions for Forms 1097, 1099, 1098, 3921, 3922, 5498 and W-2G

2011 Instructions for Form 1099-MISC, Miscellaneous Income

The IRS has issued new regulations for determining whether amounts paid to acquire, produce, or improve tangible property may be currently deducted as business expenses or must be capitalized. The regulations will affect virtually all taxpayers that acquire, produce, or improve tangible property. Comprehensive and voluminous, the regulations virtually rewrite the rules in this area. For example, they provide detailed definitions of “materials and supplies” and “rotable and temporary spare parts.” They prescribe new rules for elective de minimis and other optional methods for handling their cost. They also have rules for differentiating between deductible repairs and capitalizable improvements, among many other items. The regulations generally are effective in tax years beginning after Dec. 31, 2011. However, to add to their complexity, some of the new rules in the regulations do not supersede prior IRS guidance.

As you make decisions regarding your fixed asset purchases or improvements, you may want to ask your Las Vegas CPAs about the tax consequences regarding these planned investments. As always, feel free to contact a professional at  Wallace Neumann & Verville, LLP  for guidance on the new rules for deducting or capitalizing tangible property costs.