Saturday, March 17, 2012
Weekend Wall Street Journal, Tax Report: Traps for Small Businesses, by Laura Saunders:
A pair of changes for 2011 could mean big headaches for taxpayers who report business or partnership income on their individual tax returns. Both changes involve so-called 1099 forms, which are reports submitted to the IRS so it can cross-check information from different taxpayers.
The first change is momentous: It requires third parties—credit- or debit-card firms, PayPal and the like—to tell the IRS about their payments to businesses. For 2011 and after, these firms must issue 1099-K forms to the IRS and the taxpayer giving the amount of such payments. ...The other potential trap: two new lines on several forms, including Schedule C (for sole proprietorships), Schedule E (landlords), 1120S (Subchapter S corporations) and 1065 (partnerships). They say: "Did you make any payments in 2011 that would require you to file Form(s) 1099?" and "If 'Yes,' did you or will you file all the required Forms 1099?" These simple-seeming questions could cause large penalties for some taxpayers.
Here is why: Firms usually are required to issue 1099 forms to providers of more than $600 worth of services during the year, unless the vendors are incorporated. That could include, for example, an accountant, a plumber, a website designer or a consultant.
In 2010 Congress stiffened the penalties on taxpayers who neglect to provide 1099 forms. The higher penalties took effect in 2011, and now the penalty for nonfiling is $100 per violation—$200, in most cases, because two forms are due, one to the IRS and one to the provider. The penalty for "intentional failure to file" is $250.