7-37, 60-41, 10-99… Part 3
Posted 10-26-2010 at 12:47 AM by Business Cornerstone Services
This series of articles is intended for informational use only and does not represent tax or legal advice; the information is believed to be correct at the time of publishing; the author cannot be held liable for any losses resulting from actions taken on the strength of the information provided.
If you need assistance with 1099s or any other IRS related form you are encouraged to visit the IRS Web Site and/or seek the services of a reputable tax lawyer.
Business Implications
Under current law, a business is only required to file a 1099 with the IRS for services totaling $600 or more in a given tax year paid to individual workers that are not part of the wage or salary infrastructure of the company.
Freelancers, sole-proprietors, “1099 Contractors” etc. receive 1099s each year from their clients in place of the W2 which is sent to full-time employees.
The new rules dictate that purchasing goods from a supplier would also require a 1099 if the annual total was $600 or more.
Some examples to illustrate the impact:
And if the IRS calls and finds a business has failed to file a 1099 there is a $50 fine for each one. If the failure is considered to be intentional the fine rises to $100 per instance.
What if a vendor won’t supply their tax id number? You are required to withhold tax at a rate of 28%
If you are a sole proprietor there is a good chance you use your social security number for tax purposes; this will become public through printing on receipts, invoices, W-9s etc. leaving a very large security hole for the identify thieves.
For larger companies, or even small businesses that deal with a lot of suppliers, if you file more than 250 1099s they must be sent electronically. If you have less than 250 forms they can still be filed electronically, but if you send in paper forms then they must be accompanied by a form 1096 which provides a summary of the submission.
Of course it would be relatively easy if there were only one 1099, but there aren’t. Here is a link to the different types of forms that you may need to know about. (Please check the IRS web site for the most recent versions)
Is it all bad news?
Several bills and amendments have been introduced that would repeal the amendments made to IRC § 6041 by PPACA. The Small Business Paperwork Mandate Elimination Act, S. 3578 and H.R. 5141, would repeal PPACA § 9006. Similar language was proposed in amendments to H.R. 5297, 20 and in § 1 of H.R. 5982.21
In other legislation, from January 2011 all credit card processing companies must report annual credit card transactions in excess of $20,000 and 200 transactions submitted to them for processing by any business.
This could be potentially good news for business owners as any purchases made on company credit cards would not require a 1099 to be filed. The down side to this is that small business that can’t accept credit card payments may be overlooked for trade in favor of those that can.
Other proposed legislation would exempt businesses with fewer than 25 workers and raise the reporting threshold from $600 to $5,000.
The consequences of any full or partial repeal of the bill, new legislation, plus the implications of the credit card processing laws need to be monitored carefully over the next 12 months.
Coming soon…
Part 4 Essential preparations
If you need assistance with 1099s or any other IRS related form you are encouraged to visit the IRS Web Site and/or seek the services of a reputable tax lawyer.
Business Implications
Under current law, a business is only required to file a 1099 with the IRS for services totaling $600 or more in a given tax year paid to individual workers that are not part of the wage or salary infrastructure of the company.
Freelancers, sole-proprietors, “1099 Contractors” etc. receive 1099s each year from their clients in place of the W2 which is sent to full-time employees.
The new rules dictate that purchasing goods from a supplier would also require a 1099 if the annual total was $600 or more.
Some examples to illustrate the impact:
- A transport company spends over $600 at a particular branded gas station – 1099 required.
- A small business owner buys a $1000 PC from a large incorporated store – 1099 required.
- A small business owner buys a $1000 PC from a ‘mom & pop’ computer shop – 1099 required.
- A business spends $50 per month at the local donut shop to treat its employees – 1099 required.
- A PR company spends $50 per month on a web based email marketing solution – 1099 required.
- A company spends $600 per year on web site hosting – 1099 required
And if the IRS calls and finds a business has failed to file a 1099 there is a $50 fine for each one. If the failure is considered to be intentional the fine rises to $100 per instance.
What if a vendor won’t supply their tax id number? You are required to withhold tax at a rate of 28%
If you are a sole proprietor there is a good chance you use your social security number for tax purposes; this will become public through printing on receipts, invoices, W-9s etc. leaving a very large security hole for the identify thieves.
For larger companies, or even small businesses that deal with a lot of suppliers, if you file more than 250 1099s they must be sent electronically. If you have less than 250 forms they can still be filed electronically, but if you send in paper forms then they must be accompanied by a form 1096 which provides a summary of the submission.
Of course it would be relatively easy if there were only one 1099, but there aren’t. Here is a link to the different types of forms that you may need to know about. (Please check the IRS web site for the most recent versions)
Is it all bad news?
Several bills and amendments have been introduced that would repeal the amendments made to IRC § 6041 by PPACA. The Small Business Paperwork Mandate Elimination Act, S. 3578 and H.R. 5141, would repeal PPACA § 9006. Similar language was proposed in amendments to H.R. 5297, 20 and in § 1 of H.R. 5982.21
In other legislation, from January 2011 all credit card processing companies must report annual credit card transactions in excess of $20,000 and 200 transactions submitted to them for processing by any business.
This could be potentially good news for business owners as any purchases made on company credit cards would not require a 1099 to be filed. The down side to this is that small business that can’t accept credit card payments may be overlooked for trade in favor of those that can.
Other proposed legislation would exempt businesses with fewer than 25 workers and raise the reporting threshold from $600 to $5,000.
The consequences of any full or partial repeal of the bill, new legislation, plus the implications of the credit card processing laws need to be monitored carefully over the next 12 months.
Coming soon…
Part 4 Essential preparations
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