1099s

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Tuesday Tax Time

March 31, 2009 by thriveal | No comments

irsINFORMATION REPORTING ON THE RISE

As the tax code continues to add to it’s complexity, the IRS has to make enforcement changes to keep up with the cheaters.  They can’t audit everyone, so they’ll have to rely on you and me (…and our businesses and the charities we give money to) to rat out the cheats for them.

Information Reporting for businesses, nonprofits, and potentially individuals is on the rise.  Moving into the future, information reporting, such as 1099s, will be required by those paying lump sum payments to other businesses and individuals in an ever expanding way.  Here are some ways you may see these changes take place:

1.  Investment Houses will be required to start reporting the basis details of clients’ security sales by 2010 (then the IRS will not only know what you sold the security for, they will now know what you bought it for).

2.  Credit and Debit Card Issuers will have to start reporting how much they’ve paid to merchants starting in 2011.  Example: You do business using PayPal?  Then you’ll be on their list, and the IRS will know if you’ve done more than 200 transactions and received more than $20k a year through PayPal.

3.  Businesses Making Payments to Other Corporations is on the hit list to change.  Currently, your business doesn’t need to send 1099s to other corporations that are paid more than $600 per year.  This will be changing in the near future.  There is no date set yet, but the change is coming.

4.  Landlords Paying Painters, Landscapers and Repairmen will have to start sending 1099s to their subcontractors if Obama gets his way.  He’ll be making this request soon so the IRS can make sure those subcontractors aren’t under reporting their income AND so the landlords will stop over reporting their deductions.

5.  Nonprofits Receiving Donations may have to send the IRS that information when they receive $250 or more in donations!  This is not approved yet, but this and other intense information reporting measures are sure to make the cut in the next few years.

Thanks, Jason M. Blumer, CPA

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

Tuesday Tax Time (Self-Employed Edition)

February 3, 2009 by thriveal | No comments

I won’t speculate on the new Obama tax cuts that are coming.  I’ve mentioned those before… so I’ll just wait until they are final before diving into that lovely pot of goodies.

Let’s clarify a little self-employed tax code, shall we?

  • File a Schedule C with your tax return if you are a sole-proprietor (file a separate schedule C for each business you are in),
  • If you pay yourself out of the proprietorship, that is not a deductible expense (contrary to popular belief),
  • Health insurance for a self-employed individual is not deducted on the Schedule C – it is deducted on the front of the 1040 for the individual,
  • Deduct your Business Use of Home if you work out of your house and do not have another office somewhere else (use Form 8829) - to my knowledge it does not increase your potential for an audit (that is a tall tale),
  • You need to show a profit in at least three out of five years on your Schedule C or the IRS may consider your activity to be a hobby (which means you can’t deduct losses anymore),
  • You have to pay self-employment tax on your profit (which is 15.3% of your profit), so if you are making a lot of money you may need to consider switching to an S Corp status (see your tax expert on what is considered a lot of money),
  • You (as a self-employed individual) have to claim all income received as a self employed individual,
  • You (as a self-employed individual) do not have to pay self-employment tax unless your net earnings (i.e. profit) equals or is more than $400,
  • You (as a self-employed individual) have to report 1099s to anyone you paid money to that exceeds $600 (different rule that the two above).

So now you know.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

Tuesday Tax Time

August 18, 2008 by thriveal | No comments

Beware…

The IRS don’t play no games when it comes to the classification of your workers into the ”subcontractor” or “employee” camp.  Did you know that YOU don’t get to totally chose how to pay your people?  They are either subcontractors or employees, as determined BY THE IRS.

Common trick: employers would rather not have employees because they have to withhold taxes for them and pay in taxes (an expense to the business) for their employees.  So, they call them “subcontractors” and don’t worry about taxes.  It saves them time and money.  Pretty smart, huh?  Not really.  An employer may have to pay big time if they have been misclassifying employees as subcontractors…  as in penalties and interest dating back the time they began the missclassification.

Here are a few methods the IRS is using to crack down on employers who misclassify their workers:

1.  The states are going to start sharing information with the IRS that they’ve gleaned from their state payroll audits.  To be sure, more IRS audits will follow.  And the states are often more aggressive than the federal government (IRS) in the collection of taxes owed to them.

2.  Additional “matching software” is being employed by the IRS to determine who is tagged for the next audit.  For example, when a company is not issuing W-2s, but is issuing 1099s to subcontractors of $25k or more, then that company will potentially become a target of an audit.  Keep in mind: the IRS always assumes that companies have employees, thus should be issuing some W-2s.

3.  Taxpayers who don’t want to be classified as subcontractors can file Form 8919 now to tattle to the IRS concerning their employers’ failure to withhold and pay taxes on them.  This handy dandy form can greatly assist subcontractors who don’t want to pay self employment taxes at the end of the year.

The risks in playing the “payroll game” are VERY high.  As an employer, you may have saved time and money, but I’ve seen houses foreclosed on and bank accounts wiped out by the IRS due to the failure to pay payroll taxes timely.  Don’t play this game…

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.