New 1099 Reporting Requirements
Posted by kennycpa in Business Taxes, Employment Taxes, IRS, Taxes on January 19, 2012
1099-MISC
You know, as a business owner, that the IRS rules require you to report certain payments on annual Form 1099. For example, when you pay $600 or more during a calendar year to an independent contractor for services, you must issue the contractor a Form 1099-MISC. You need to report a wide range of income, including rents, royalties, nonemployee compensation, and prizes and awards. Income from this form can be subject to self-employment tax and is required to be reported on Schedule C. Other income is reported on Form 1040, line 21 (other income), and is not considered self-employment income. However, the new healthcare law imposes surprising new Form 1099 reporting requirements. The goal of the new regulations is to catch income that is going unreported to the IRS. The federal government loses an estimated $300 billion each year from the “tax gap” between what individuals and businesses owe and what they actually pay.
1099-K
Starting in 2011, companies that process credit or debit card payments will be required to report to the IRS the total amount paid to merchants. The IRS created Form 1099-K which is used solely for reporting these transactions. This form is required when a third party network, such as Paypal, Amazon.com, and others that service very small businesses, have at least 200 payment transactions a year totaling more than $20,000. There is no limit on transactions and dollar amount for a merchant card payment. It could be $1 and 1099-K is required. This new reporting requirement affects both companies that issue Forms 1099 to their vendors and companies that accept third-party settlement payments from payment settlement entities (PSE). Payments made through PSEs are reportable by the PSEs and not the parties that made initial payments. The reportable amount includes all payment transactions for each recipient without adjustments for credits, discounts, fees, or refunds. You will get 1099K’s this year for 2011; however, we do not have to separately report the 1099K’s on the tax return in 2011. This will start in 2012.
Penalties
The IRS imposes penalties for failure to file correct Forms 1099 on a timely basis. The penalties have increased per form therefore the total penalty for not filing can be quite large. The amount of the penalty is based on when you file the correct information return. The penalty is:
- $30 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $250,000 per year ($75,000 for small businesses).
- $60 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $500,000 per year ($200,000 for small businesses).
- $100 per information return if you file after August 1 or you do not file required information returns; maximum penalty $1,500,000 per year ($500,000 for small businesses).
If your business doesn’t have a payee’s TIN, you will be required to withhold and submit backup federal income tax withholding at a 28% rate on payments. Therefore, all businesses should have a completed Form
W-9 from all vendors on file. A 1099 must also be filed for any person from whom federal income tax was withheld.
Intentional disregard of payee statement requirements. If any failure to provide a correct payee statement is due to intentional disregard of the requirements to furnish a correct payee statement, the penalty is at least $250 per payee statement with no maximum penalty.
Foreign Accounts Information
Have Assets in a Foreign Country? If yes, then you need to read this!
Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. It is important for taxpayers to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply.
Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938.
If you think this may apply to you, please contact us immediately.
Hiring Unemployed Veterans
Posted by kennycpa in Business Taxes, Employment Taxes, IRS, Taxes on January 10, 2012
Expanded Tax Credit for Hiring Unemployed Veterans
Thinking of hiring new employees in 2012? Hire a Qualified Veteran and receive a Tax Credit!
On 11/21/11 President Obama signed the VOW to Hire Heros Act which provided an expanded work opportunity credit to businesses that hire eligible unemployed veterans between 11/22/11 and 12/31/12. There is paperwork that must be completed prior to the job offer so be sure to let us know if you are considering hiring an unemployed veteran.
Hired a new employee in 2010 and still have them working for you?
Employers who hired an eligible employee from 02/04/10 to 12/31/10 and retained the employee for 52 consecutive weeks may be eligible for a non refundable credit of 6.2% of wages paid up to a maximum credit of $1000 per eligible employee. Please let us know if this applies to you.
Mileage Rates Stay The Same for 2012
Posted by kennycpa in Taxes, Transportation on December 15, 2011
2012 Standard Mileage Rates:
Beginning 1/1/12, the standard mileage rates for using a vehicle (including an auto, van, pickup, or panel truck) will remain the same at 55.5 cents per mile for business purposes, 23 cents per mile for medical or moving purposes.
Tips for Charitable Taxpayers
Eight Tips for Charitable Taxpayers
You may be able to take a deduction on your 2011 tax return if you make a donation to a charity this year. Here are the top eight things the IRS wants every taxpayer to be aware of before taking a charitable donations deduction.
- Please make sure the organization qualifies
Your charitable contributions must be only made to qualified organizations to be deductible. You can always ask any organization whether it is a qualified organization and/or check IRS Publication 78, Cumulative List of Organizations. It is available at http://www.irs.gov. Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file their required annual reports for three consecutive years, as required by law. - What you can deduct
Generally you can deduct your cash contributions along with the fair market value of most property you donate to a qualified organization. Some special rules apply to several types of donated property. - You have to itemize
Remember charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A. - Your Recordkeeping
Keeping good records of any contribution you make, regardless of the amount is most important. For example, for any cash contribution, you must maintain records of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity which contains the date, amount of the contribution and the name of the organization. - Pledges and payments
Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200. - For large donations
For any contribution of $250 or more that you make, you need more than a bank record. You must have a written acknowledgment from the organization. The acknowledgement must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If, for example, you donated property; the acknowledgment must include a description of the items and a their good faith estimate of its value. For items valued at $500 or more you must complete tax Form 8283, Noncash Charitable Contributions, and attach the form to your tax return. If you claim a deduction for a contribution of noncash property worth more than $5,000, then you generally must obtain an appraisal for it and complete Section B of Form 8283 with your return. - When you receive something in return
If your contribution entitles you to receive goods, merchandise, or services in return – as an example: as admission to a charity banquet or sporting event – then you can deduct only the amount that exceeds the fair market value of the benefit received. - Donations made near the end of the year
Include your credit card charges and your payments made by check in the year that you give them to the charity, even if you may not pay your credit card bill or have your bank account debited until the next year.
Mileage Rates Increased for the Remainder of 2011
Posted by kennycpa in Business Taxes, IRS, Taxes on June 28, 2011
The IRS has raised the standard mileage rate to reflect the recent increase in gas prices for the last six months of the year. The rate will increase to 55.5 cents per mile for business miles driven from 7/1/11 through 12/31/11.
This is a 4.5 cent per mile increase from the rate in effect for the first six months of 2011 of .51 cents. The rate for computing deductible medical or moving expenses will also increase by 4.5 cents per mile to 23.5 cents per mile, up from 19 cents per mile for the first six months of 2011.
As far as the rate for providing services for a charity,, which is set by statute, and remains at 14 cents per mile.
IRS Brochure Assists Displaced Workers
The IRS has a Question & Answer PDF on their website on the issues faced by people who have lost their jobs.
It covers:
- What income is taxable
- Pensions/IRAs
- Starting your own business and
- Miscellaneous tax information
If you interested in learning more about this, click on this link.
No Change in Business Miles in the Near Future
Posted by kennycpa in Business Taxes, IRS, Taxes, Transportation on May 20, 2011
As we wrote at the end of January, the mileage rate for business travel this year is $.51.
It was recently reported that the IRS has no plans, currently, to increase the 2011 mileage rate of $.51 per business mile, even though the price of gasoline has risen.
We’ll be watching this as you no doubt will too.
200,000 Balance Due Notices Sent Out by IRS by Mistake
Due to an IRS computer processing glitch, the IRS mailed 200,000 CP-14 balance due notices to taxpayers who filed electronically. These notices informed taxpayers that their balance was due by April 15, even if they had already designated automatic withdrawal from their bank accounts.
These notices were not to be processed in the middle of tax season but instead should have been processed after the computer database had been updated to account for direct debit payments.
The IRS now has stated that if a taxpayer consequently pays twice using both direct debit and check, the IRS will automatically issue a refund for any overpayment.
Please take notice that not all taxpayers have received a Notice CP-14 in error. If the bank account listed on the tax return was listed incorrectly, then the taxpayer would receive this notice.
It is Fishing Season or as it is Better Known, Phishing Season (aka Scams)
Some things you should be aware of in regard to any email that appears to be from the IRS.
- The IRS does not initiate taxpayer communications via e-mail and does not send out messages about your tax account.
- If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site, do the following:
- Do not reply to the message.
- Do not open any attachments as they may contain malicious code that will infect your computer.
- Do not click on any links. If you clicked on links in a suspicious e-mail which would take you to a phishing website looking like the IRS website and entered confidential information you should visit the IRS website and enter the search term ‘identity theft’ for more information and resources to help.
- The IRS doesn’t ask for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.
3. The official website address for the IRS website is http://www.irs.gov . Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, as stated above, do not provide any personal information on the suspicious site and report it to the IRS.
4. Other ways that people use to appear to be from the IRS is: you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Also report any bogus correspondence.
5. You can help shut down these scams and schemes and prevent others from being victimized too. Details on how to report specific types of scams and what to do if you’ve been victimized are available at http://www.irs.gov, keyword “phishing.”