New 1099 Questions on all Business Tax Returns for 2011

The IRS has included two new questions on all business forms, including Form 1040, Schedule C, Schedule F, Schedule E, as well as Forms 1065, 1120, and 1120-S.  The questions are:

1) "Did you make any payments in 2011 that would require you to file form(s) 1099"

2) "If yes, did you, or will you file all required forms 1099?" 

When preparing your tax return, you will need to be prepared to answer these questions truthfully. 

Existing IRS regulations require anyone who pays an unincorporated business for product or services of $600 or more in a calendar year to issue that business or individual a form 1099-MISC. And the penalties for not doing so are steep - anywhere from $50 to $250 per 1099. It is important to note that the Taxpayer Protection Act of 2011 passed by Congress earlier in 2011 repeals the expansion of the 1099 information reporting requirements to recipients of rental income from real estate who are not otherwise considered to be engaged in the trade or business of renting property.

The IRS is clearly making an attempt to "flush out" unreported income on the tax returns of many who provide services, and they are putting the burden of flushing out squarely on the backs of those who pay for such services. How you answer these new questions on your tax return may trap you into a penalty if you are not careful.   

As always, we are available to answer any questions you may have on these very important issues.