New Questions for Businesses on IRS Forms

New for the 2011 tax year – IRS has added two new questions to all their business tax forms….

1.  Did the business make any payments in 2011 that would require it to file form(s) 1099?
2.  If yes, did the business file or will it file all the required Forms 1099?

If you have a business and you utilize subcontractors or independent contractors as part of your labor pool, you should be filing 1099s anyway. A 1099 is a form that reports the amount of fees paid to independent workers along with their name, address and social security number. IRS then cross references the 1099s they receive from payers like you with the tax returns filed by the independent workers to make sure they are claiming the appropriate income on their tax returns.

With the addition of this question on business tax returns, IRS is putting businesses on the hook to ensure these forms are getting filed.  If a business doesn’t file any form 1099s and it should and it answers yes to the first question and no to the second, it’s an invitation to be audited.

If you find yourself in this situation, my advice to you is to have any independent workers you hire complete a form W-9 (similar to the W-4 folks fill out for employers) – available at www.irs.gov and make sure you file your Form 1099s for last year (2011). The Form 1099s are required to be sent to the independent worker by January 31, 2012. Copies of Form 1099 along with a Form 1096 which reconciles and summarizes all Form 1099s should be sent to the IRS by February 29, 2012. The state of Maryland does not require businesses to send them copies of Form 1099.  Form 1099s can be found at office supply stores or can be picked up at the any IRS office or consult your local tax pro.

Many Happy Returns!

Tax season officially begins January 17th, so please send your tax questions to taxfacts@compassionatetax.com. Next time, I’ll be answering your questions.