Taxes 2012: A Quick Primer on Small Business 1099 Reporting Requirements

As a small business opportunity, franchise or other small business owner, the chances are very good that you’ve employed the services of outside companies, contractors or consultants to help you run your operation this past year. Surprise, surprise, the Internal Revenue Service (IRS) wants to know all about it.

Much the same way the IRS expects to be notified of just how much you paid each of your employees this year, using a W-2 form, it also needs you to report in on just how much you paid out to external vendors and other service providers. While there are a number of different kinds of 1099 forms, most small businesses—defined by the IRS as grossing $5 million or less—will want to use the 1099-MISC version.

No Changes for 2012

In 2011 and throughout 2012, there was much debate about what would be required by law with regard to 1099 reporting. Various provisions in a number of laws and mandates were said to be complicating the process, leading to what many feared would be an unnecessary burden on small business owners, particularly with regard to paperwork. In response to these concerns, changes to the 1099 reporting requirements were repealed by President Obama in April 2012. Therefore, the 1099 requirements as originally stipulated in the IRS Code 6041(a) remain in effect for 2012.

The IRS 1099 Litmus Test

Payments qualify for 1099-MISC reporting if the following guidelines apply:

• Payments made were for services only, not actual goods or products.

• Those services were related to running your operation and were not personal payments.

• Payment to a particular vendor/service provider was in the amount of $600 or more over the course of the year.

• The vendor/service provider in question is NOT incorporated, but rather operates under some other model of business ownership, such as a sole proprietor, LLC or S-corporation.

Other Important Considerations

Here are some other details regarding the how and when of 1099-MISC reporting and filing that will be of interest to home-based and other small business owners in particular:

• It’s important that you have each vendor/service provider’s correct tax ID number, or it could cost you.

• 1099s can be e-filed (if less than 250 per business owner) or mailed to the IRS, but the forms must be ordered online or by phone. Downloaded forms can’t be scanned, and filing them could also cost you.

• Each 1099-MISC form comprises two copies, one for you and one for the vendor/service provider.

• There are certain boxes (such as those dealing with substitute payments in lieu of dividends or interest and gross proceeds paid to an attorney) on the 1099-MISC that, if they are applicable and therefore filled out, affect your deadline. Do some homework if you think this applies to you.

• There are considerable penalties for intentionally providing inaccurate information and/or filing late…

So it’s very important to know when your specific 1099 form(s) is due. In most cases, the deadline for businesses to file their 1099-MISCs for the 2012 tax year to the IRS is as follows: February 28, 2013 (by mail) or March 31, 2013 (for e-file). And, of course, you need to get your vendors/service providers their copies at least a month or so before that.

For more information on filing 1099s in 2012 with the Internal Revenue Service, go to General Instructions for Certain Information Returns now!





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