I always imagine Big Brother as being a show on CBS or a mysterious eye in the sky that is tracking our every move for a nefarious purpose. Turns out, the Internal Revenue Service is starting to slip more and more into this role of Mr. Grand Oversight…which is often at the cost of the American taxpayer.
When you file your 2011 tax return, there will be a bunch of new questions and line items if you file a Schedule C (because you’re self-employed), a Schedule E (because you own a rental property – residential or commercial) or any business return (1120, 1120S or 1065). One in particular is going to make you very mindful of your compliance requirements with paying individuals as independent contractors: “Did you make any payments in 2011 that would require you to file Form(s) 1099?” Let’s not forget the follow up question “Did you file the 1099s?”
“What does that even mean?”, you ask. Well, let’s say I own a little duplex that I rent out to some folks. If I paid Joe the Plumber more than $600 to help fix the toilets and other plumbing, I have to file a 1099 for him. That means, I need his official name, address and social security number. Sound fun? Probably not. And if you think you can just answer no and outsmart the tax man, you’ve willfully lied to the IRS. Nothing like a $250 penalty for intentionally not filing the 1099s on top of the $30 – $100 PER 1099 penalty! For illustrative purposes, if you had to file 3 1099s but intentionally didn’t, your penalty will range between $340 and $550. Talk about an effective budget bolsterer!
How do you avoid getting drained dry by non-filing penalties? Do your personal due diligence and actually file the 1099s! Some contractors are reluctant to give you the information necessary to file the 1099s, so make it your personal policy to require a Form W-9 (link below) to be filled out prior to paying them. When you’re holding a couple of hundred bucks from someone, it’s amazing how motivated they are to pay you.
http://www.irs.gov/pub/irs-pdf/fw9.pdf
Even if you don’t have to issue someone a 1099, at least now you will have the information to do so without having to scramble at the last minute. And if you’re unsure how to even file a 1099, give us a call and we’d be happy to help you out. We don’t want to see our clients unnecessarily penalized because of paperwork compliance requirements! Give our office a call and we can have a conversation about other way we can help proactively improve your financial life!
Merry Christmas,
Jason Deshayes, CPA
505-821-0893
