Form 1099 Reporting Requirements - Weinhold …

1 Members of Pennsylvania and American Institutes of Certified Public Accountants (717) 336-3801(717) 733-1251 fax: (717) 336-8283web: einhold, ickel & ompany, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS Dean A. Hoover, CPA Randal L. Goshert, CPA Joyce A. Hoover, CPA _____ Michael L. Weinhold , CPA Ronald E. Nickel, CPA form 1099 Reporting Requirements Businesses (as well as non-profit organizations and governmental units) are required to file form 1099 information returns for various payments made throughout the year. These forms are to be used to report payments to individuals and partnerships paid by a business for items such as dividends and royalties, interest paid in the course of trade or business, rent, payments for services performed for a trade or business by non-employees, and distributions from retirement or profit sharing plans, SEPs, or insurance contracts.

2 In an ongoing effort to improve efficiency and contain costs for you, we have summarized important information and tips you will need to know in order to prepare your form 1099s at year end. We have also included changes to 1099 Reporting Requirements initiated by recently enacted legislation. Please note that as a business owner and/or rental property owner (as noted below), you are responsible for filing various information returns with the Internal Revenue Service, including form 1099s, in addition to normal income and payroll tax returns. We can assist you in the preparation of these returns; but, we will not compile the information needed for filing unless specifically instructed to do so by you. If so instructed, please keep in mind that the process can be time consuming and the time required will be charged at our standard billing rates.

3 ESSENTIAL 1099 INFORMATION Identify the form 1099 recipients. A 1099 must be prepared for payments made for any service performed on your behalf in the course of your trade or business in the amount of $600 or more during the calendar year. You do not need to provide a 1099 to a non-profit entity or a corporation, with the exception of attorneys who are incorporated. form 1099s must also be prepared for rents and interest you paid in the amount of $600 or more. This does not include interest you paid to financial institutions. In order to obtain accurate information, the IRS developed form W-9. This form is to be completed by the vendor and returned to you before you make any payments to that vendor.

4 You will need to obtain a form W-9 from all new vendors and from repeat vendors that have moved or changed their business entity type or Taxpayer Identification Number (TIN). If a vendor fails to return a completed form W-9, you are required to withhold 28% of your payment(s). This backup withholding is required to be remitted to the IRS. form W-9s should be obtained from all vendors, whether incorporated or not, as Reporting Requirements are scheduled to change in the future. The form W-9s received should be retained on file for at least three years after you cease doing business with that vendor. If the recipient of the 1099 is a sole proprietor (owner), the identification number they provide must match their name.

5 In most cases, they will be providing their social security number. If the business operates using a doing business as name (DBA), the first line of the 1099 must be the owners name and the second line may reflect their DBA name. It is important the name matches the social security number or federal Employer Identification Number (EIN). If they do not match, the IRS will send you a letter identifying the inaccurate 1099 and may assess penalties. Ridgeview Business Complex 1360 Ridge Avenue PO Box 610 Reamstown, PA 17567-0610 ESSENTIAL 1099 INFORMATION (cont.) If you are a sole proprietor and need to complete a form W-9 for any of your customers or file a form 1099 for any of your vendors, you will ordinarily be required to supply your social security number.

6 To ensure the security of this sensitive identification information, you may wish to obtain a federal Employer Identification Number (EIN). An EIN can be obtained free of charge directly from the Internal Revenue Service on the Service s website ( ) or by using form SS-4. Calculate the total year-end dollar amount to be reported to the Internal Revenue Service. Failure to file the forms and failure to provide accurate account numbers will result in a penalty for each unfiled or inaccurate return. WHAT S NEW IN 2011 The Small Business Jobs Act of 2010 increased the penalties for failure to file correct information returns. Beginning with all information returns required to be filed on or after January 1, 2011, the penalty for failure to file a correct return will range from $30 to $100 per return.

7 This is an increase from the current $15 to $50 penalty range. Additionally, the calendar-year maximum for small businesses with average annual gross receipts under $5 million will increase from $100,000 to $500,000. The minimum penalty for each failure due to intentional disregard increases from $100 to $250. Beginning in 2011, all taxpayers who receive rental income from real estate will become subject to the same 1099 Reporting Requirements as those engaged in a trade or business. Thus, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income are required to provide an information return to the IRS and to the service provider.

8 This applies to payments made after December 31, 2010. Although these 1099s will not be filed until early 2012, rental income recipients need to begin keeping adequate records and obtain W-9s from all service providers in January 2011 in order to be sufficiently prepared for the 2012 Reporting deadlines. WHAT S NEW IN 2012 Beginning in 2012, payments made to corporations will no longer be exempt from 1099 Reporting Requirements . As the legislation currently stands, all payments made after December 31, 2011 by a business or real estate rental income recipient aggregating $600 or more in a calendar year to a single payee will be required to be reported on a form 1099. Beginning in 2012, only payments made to a non-profit entity will still be exempt from the Reporting Requirements .

9 Also beginning in 2012, the 1099 Reporting Requirements will be expanded to include all payments aggregating $600 or more in a calendar year to a single payee in consideration for property. This will include goods acquired for resale and goods used in the course of a trade or business or in the function of earning rental income. Please visit our website to obtain a sample 1099 Information Worksheet which you may use to compile your information for 1099 Reporting Requirements . You can also download a blank form W-9 which you may print and photocopy to give to your vendors for them to provide accurate information to you for 1099 preparation. Please note, if you use QuickBooks or other accounting software, you should be able to generate a report containing accurate 1099 information.

10 If you have questions about properly setting up QuickBooks to generate this report, please call our office and ask to speak with a certified QuickBooks ProAdvisor. We would be more than happy to assist you with the process to help ensure accurate records and year-end Reporting . Thank you for the continued opportunity to serve you. If you have any questions, please do not hesitate to contact us.