Be On the Lookout for Your Form 1099s

Author: Keith Huggett

It's that time again! Time to send and receive your IRS Form 1099s. Every year the requirements are modified for Form 1099-MISC. When you are a recipient of a 1099-MISC form the IRS also gets a copy that is linked to your tax return.  Keeping aware of your incoming 1099s can save you a lot of time, money, and hassle.

Watch Your Mail.

With 1099s being sent out during the month of January, now is the time to keep a close eye on your mailbox. Because these forms are linked to your social security number failure to report your 1099s can end up causing an audit.

Relocated Lately?

If you have moved recently, be certain to file a change of address with the IRS using Form 8822.
Also, be certain that you have notified all of your contacts with your change of address. A simple forwarding order at your post office can help you keep track of your incoming Form 1099s.

Check for Errors.

Don't just assume your incoming 1099s are correct. The general deadline for issuing a Form 1099-MISC is January 31.  You then have 30 days to file the forms with the IRS.  If you send the forms and file simultaneously, you may not catch any errors.  Use the time between in order to send corrections if necessary.  Also be sure to open your 1099s as soon as you receive them.

If you need further information regarding Form 1099-MISC, the tax specialists at The Tax Office, Inc., are here to help.  A free download of Forms 1099: The Good, The Bad, & The Ugly is available on our website.  Please contact us for a free, no obligation evaluation of your tax situation.

Tax Planning Begins with Form W4

Author: Keith Huggett

When you are filling out your form W4 - Employee's Withholding Allowance Certificate, tax planning may or may note be the first thought in your mind. Usually it's about whether or not you'll be receiving a refund in April. While getting that refund is always nice, your goal should be to break even.

When you being employment you will be setting up your inital withholdings on your Form W4. It is important to review your W4 annually as your situation can change from year to year.  There are many different circumstances that can cause you to change your withholdings:

• Getting married or divorced
• Having children
• Buying or selling a home
• Changes in your contributions to your retirement or education savings accounts
• Changes in your employment

Figuring our just how much to withhold can sometimes be as complicated as preparing a tax return.  Your tax preparer may offer a service called a "W4 review", where he or she will go over your W4 with you, suggesting where you might make changes.  This can result in adjustments to your withholdings or estimated tax payments, depending upon your situation.  A W4 review is just the first step on the road to planning for your future.

From there, your tax preparer can plan ahead for the next tax year by creating a projected tax return. After figuring out your projected tax liability, simply use the withholding calculator provided by the IRS or your tax preparer's suggestions for your withholdings.  Your W4 form can be changed as needed.

Should you have any questions on W-4s, withholding,  or any other tax topic, our specialists at the Tax Office, Inc. are here to provide you with the answers. You can contact us, or ask us a question on our Facebook page.

 

This Online Tax Tool May Save You Headaches Down the Line

Author: Keith Huggett

If you have paid an independent contractor more than $600 for services during 2013, you need to send out a 1099-MISC form by January 31, 2014.  That same 1099-MISC form will need to be filed with the IRS by February 28, 2014.  If you are filing electronically the date is extended until March 31, 2014.  In order to fill out this form, you need to have specific information about your independent contractor, such as the business name, tax id number, and business address.  This information is easily obtained by requesting that the contractor fill out a W-9 form for you. Now that you have this information you have the ability to check the information against what the IRS has by using their Taxpayer Idendtification Number Online Matching tool before sending out your 1099s.

In order to use this tool, you need to register to use the IRS e-services, select a username, password and PIN. Then you can register to use TIN Matching from the suite of e-service products available. The TIN matching services allow “authorized payers” the opportunity to match 1099 payee information against IRS records prior to filing information returns.

An authorized payer is one who has filed forms 1099-B, 1099-DIV, 1099-INT, 1099-MISC, 1099-OID or 1099-PATR with the IRS in at least one of the two past tax years.

Interactive TIN Matching will accept up to 25 payee TIN/Name combinations on-screen while Bulk TIN Matching will allow up to 100,000 payee TIN/Name combinations to be matched via a text file submission.  This service is free of charge at this time.  

When you submit your TIN/Name combinations you will get one of the following NUMERICAL results:

While this step is certainly not required, it may make things easier for you when it comes time to send out those 1099-MISC forms.  If you know ahead of time that the information you have is correct, there will be no worries come April 15th.  Should there be any erroneous information found, you now have time to obtain the correct information from your independent contractors so that no red flags are raised when your taxes are filed.

Should you have any questions regarding 1099s, your taxes, or filing requirements, the highly trained specialists at The Tax Office, Inc. are here to help you.  Contact us now.

 

 

Always Follow the Rules...

Author: Keith Huggett

In addition to keeping track of receiving and sending out payroll tax statements, 1099-MISCs and other tax season paperwork, there is another 1099 form that you will have to watch out for: the 1099-K. The 1099-K form is an informational return that your payment processor may send you to detail the payments that they process for you. This additional reporting document adds complexity to your tax preparation and may increase your risk of an IRS audit.

Here are three issues that deserve your attention:

1. Not every business will receive a 1099-K form: Merchant providers will send you one if you do at least $600 in transactions per year. Third-party settlement organizations, the most common of which is PayPal, will send you one if you do at least $20,000 of business over a series of at least 200 transactions.
2. 1099-K forms reflect gross payments: When your payment provider sends you a 1099-K, it will reflect the gross payment that they send you before subtracting fees. If you are only accounting for net payments after the settlement company's fees, your tax returns will not match the 1099 and you will be at risk of an audit. 
3. You might get fewer 1099-MISC forms: Clients who were reporting transactions to you on a 1099-MISC form may not send you one this year. If they are paying you through a third-party settlement organization, they should not send you a 1099-MISC. Their payments will be included in aggregate with other entity's payments on the 1099-K form that you get from your payment provider. This is an IRS regulation to prevent payments from being double reported.

With all of the 1099 forms that your business both receives and sends out, tax filing is getting even more complicated. The Tax Office, Inc. has a full staff of accountants and bookkeepers who can help you make sense of every tax form that you receive. Please contact us to get started.

It's Almost That Time of Year Again...

Author: Keith Huggett

If you've received money from just about any source other than work, you'll probably be receiving a 1099 form this year. These forms are informational returns that let you and the IRS know how much money you received, and since the IRS gets a copy, they are major audit fodder. 

Here are three major red flags for which you should pay close attention. 

1. Write-offs - If your 1099s come from self-employment income and you file a Schedule C, your return is more likely to be audited. The IRS audits small business people because they expect to find overstated expenses. As such, you should be very careful to ensure that you can document all of your write-offs.
2. Ensure that every 1099 is reflected on your return - A few years ago, the IRS invested in new computer technology that automatically matched returns to 1099s. This technology makes it very easy for them to spot discrepancies and flag your return for an immediate audit. Reporting more gross income than comes in on 1099s will usually not be a problem, since the IRS knows that you might receive income from payers that don't send a 1099.
3. PayPal fee deductions - Third-party payment services like PayPal are now required to file 1099s for income that they send you. Because of this, you may not be receiving a 1099 from vendors that pay through PayPal. Where the problem occurs is if you've been recording your income after PayPal takes its fee. PayPal will report the income that they paid you before their fee, and you will need to subtract those fees as expenses. If you don't, your return won't match your 1099.

Whether or not you pay close attention to these considerations, the IRS will. Given the large number of different 1099s and their complexity, keeping them straight can be hard. The Tax Office, Inc., knows how to handle them, report them and protect you from an unpleasant and expensive audit. If you expect to be receiving a 1099 form this year, it's a great time to contact us and get started on your taxes. If you would be interested in learning more about 1099s in general there is an informational white paper available, entitled Form 1099-Misc, The Good, The Bad, & The Ugly.

4 Things You Should Know

Author: Keith Huggett

You know that when you have a new hire that you need to have that person fill out a Form W-4 for tax purposes.  This form tells you the person's marital status, number of withholding allowances, and any additional amount to use when you deduct federal income tax from the employee's pay.

As an employee, Form W-4 includes worksheets to help you figure out the correct number of allowances or there is a withholding calculator available on the IRS website for help in completing the form correctly.

• Exemption - Some employees may qualify for exemption from withholding. Form W-4 is also used for this purpose. To qualify for exemtion an employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. If the employee can be claimed as a dependent on a parent's or another person's tax return, additional limitations may apply. This exemption is valid only for one calendar year. New W-4s need to be submitted each year, before February 15th.
• Invalid W-4 - If an unauthorized change is made to a W-4, it invalidated the form. Any mark made on the form other than the entries requested will invalidate the W-4. If there should be any mark on the W-4 other than the requested entries, ask your employee for another one. If the employee does not give you a valid one, withold taxes as if the employee is single and claiming no withholding allowances. However, if you have an earlier Form W-4 from this employee that is valid, withhold as you did before.
• Keeping Records - You must keep copies of W-4s for at least 4 years. A W-4 serves as verification that you are withholding federal income tax according to the employee's instructions and you have copies available should the IRS need to see it.
• IRS Notices - Should there be a compliance issue, the IRS will send out a notice. Both the employee and the employer will receive a notification that there is a problem. As the employer, you will be required to withhold additional income tax until the employee can explain to the IRS why additional tax should not be withheld. These notices are often referred to as "Lock-in Letters." After the lock-in letter takes effect, any request by the employee to change his withholdings that results in less income withheld than the lock-in letter, the employee must be referred back to the IRS.

W-4s can be changed as needed, as evidenced by the lock-in letters.  They may also be changed in the case of marriage, the birth of children, or in case the employee wishes to have additional withholdings deducted from his pay.  If you received a revised Form W-4 from an employee, you must put it into effect no later than the start of the first payroll period ending on or after the 30th day from the date you received it.

Should you have any questions on W-4s, withholding, new-hire's or any other tax topic our specialists at the Tax Office, Inc. are here to provide you with the answers. You can contact us, or ask us a question on our Facebook page.

Why Am I Withholding?

Author: Keith Huggett

 

It's January and you're beginning to fill out your 1099-Misc forms, but you can't read the Tax ID number that your Independent Contractor wrote down for you. You know it's either a 5 or a 3 so you make your best guess. Unfortunately, it's going to come back to haunt you, and your contractor, in the form of backup withholding.

Backup withholding is withholding for federal income taxes on specific types of income and may be mandatory in certain circumstances.   Withholding is applied to the following types of income at a rate of 28%:

• Interest
• Dividends
• Patronage Dividends
• Rents
• Royalties
• Commissions & fees paid to independent contractors
• Payments from brokers & bond transactions
• Payments from fishing boat operators

Most taxpayers are exempt from backup withholding. You are exempt from withholding if you report your name and social security number to your payer on a Form W-9, and have not been notified by the IRS that you are subject to withholding. It is very important that this information matches what the IRS has on record for you. 

If the IRS receives 1099 information with an error on it, where the information given does not match the information that they have, backup withholding will be required. In the introductory example, you, the payer, would be required to initiate backup withholding for the independent contractor, as the tax identification number did not match the IRS record. You the payer, as well as the independent contractor would be notified by the IRS of the withholding requirement. 

To help make certain you get the correct tax information from your Independent Contractors, it is always best to ask for a complete W-9 when you initiate business.  You will get contact information, tax identification, and confirmation of withholding status.  For a more in depth look at Form 1099-misc and Form W-9, please take a look at our complimentary white paper, Form 1099-Misc, The Good, The Bad, and The Ugly!

Should you have any questions, the Tax Specialists at the Tax Office, Inc. are available to discuss your situation. Contact us for help with any and all tax forms you receive from the IRS.

Form 1099 Due Date Coming Soon!

AUthor: Keith Huggett

It's the new year, and 1099s are due once again. What is a 1099? Do you need to file them? Well, let's start with the initial question. What is a Form 1099? A Form-1099 is an informational return. It provides specific information to the Internal Revenue Service. There are, in fact, 17 different types of 1099 forms:

• 1099-A - Acquisition or Abandonment of Secured Property
• 1099-B - Proceeds from Broker and Barter Exchange Transactions
• 1099-C - Cancellation of Debt
• 1099-CAP - Changes in Corporate Control & Capital Structure 
• 1099-DIV - Dividends & Distrubutions
• 1099-G - Certain Government Payments
• 1099-H - Health Coverage Tax Credit Advance Payments
• 1099-INT - Interest Payments
• 1099-K - Merchant Card & Third-Party Network Payments
• 1099-LTC - Long-Term Care & Accelerate Death Payments
• 1099-MISC - Miscellaneous Income *
• 1099-OID - Original Issue Discount
• 1099-PATR - Taxible Distributions Received from Cooperatives
• 1099-Q - Payments Received from Qualified Education Programs
• 1099-R - Distributions from Pensions, Annuities, Reitrement or Profit Sharing Plans, IRAs, Insurance, etc.
• 1099-S - Proceeds from Real Estate Transactions
• 1099-SA - Distributions from an HSA, Archer MSA, or Medicare Advantage MSA

Do you need to file a form 1099? Of the 17 1099 forms, there are 3 forms that are most commonly used. They are the Form 1099-DIV, the Form 1099-INT, and the Form 1099-MISC. In regards to a 1099-DIV, it is required to file a form 1099-DIV for each person to whom you have paid $10 in dividends, including capital gains dividends and exempt-interest dividends and other distributions on stock or $600 or more in liquidations.

A 1099-INT form is required for each person to whom you have paid more than $10 in interest, interest on savings bonds & treasury obligations, and/or tax-exempt interest.

Form 1099-MISC has a few more requirements. If you have paid out any of the following you are required to file a 1099-Misc for each person/business:

• $10 in royalties or broker payments
• $600 in the following:
• rents and services; prizes and awards; other income payments
• medical and healthcare payments;crop insurance proceeds
• cash payments for fish you purchase from anyone engaged in the trade or business of catching fish; any fishing boat proceeds
• the cash paid to a notional principal contract to an individual, partnership, or estate
• gross proceeds of $600 or more paid to an attorney

The 1099-MISC sounds very complicated. For more detailed information on this form, you can download an informational whitepaper, Form 1099-Misc, The Good, The Bad, and The Ugly! 

Each of the Form-1099s are required to be sent out to the people with whom you have done business. Each form has multiple copies. This is provided so that you can send one copy to the person in question; keep a copy for your records; and file a copy with the IRS. The initial copy needs to be sent out to your independent contractor - the person you do business with- by January 31, 2013. This is true, no matter which 1099 form you need to issue. You have until February 28th, 2013 to file the forms with the IRS, if you are sending in the paper forms by mail. If you are electronically filing the forms, you have until March 31, 2013.

If this seems a bit overwhelming, contact the tax specialists at The Tax Office, Inc. We are always ready to lend a helping hand, with answers to your tax questions.