Wednesday, October 24, 2012

New Step In Tax Preparer Duties Sure To Create Bad News For Some Business Owners

Starting in 2012, tax preparer jobs will entail asking some additional questions of individuals with business interests or rental properties. The IRS has modified Schedules C, E, and F to include two new check boxes. The answers demand participation by taxpayers despite the potential for bad news.
Schedules C, E, and F ask whether the taxpayer is required to file Form 1099 to report payments made for services received. The second box to check indicates whether the taxpayer did file or will file 1099s. As a result, tax preparer duties when preparing these schedules now require checking the appropriate boxes concerning1099s that are required and issued by clients.
This process obviously improves the ability of the IRS to identify businesses, farmers, and property owners who fail to file 1099s when required. These people may need help from their tax preparation professionals. Fortunately, the details about 1099 requirements are covered in tax return preparer education.
Each individual who was paid more than $600 for business services during a calendar year should receive a 1099. Of course, the most important measure is sending duplicates of the 1099s to the IRS. This permits the IRS to assure that recipients of money reportable on 1099s have correctly declared that income on their tax returns. The rule for reporting non-employee compensation on a 1099 only applies for payments to independent contractors who are persons, not corporations.
A tax preparation business will need to determine if it wants to create and file 1099s for taxpayers. Many tax practices will stick with income tax returns only. Preparation of 1099s requires special software or completion by hand. This necessitates an additional fee structure for any professional service that agrees to handle the 1099s.
The main trouble caused by tax preparer work on 1099s is obtaining information from clients. Each 1099 lists the name, address, and tax ID number of the recipient. The lack of a social security number to use as the contractor's tax ID number creates obvious problems.
Tax preparers should educate their clients about the need to file 1099s and point out that doing so requires social security numbers of individuals receiving payment for services. The optimal business procedure is obtaining the social security numbers as a condition of rendering payments. Otherwise, obtaining the social security numbers may become difficult after independent contractor relationships are terminated.
Because of the new tax schedules asking about 1099s, the IRS is likely to catch anyone who should file1099s. For example, a reporting of large expenses for contract labor, professional fees, repairs or maintenance is certain to precipitate IRS inquiry if the schedule indicates that no 1099s are required. Obviously, a schedule indicating the obligation to file 1099s will cause the IRS to verify having received them.
A 1099 is given to each mandated party by the end of January. But, sending the IRS copies can wait until February 28. The penalty for filing late can amount to $100 for every delinquent 1099.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

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