2 Simple Questions That Taxpayers Will Need to Answer Carefully This Year

Do you file a Schedule C, Profit or Loss From Business or Schedule E, Supplemental Income or Loss (From Real Estate or Partnerships)? If so, you will notice there are 2 simple questions that have been added to these forms. They are:

“Did you make any payments that would require you to file Form(s) 1099?”

“If “Yes,” did you or will you file all required Forms 1099?”

While these questions may seem immaterial, they deserve to be examined closer.

The Tax Gap

The Internal Revenue Service (“IRS”) and Congress are concerned about the “Tax Gap.” This is the amount of taxes that are currently being collected versus the amount they have projected they should be collecting. The IRS believes that a large portion of the tax gap is due to unreported income. They are seeking compliance from all taxpayers.

Form 1099’s

One of the main issues will be timing. The 1099’s are supposed to be sent to the recipients by January 31 so as they can have them to start preparing their income tax returns. The copy is not due to the IRS until February 28. The real issue for people that have not prepared them in the past is, how am I going to get the information. To get the complete information you will need, get the receipts to complete Form W-9. They will verify their name (or business name) address and tax identification number. Retain this Form on file. There are penalties for late filing of Form 1099. The penalties vary, starting at $15 per information return and going up to $50 per return. The penalties may be waived if reasonable cause can be established.

In China, it’s the Year of The Dragon. In the United States it’s the Year of the 1099.

ACTION ITEM: Taxpayers that are self-employed or have rental property need to be aware of the requirements to file Forms 1099.

Thomas F. Scanlon, CPA, CFP®

Tom Scanlon has over thirty years experience in public accounting with an extensive background in the areas of financial, tax, and estate planning. He prides himself on providing in-depth and customized solutions to privately held businesses and their owners. He is a Certified Public Accountant and Certified Financial Planner®. Tom is a frequent speaker for area organizations and has  recently been quoted on CNBC, Fox 61 News and AARP's blog. Tom also has been a guest columnist for numerous publications including The Wall Street Journal, Barron's, Money Magazine, The Hartford Courant, The Hartford Business Journal, and The New Haven Register. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants, and the Financial Planning Association. Active in the community, Tom supports a variety of not-for-profit organizations.

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