2012 CHANGES IN 1099 REPORTING FOR SMALL BUSINESSES (Written by fox business.com)

Who the new rules affect

If you were completing 1099 forms before, you will have to adjust to the new reporting requirements. This recent tax regulation applies to all for-profit corporations, except for tax-exempt organizations. If you report inaccurate or incomplete information, you may face penalty fines.

What has changed

The biggest change is mostly the volume of paperwork. Previous rules only required businesses to submit 1099 forms for payments greater than $600, typically made to independent contractors. New regulations will require 1099 forms for payments to most, if not all, of a business’ suppliers. Payments made to any corporation for over $600 will now require a corresponding [1099] form. This includes items like commission, fees, interest, rent and even payment for property, such as construction equipment. For most companies, reporting these suppliers will result in more forms. A 1099 form usually requires tax identification numbers (TINs) from both the payers and payees, and the new rules require more businesses to report their TINs.

Penalties for non-compliance

This new legislation raises the maximum penalties for reporting errors. The fine for failing to report a supplier has doubled to $100 from $50. Additionally, the maximum fine per business jumped: the ceiling for 1099 fines was $250,000, but under the new rule, businesses can be fined up to $1.5 million, and that number is anticipated to increase. Learning the new rules and complying with them can save you from a world of trouble. (note from Kate Humphrey: most CPA’s suggest that to protect yourself and your business, just send EVERYBODY a 1099 that you do business with. That way you do not need to worry about compliance or non-compliance rules)

Read more: http://smallbusiness.foxbusiness.com

WHAT YOU CAN DO TO PREPARE (written by Kate Humphrey)

[PLEASE NOTE: if you are a sole proprietor business and are still using your SSN as your business ID number, I strongly suggest that you file for an EIN (Employer Id Number – you do not have to be an employer to have an EIN – it just safeguards your SSN). This is done easily at the IRS website, or call them for the form.

Right now, start requesting that each of your vendors complete an IRS W-9 (this form can be downloaded from the IRS web site (www.irs.gov), then copied and faxed or mailed to your vendors) for your records. These completed forms will give you the legal name, address and Tax Identification Number (EIN or SSN) for your vendor. If you start early, the job will not seem as onerous,. The information on the W-9 is what you will need in order to complete a 1099-MISC each January for the previous year’s activity. It is much easier to request and receive this information before your vendor has been paid rather than months after the fact (obviously). The 1099-MISC forms are due to the recipient by January 31 of the following tax year in which the work was done or the item purchased. A copy is due to the IRS by the end of February.

You should also know that you do not need to go to office supply stores to purchase the 1099s. They can be obtained free from the IRS website. On the opening page, click on “Forms and Publications” on the left-hand side. On the next page look for the “Order” section on the lower left. Order them in December for the current year forms. Dec 1 is the separation date for determining what “current year” means to the IRS. If you order forms before Dec 1, 2012, you will get 2011 tax forms, so what you need to order are 2012 forms AFTER Dec 1, 2012. If you need more copies than the website provides, call 1-800-829-3676. Currently, I order over one hundred per year for my clients; that amount will surely go up drastically in 2012.

If you do not have your financial system computerized, do so NOW. Computerizing your finances will make complying with the law much easier. With QuickBooks Accounting software, you can enter all your vendors and their information (that you collected on those W-9s). Then QuickBooks can print your 1099s for you, drawing on your accounting information to get the total amount you spent with that vendor. QuickBooks also automatically screens vendors to see if they meet the $600 amount requirement. To do all this manually would be a nightmare. If you are not computerized, I can help you computerize your accounting system and teach you, or your bookkeeper, how to use it.

Other issues with which I can help:

• If you do not know whether your QuickBooks is set up properly to issue 1099s, I can check your set up and, if necessary, correct it.
• If your accounting software does not print 1099s, I can issue them for you on my own system. There is no need to change your current accounting software. You would, however, have to give me the total amount you spent with each vendor.
• Any other questions you may have concerning 1099s.