7-37, 60-41, 10-99… Part 4
Posted 10-26-2010 at 12:50 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 www.irs.gov and/or seek the services of a reputable tax lawyer.
Essential Preparations
What can a small to medium business do to get ready for 2012?
Firstly, if you are using your social security number (SSN) as a tax identifier, stop..! Go to the IRS web site and apply for an Employer ID Number (EIN) http://www.irs.gov/businesses/small/article/0,,id=98350,00.html
If you are a sole-proprietor, partnership or some other non-incorporated entity you should talk to a tax or legal professional about your liability if someone fraudulently uses your SSN or EIN.
Start collecting data on vendors now. The IRS requires that you have the information on hand at the time of the transaction, not just when filing your taxes. All businesses should be aware of the new requirements and should be cooperative but if you want to formalize the process or follow up on a company that hasn’t responded you can use the W-9 form from the IRS web site. http://www.irs.gov/pub/irs-pdf/fw9.pdf
Please verify with the site that you are using the latest version.
If you have a stubborn supplier, politely remind them that if you continue to buy goods or services from them beyond January 1st 2010 and they have not provided their TIN you will be legally bound to withhold 28% of their fees/payment.
Ensure the vendor information you collect is entered accurately into your accounting system.
Check that your vendors are going to include their tax ID on their receipts and invoices so that you can cross refer to your own database and make sure that different outlets of the same store are using the same information so that you know to file individual or consolidated 1099s (e.g. if you buy gas from a certain brand but from different locations).
Make sure that payment types can be identified and reported on in your accounting system. For each payment, record whether it was paid by cash, check, credit card etc. If the rules change for credit card payments you’ll be glad that you got in to this habit early.
If you don’t have a company credit card, get one. Pay it off every month to make sure you don’t get hit with unwanted interest charges but use it to full advantage if the laws change and you want to reduce the number of 1099s you prepare.
If you don’t already have one, talk to your bank about a merchant account so that you can accept credit card payments. If the rules change, some companies may only do business with people that can process credit cards. There are a number of web based solutions that provide a virtual terminal for capturing credit card payments; monthly fees should be around $30 to $50 and then they take a commission of around 3-5% depending on the amount per transaction. Discounts are often available if the total amount processed each month goes above a certain threshold.
You will be receiving 1099s yourself so ensure payers have your correct details. Update your address directly with payers, as well as putting a forwarding order in with the U.S. Post Office if you move.
You'll want to see any forms the IRS sees so don't just put arriving 1099s in a pile; open them immediately and make sure the information tallies with your own sales data. If you spot an error ask the payer to send in a corrected form to the IRS. There's a box on the form to show it is correcting a prior 1099 so that it shouldn’t be processed twice – but always request a copy of the revised form and double check that you have been taxed correctly.
Some people may forget that banks are obliged to send 1099s as well. Let’s hope that you are a successful business and have some capital safely banked in an interest bearing account. However, if you forget to report the interest you earned the IRS will know about it and will bill you for the tax owed.
Don’t forget state taxes – the state will receive a copy of the 1099 so check with your local tax offices or a tax professional that specializes in your state’s legislation.
And finally
It can all be a bit overwhelming but it is important to keep up to date with the changes on the IRS web site. A good starting place would be to watch these IRS videos for small businesses:
http://www.irs.gov/businesses/small/article/0,,id=200274,00.html
If you need assistance with 1099s or any other IRS related form you are encouraged to visit www.irs.gov and/or seek the services of a reputable tax lawyer.
Essential Preparations
What can a small to medium business do to get ready for 2012?
Firstly, if you are using your social security number (SSN) as a tax identifier, stop..! Go to the IRS web site and apply for an Employer ID Number (EIN) http://www.irs.gov/businesses/small/article/0,,id=98350,00.html
If you are a sole-proprietor, partnership or some other non-incorporated entity you should talk to a tax or legal professional about your liability if someone fraudulently uses your SSN or EIN.
Start collecting data on vendors now. The IRS requires that you have the information on hand at the time of the transaction, not just when filing your taxes. All businesses should be aware of the new requirements and should be cooperative but if you want to formalize the process or follow up on a company that hasn’t responded you can use the W-9 form from the IRS web site. http://www.irs.gov/pub/irs-pdf/fw9.pdf
Please verify with the site that you are using the latest version.
If you have a stubborn supplier, politely remind them that if you continue to buy goods or services from them beyond January 1st 2010 and they have not provided their TIN you will be legally bound to withhold 28% of their fees/payment.
Ensure the vendor information you collect is entered accurately into your accounting system.
Check that your vendors are going to include their tax ID on their receipts and invoices so that you can cross refer to your own database and make sure that different outlets of the same store are using the same information so that you know to file individual or consolidated 1099s (e.g. if you buy gas from a certain brand but from different locations).
Make sure that payment types can be identified and reported on in your accounting system. For each payment, record whether it was paid by cash, check, credit card etc. If the rules change for credit card payments you’ll be glad that you got in to this habit early.
If you don’t have a company credit card, get one. Pay it off every month to make sure you don’t get hit with unwanted interest charges but use it to full advantage if the laws change and you want to reduce the number of 1099s you prepare.
If you don’t already have one, talk to your bank about a merchant account so that you can accept credit card payments. If the rules change, some companies may only do business with people that can process credit cards. There are a number of web based solutions that provide a virtual terminal for capturing credit card payments; monthly fees should be around $30 to $50 and then they take a commission of around 3-5% depending on the amount per transaction. Discounts are often available if the total amount processed each month goes above a certain threshold.
You will be receiving 1099s yourself so ensure payers have your correct details. Update your address directly with payers, as well as putting a forwarding order in with the U.S. Post Office if you move.
You'll want to see any forms the IRS sees so don't just put arriving 1099s in a pile; open them immediately and make sure the information tallies with your own sales data. If you spot an error ask the payer to send in a corrected form to the IRS. There's a box on the form to show it is correcting a prior 1099 so that it shouldn’t be processed twice – but always request a copy of the revised form and double check that you have been taxed correctly.
Some people may forget that banks are obliged to send 1099s as well. Let’s hope that you are a successful business and have some capital safely banked in an interest bearing account. However, if you forget to report the interest you earned the IRS will know about it and will bill you for the tax owed.
Don’t forget state taxes – the state will receive a copy of the 1099 so check with your local tax offices or a tax professional that specializes in your state’s legislation.
And finally
It can all be a bit overwhelming but it is important to keep up to date with the changes on the IRS web site. A good starting place would be to watch these IRS videos for small businesses:
http://www.irs.gov/businesses/small/article/0,,id=200274,00.html
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