November 2010 Archives

November 24, 2010

How will the upcoming changes to the filing requirements for 1099 forms affect your small business or non-profit organization?

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Congress recently passed legislation that will dramatically change the filing requirements for 1099 forms beginning in early 2013 for payments made in 2012. Under the new rule, small businesses and non-profit organizations will be required to file 1099 forms with the Internal Revenue Service (IRS) for goods as well as services. The new legislation also requires that 1099 forms be filed for transactions with corporations, while currently reporting is only required for expenditures made to non-corporate entities. It is clear at this point that these changes will greatly affect the way many businesses operate on a day-to-day basis.

The new rule will require all small businesses and non-profit organizations to file a 1099 form with the IRS for every entity they pay $600 or more for goods in a calendar year. That means that even the smallest of businesses will likely be filing many more 1099 forms than they have in the past. It is not difficult to imagine how even minor purchases with a single vendor can add up to over $600 in a year. For example, even spending only $50 a month on lunch for employees or for flowers to decorate the office would add up to $600+ over a year. In order to properly and completely fill out their 1099 forms, businesses will also need to provide the Taxpayer Identification Number of each company or individual they report.

To minimize extra burden in the future, small businesses and non-profit organizations should begin tracking their spending more efficiently now. Obtaining the correct Taxpayer Identification Numbers for each of their payees and recording ALL payments, large and small, made to both corporate and non-corporate entities will reduce headaches in 2012. A future article will explain the exception for payments made with credit cards.

**Please note that this entry has been amended to reflect that the 1099 filing changes take effect for payments that are made beginning in 2012 for 1099 forms issued in 2013, NOT for payments made in 2011.**

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November 16, 2010

What is a 1099 form and how does it apply to your small business or non-profit organization?

369109_taxpapers.jpgOften referred to as an "information return," a 1099 form is a tax document that businesses are required to file with the Internal Revenue Service (IRS) to report certain business expenditures. 1099 forms must be filed by all businesses and non-profit organizations, regardless of their size and yearly revenue. Currently, the threshold for reporting is limited to expenditures for services to a single non-corporate entity that total $600 or more in a calendar year. The $600 amount includes not only single transactions with a service provider, but also recurring transactions with a single entity that add up throughout the year.

Businesses and non-profit organizations must file a separate form for each service provider to whom they pay $600 or more. The IRS website provides a list of some of the services for which a 1099 form is required and which specific version of the 1099 must be filed for that particular service. After filling out the correct 1099 form and filing it with the IRS, a business is also required to send a copy of the completed form to the service provider or "payee." Given that $600 is a fairly low threshold, some businesses file hundreds of 1099 forms each year. Businesses are allowed to submit up to 249 information returns each year on paper, but all businesses who file 250 or more must do so electronically.

Due to recent legislation, the filing requirements will expand in 2012 to include corporate payees and transactions for goods as well as services. Stay tuned for more information on these changes and how they will affect your small business or non-profit organization.

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