New Rules to Live By...

The passing of the Health Care Bill has produced a lot of conversation about the many changes entailed in the process of implementation from both proponents and opponents. Whether you are a fan of the plan or adamantly opposed to it, there are some very real implications that affect more than just your next doctor visit. For business owners there are quite a few requirements that will change how the company is run. While most business owners have been focused on the health care obligations to be imposed on companies, there is another required change that should be given equal attention to ensure that you are fully prepared to play by the new rules.

One of the biggest concerns voiced about the Health Care Bill is the cost associated with it and from where that money will come. To address this concern the bill contains IRS filing changes intended to close certain tax gaps and produce around $17-million. Though the intention to plan for the cost of this new bill should be applauded, there are concerns being raised about the implications of these gap closures on the business community. In particular, the changes to the filing requirements for the 1099 have produced a great deal of conversation.

If you are not already aware, provisions of the Health Care Bill will require all businesses to send a 1099 form for annual purchases of goods and services of $600 or more. Additionally, incorporated businesses are no longer exempt from the production of 1099 forms. Before you start to panic, keep in mind that this new rule is not going into effect until January 1, 2012 – you still have another year to prepare! There are, of course, a slew of concerns about the ripple effect this will have on businesses and many organizations have already begun to voice their concerns at a congressional level. So far, it is only vocalization and repeal requests have not passed.

In the interest of being prepared for what is likely to come, I have gathered some information that may help to prepare you and your business for these changes. Some will be simple and others may require that you revisit the way your company manages its accounting. For the more substantial changes, I suggest having a bottle of headache medicine handy!

Things to know:

If you spend more than $600 annually with another business, you will be required to produce a 1099. This includes companies that provide services, as well as goods. For example: janitorial work, airline tickets, raw materials, office supplies and merchandise.

Purchases made before January 1, 2012 should be exempt from the new filing rules.

Be sure that the IRS receives a 1099 for each business meeting the new requirements and that a copy is sent to the payee (company you paid for services/goods).  You should also expect to receive copies of 1099 forms from businesses that have paid you more than $600 annually. The 1099 forms you receive DO NOT need to be sent to the IRS – just keep them with your tax records.

Incorporated businesses are no longer exempt from producing 1099 forms for $600 or greater in annual spending for business to business transactions.

Small businesses include anyone conducting business as a sole proprietor, consultant or self-employed.

If you fail to produce a 1099 according to these new rules, you will be fined $50 for every 1099 not reported. If your reporting failure is of an “intentional” nature, the fine can be $100 or more.

All 1099 forms filled out by the payer (you) are required to have the total payment for the calendar year, name and address of the payee, the Tax ID number for your business and that of the payee, and your business contact information.

Payment transactions made with a credit or debit card will be exempt from your 1099 reporting requirements because payment processors will be required to file an annual report to the IRS and merchant (you) about the gross amount paid to the merchant during a calendar year. ** Calendar year is the key point to note here!

When you file your company’s taxes, you will need to differentiate between cash sales and credit/debit sales. The report filed by payment processors is intended to assist in the separation of such reported revenue.

If you currently use accrual accounting rather than cash basis accounting for your business, you may face a few more challenges from the changes.

If your business uses a fiscal year different from the calendar year used by the IRS, you may face a few additional challenges in meeting these new requirements. 

For additional information, check out these sites:

Tax Rule Changes (article one)

Tax Rule Changes (article two)

IRS Statement regarding changes

Tips to Comply with the New Rules

The 1099 Mystery Solved

For our second round of tax forms helpful hints, I thought we would tackle the 1099 forms. As with many tax related forms, there are a variety of available forms that you may or may not need to file. To assist you in determining which, if any, of these forms you may need to work with for your filing we have compiled a handful of information tidbits, cheat sheet charts and things to consider.

Because I am not a CPA or otherwise overly versed in tax codes, my first question in this research process was… What is a 1099 form used to report? (Click graph images for larger view)

 

Now that you have a sampler of a few 1099 forms and their use – let’s consider a few more details.

How are you printing your 1099 Forms?

Most people these days use laser or inkjet printers in their offices and homes. If you fall in this category, you will want to use the Laser Forms. If you use either a dot-matrix or a typewriter then the Continuous Forms are your best bet for successful printing.

If you are printing the information for your 1099 forms from an accounting software program, then be sure that you verify how your software prints the information to ensure you purchase the correct forms. The Standard 1099 forms are compatible with most software programs, but should you require a non-standard form they are available for 1099-MISC and 1099-R forms. 

Also consider whether your software prints just the information required to complete the form or the details of the form itself. If your program prints only the information, then you should be using a pre-printed form. This means that the fields of the form are already printed in an IRS approved format and you need only add the relevant information to each box/field. If your software prints all of the form details, though, you want to purchase blank forms.

Are you required to file this information with agencies other than the IRS?

Each state and local government agency has differing requirements about tax responsibilities. Be sure to check with your state and city to be certain that you have filed with all necessary entities. In most cases, filing with a city and/or local agency requires use of a 4 or 5 part form. (Click list image for larger view)

Don’t forget your 1096 Form!

The 1096 – Annual Summary and Transmittal of U.S. Information Returns – form is usually required to be filed for each of your businesses (registered EIN numbers). The general rule of thumb is that a 1096 should be filed for each of the 1099, 1098, 5498 and W-2G forms filed for each business entity.

How are the 1099 forms being delivered?

The most overlooked part of the filing process is the delivery of the forms. Because these forms are a unique item in their size and formatting, the use of tax form envelopes to securely deliver the completed forms to the recipients can make the finalization of this process a headache free endeavor. Available in standard gum seal or self seal, envelopes made just for your 1099 forms are available!

As mentioned in the post about the W2 Forms last week, there is an alternative choice between handling your own tax adventures and hiring a formal CPA or Accountant. A filing service offers a digital data entry process of the information needed to complete your W2 and 1099 forms along with the service of producing and sending the IRS copies on your behalf. You receive PDF copies to print and distribute to employees and/or local agencies, but save quite a bit of time and stress allowing them to get the information in the correct boxes on the forms. Once the IRS copies have been filed you receive an email notice so you can check it off your task list!

 Click here for additional information!

W2 Scoop

Unless you have intentionally chosen to study up on the various tax codes, requirements and forms the season of giving to the government is likely to call for excessive consumption of headache medicine – among other things! If you own a business with employees you should probably consider a bulk buy discount on the headache cures. Trying to keep track of all the necessary forms to be filed, the information needed to complete each form and the various deadlines involved on top of the daily chores of keeping the business functioning is likely to send your head spinning. There are, of course, accountants and CPA’s for hire to ease this stressful endeavor, but smaller companies and start up businesses may not have the financial means to hire such wunderkinds to ease their work load. How, then, do they know which forms to file? Let me see if we can help!

Consider this the first posting of a tax forms helpful hints collection. Today we will start with W2 forms…

The first, and perhaps most important, question to ask yourself is – how many employees to I have?

The answer to this question determines how many W2 forms you will need to print and/or file. Keep in mind that these forms come in packages (usually 25 pieces per package), so if you have only 5 employees you will have extra copies once you complete filing. Of course, this also gives you a few back up sheets for any printer malfunctions and if it is your first year filing you can save one for your company scrapbook!

How are you printing the W2 forms?

Do you use a laser or inkjet printer? Do you have a dot-matrix printer? Still using a typewriter? For laser or inkjet printers, you should order forms marked as Laser Forms. If you use a dot-matrix printer or typewriter, the Continuous Forms are a better choice.

Are you printing the information from a software program? If yes, be sure that you verify in your software how it prints the information. Some programs will print all of the form details (boxes, etc) while others print only the employee data. If your program prints all of the form details, you want to order the blank perforated paper to ensure that you have a clean sheet on which to print. If your program prints only the employee data, be sure to order the pre-printed forms which have the form titles, boxes, etc. already printed for you and only require the addition of the employee data.

Which state(s) is your business reporting to?

This is a key piece of information to know as different states have differing requirements. Be sure to verify your obligations with the state(s) before ordering your tax forms to ensure that you have exactly what you need. What you will notice is that based on the state(s) requirements, the number of parts needed on the W2 form(s) will differ. You also want to keep in mind that if you have to file with a city or local tax agency in addition to the state and federal governments it is probably safe to assume you need an 8-part form. You may also want to double the quantity of your Copy 2 forms to be certain that you have enough to complete all of your required filings.

How many companies (EIN Numbers) are you required to file for?

If you have more than one company registered with the IRS (received and EIN number) you need to be sure that you have the appropriate forms for each business – especially if they are subject to different tax requirements due to their location. In addition to W2 forms, you may also need to complete a W-3 form for your business. 

How are the W2 forms being sent to your employees?

If you are mailing or distributing the forms in the office (where other eyes may see) you might want to consider order the coordinating envelopes for your forms. Although this may seem like a luxury item to small businesses on a budget, it will most likely save you hours of frustration and paper cuts trying to stuff the forms into alternate envelopes not designed for their size.

Now, let’s talk about the actual filing process. If you do not currently have an Accountant or CPA handling this process for you, there are a couple of options you can consider. The most obvious is to manage the processing, printing, distribution and filing on your own. While this is a highly educational endeavor for the average business owner, it is also a bit time consuming. Another option is to utilize a filing service that allows you to enter the necessary data information to produce and file the forms on your behalf. Using this type of service can remove from your plate a number of the questions listed above. Once you register for the service, you do a little data entry to share the necessary data for form completion and then take a little break while the service completes an E-filing with the IRS for you. Recipient copies are also printed and mailed which means you no longer have to worry about distribution to your employees. A PDF copy of the payer copy is provided to you for your files and filing responsibilities with state(s) and local tax entities, as required. You also receive an email confirmation of the IRS filing so that you can rest easy knowing it is already taken care of for you. 

Prepare Yourself!

It seems that every year the Fall weather delivers cooler temperatures along with an increase in scheduling as various social engagements and holidays begin to stack up. Kids are back at school, so there are sporting practices and games to attend. Just as you settle into this new schedule demand the holidays begin to pop up on the calendar. First its Halloween, then Thanksgiving and before you can blink the Season's Greetings are upon you. Take a deep breath and then prepare yourself... for tax season! As soon as you finish packing up the holidays it will be time to start thinking about gathering receipts and organizing your files. To help lower your frustration levels during the process, be sure to check out the information below (and future posts) for helpful hints and information about tax forms.

Heads Up #1

The IRS has determined that they can save around $10 million per year with the elimination of tax forms mailing. Studies indicate that more than 96 million people filed their returns through an online service last year. Around 20 million filed paper returns through paid tax preparers. What does this mean? Most of the tax forms that the IRS put in the mail went unused which means they wasted a lot of money on postage. What does this mean for you? If you prefer the old school method of paper filing and do not currently use a tax preparer, you will have to get your tax forms from the IRS website, IRS offices or selected libraries and post office locations. 

Heads Up #2

Do you use a tax preparer to avoid IRS induced headaches? If so, be sure that they are official! The IRS now requires tax preparers to register for a PTIN (Preparer Tax Identification Number). Having this registration requirement is intended to ensure that the people preparing your taxes really do know what they are doing so that you don't get a visit later. 

If you are a tax preparer and do not currently have a PTIN you can complete the online application via the IRS.gov website. Just go to the Tax Professionals page and follow the instructions. Beware, however, that it will cost you $64.25 to receive this identification number! Once you have the number, it is valid for 1 year. 

Already have a PTIN? You may still need to complete the registration process to be sure that you are included in the new set up. Odds are you will receive the same number so that you don't have to memorize new digits, but just to be safe take a look at the IRS site.

Hope this helps and be sure to check back next week for additional tax form information...