CLIENT DIY 1099-MISC KIT

Transcription

1 CLIENT DIY 1099-MISC KIT 2014

2 Table of Contents DIY (Do It Yourself) 1099-MISC Kit: What Is This?... 3 Overview... 3 Reporting Payments to Corporations... 4 Reporting Payments for Property... 4 How to Use This Kit... 5 Sample Letter 1: No Payment Has Been Made to Vendor... 6 Sample Letter 2: Payment Has Already Been Made to Vendor... 7 Client Indemnification Year Ending How to Handle 1099-MISC Issues... 9 Returned 1099 Forms... 9 Vendor Refuses to Provide Taxpayer Information... 9 How to correct a 1099 after it has been filed... 9 Notes for the Oregon Company: 1099 Filing Regulations About Us Est Accounting Department, Inc. Team@AccountingDepartment.com

3 DIY (Do It Yourself) 1099-MISC Kit: What Is This? As an added value of service, The Accounting Department team members share with current clients an overview, directions and sample letters for DIY 1099-MISC filing. Overview Throughout the year, your business will deal with various vendors to whom your company will be required to issue a 1099-MISC form. Vendors your company has paid $600 or more for goods or services within the calendar year. Background Businesses are required to report various payments on different versions of Form For instance, when a business pays $600 or more during a calendar year to an independent contractor for services, the business must issue the contractor a Form 1099-MISC that reports the amount paid that year. The business must also furnish a copy of the Form 1099-MISC to the IRS. This reporting procedure helps contractors remember to include the payments on their tax returns, and it helps the IRS ensure that income is reported. Under rules now in effect, other types of payments that businesses must report on Forms 1099 include: 1. At least $10 in royalties; 2. $600 or more paid to an attorney, regardless of entity type; 3. At least $600 in rents, services (including parts and materials), prizes and awards or other income payments When a Form 1099 is required, it must show: The total amount for the calendar year file only one 1099 per vendor; The name and address of the payee; The tax ID number (TIN) of the payee; Contact information for the payer; and The payer's TIN. If your business doesn't have a payee's TIN, you may be required to institute backup federal income tax withholding at a 28 percent rate on payments. If a payer (that means YOU!) inadvertently fails to issue a proper Form 1099, the IRS can assess a $100 penalty, per form. The penalty for each intentional failure can be $250 or more. Est Accounting Department, Inc. Team@AccountingDepartment.com

4 Reporting Payments to Corporations Under the rules that currently apply, most payments to corporations are exempt from Form 1099 reporting requirements. However, there are a few exceptions. For instance, payments of $600 or more in a calendar year to an incorporated law firm must be reported on Form 1099-MISC. Example: Your business makes $3,000 in monthly payments to rent office space from a business entity that is a corporation. Under the current rules that apply today, there is no 1099 reporting requirement for the payments, because they are made to a corporation. Reporting Payments for Property Under current rules, there is also generally no requirement to issue 1099s to report payments for property (such as merchandise, raw materials and equipment). Example: Your business buys a delivery van, display shelving, and computer equipment. Under today's rules, there is no 1099 reporting requirement for these purchases. As the provider of bookkeeping services to your company, it is our responsibility to notify you of your obligation to comply with federal and state regulations. We recommend your company adopt a policy to NOT issue any checks to vendors who may qualify for a 1099-MISC form unless you have their taxpayer information on file. However, sometimes things will fall through the cracks and a payment will have been issued without the taxpayer information on file. In these cases it will be necessary to request this information after the fact (a.k.a. payment has been made). We are also sending you sample letters and a link to the current W-9 form that you can use to obtain this information from your vendors and service providers. The first letter is for when no payment has been issued to the vendor and the second letter is for when a payment(s) have already been made. Simply select the appropriate letter, copy it on your letterhead and mail along with the Form W-9. Keep a list of who you have requested this information from and periodically follow-up until received. We will also monitor missing taxpayer information and coordinate our efforts with yours. We also require you sign the 1099-MISC Client Indemnification Form indicating we have informed you of your obligation to file 1099-MISC forms. You have three choices: that your company is electing to not file 1099 s; you are having these forms prepared elsewhere; or you will elect to have ADI (The Accounting Department!) do them for you. If you have any questions, need help or would like to have The Accounting Department assist you with the 1099 preparation, please give our team a call to schedule a consultation. Est Accounting Department, Inc. Team@AccountingDepartment.com

5 How to Use This Kit Read through Packet Print and Fax or Client Indemnification to ADI (page 8) Begin Collecting W-9's from your vendors using Sample Letters (pages 6 & 7) Choose your method of filing, by hand or electronically. OR... Forward W-9's to whom is processing your 1099's File Filing Proof (vendor 1099 copies, 1096) when recieved. The idea behind this kit is to assist you in complying with state and federal filing laws as much as possible. If you are going to do 1099-MISC filing yourself, you will need to: 1. Decide which way you are going to file (it helps to know this first, so you can prepare!) You can procure a 1099-MISC file packet at many Office Supply stores We highly suggest if you have s to send out, you either outsource or consider online processing Our preferred online tool is 2. Print and Fax or the Indemnification to The Accounting Department so we know if we are processing your 1099 s for you 3. Use the provided sample letters to collect the W-9 information for your 1099 processing. We suggest you always send the W-9 form with your letters; we cannot insert the formal W-9 into our own documents, but you may find a copy at the IRS here: ALWAYS copy and file these letters to put in your permanent vendor or company W-9 folder in case of audit, you may need to prove you did due diligence You may the W-9 request to have the vendors fax or mail you back the W-9 form, however we NEVER suggest using to send W-9 s, as they include personal information including Social Security numbers and Business ID s. This is very dangerous, and we suggest you mention that to your vendors in the you send out. Don t forget to attach the W-9 form for the ease of your vendors! If mailing the W-9 request letters, we suggest you provide a W-9 and a Self-Addressed-Stamped Envelope so you can ensure you will receive the information back now has a W-9 request service that will allow you to the vendors and request a W9 form. Vendor will go to Track1099 s website and complete the form and even sign it. 4. You may need to send out second request 5. File or forward COPIES of the procured W-9 s Keep the originals in your permanent vendor or company W-9 folder If paperless, keep a copy in your accounting tool such as QBO or Xero 6. Once you have completed your 1099 s you will need to file for future reference and possible audit proof of filing You must furnish 1099-MISC forms to recipients (vendors) on or before February 17, You then must file 1099-MISC forms to the IRS: o Manually: on or before March 2, 2015 o Electronically: on or before March 31, 2015 Est Accounting Department, Inc. Team@AccountingDepartment.com

6 Sample Letter 1: No Payment Has Been Made to Vendor 1099-MISC Sample Letter No Payment Has Been Made to Vendor {Name} {Company Name} {Address} {City, State, Zip} RE: Request for Taxpayer Identification Federal Form W-9 Dear {Name}, Our company policy is to proactively collect taxpayer identification information for all eligible vendors with whom our company enters into a business relationship. As such, prior to issuing payment for your services, we are requesting that you complete the attached Federal Form W-9 Request for Taxpayer Identification. In the event that our company pays you more that six-hundred dollars ($600) during the calendar year, the following January we will issue you a 1099-MISC form. Enclosed is a copy of Form W-9. Please complete Part 1 (print or type in black or blue ink) and return via facsimile to (xxx) xxx-xxxx or in the return envelope provided. Thank you in advance for your cooperation. If you have any questions, please contact us at (xxx) xxx-xxx. In Gratitude, {Name} {Title} Enclosure Est Accounting Department, Inc. Team@AccountingDepartment.com

7 Sample Letter 2: Payment Has Already Been Made to Vendor 1099-MISC Sample Letter Payment Has Already Been Made to Vendor {Name} {Company Name} {Address} {City, State, Zip} RE: Request for Taxpayer Identification Federal Form W-9 Dear {Name}, The Internal Revenue Service requires that any individual, LLC, LLP, etc, (and now including Corporations, Inc, PC) that earn more than six-hundred dollars ($600) in the calendar year be issued a Form 1099-MISC reflecting the amounts paid. As we prepare for issuing our 1099-MISC for the year {20XX} we are requesting that you complete the attached Federal Form W-9 Request for Taxpayer Identification. In the event that our company has paid you more that six-hundred dollars ($600) during the current calendar year, you will receive a 1099-MISC form this coming January. Enclosed is a copy of Form W-9. Please complete Part 1 (print or type in black or blue ink) and return via facsimile to (xxx) xxx-xxxx or in the return envelope provided. It is Company Policy to not issue any more payments until the completed form has been received and is on file. Thank you in advance for your cooperation. If you have any questions, please contact us at (xxx) xxx-xxx. In Gratitude, {Name} {Title} Enclosure Est Accounting Department, Inc. Team@AccountingDepartment.com

8 Client Indemnification Year Ending 2014 I hereby acknowledge that The Accounting Department has properly communicated and informed me of my Company s obligation to file Miscellaneous Information Returns, forms 1096 and 1099, for the calendar year ending December 31, Please place your initials by the reason below that applies: I, being the owner, officer and/or director of this company am instructing The Accounting Department to prepare these forms on our behalf. I would like to receive my copies and completion information via USPS I would like to receive my copies and completion information via online pick-up I, being the owner, officer and/or director of this company am instructing The Accounting Department not to prepare these forms on our behalf because we have engaged our CPA to prepare them. I, being the owner, officer and/or director of this company am instructing The Accounting Department not to prepare these forms on our behalf. I further acknowledge that if there are any future repercussions relating to the non-filing of these returns, I will not imply any blame or seek damages from The Accounting Department for any fines or penalties my company may be obligated to pay. Signature of Owner/Officer: Date: Company Name: Address: Phone: Please print this page and fax or team@accountingdepartmentinc.com Deadline: December 31, 2014 Est Accounting Department, Inc. Team@AccountingDepartment.com

9 How to Handle 1099-MISC Issues The Accounting Department regularly handles 1099-MISC for numerous clients, and as a part of that service, we follow strict procedures to ensure that a due diligence trail is easy to see in case of an audit by Federal or State Agencies. Here, we share these steps with you, and encourage you to be thorough and conscientious with your own filing. Returned 1099 Forms If a 1099 form is returned as undeliverable, follow these simple steps to ensure you have an audit trail of compliance with Federal and State regulations. Do not open the returned envelope instead retain it in your files in the original envelope Attempt to reach the individual - try and contact the individual at the last known phone number. On the returned envelope, document the date, time and outcome of each time you attempt contact. For example: Called Jane on 01/20/ :00am left message on voic requesting new mailing address. Make a copy of the envelope once you have an updated address, make a coy of the returned envelope, both sides, and keep in your 1099 file. The copy provides you with an audit trail showing compliance with Federal and State regulations. Make sure to copy the original postmark, return to sender stamp and all documented attempts to obtain a new address. R in a larger envelope. Vendor Refuses to Provide Taxpayer Information In instances where the vendor is clearly eligible to receive a 1099 and refuses to provide their taxpayer identification or social security number, the course of action per the IRS is to withhold 28% of their next payment and remit it to the IRS on Form 945. All withholdings must be submitted to the IRS via EFTPS only. Amounts should be included with your payroll deposits. You must still file the 1099 with the IRS, even without the taxpayer identification number. How to correct a 1099 after it has been filed You may receive correspondence from the IRS with errors on your submitted 1099 s. If that is the case, these instructions should get you through the corrections. This is one error you may receive on the correspondence from the IRS: Error Type 1 Incorrect money amount(s), code, or checkbox, or incorrect address or a return was filed when one should have not been filed. This error requires only one return to make the correction. Caution: if you must correct an address AND a name or TIN, follow the instructions under Error 1 on your correspondence letter instead of these instructions. A. Form 1098, 1099, 5498 or W-2G 1. Prepare a new information return 2. Enter an X in the CORRECTED box (and date at the top of the form) 3. Enter the payer, recipient and account number information exactly as it appeared on the original incorrect return; however, enter all correct money amounts in the correct boxes as they should have appeared on the original return and enter the recipient s correct address. Est Accounting Department, Inc. Team@AccountingDepartment.com

10 B. Form Prepare a new transmittal Form Provide all requested information on the form as it applies to Part A, 1 and 2 3. File Form 1096 and Copy A of the return with the appropriate service center 4. Do not include a copy of the original return that was filed incorrectly This is another error you might receive in the mail: Error Type 2 No Payee TIN (SSN, EIN or ITIN) OR Incorrect name and address OR Origin return filed using wrong type of return. This will require two separate returns to make the correction properly- follow both steps one and two below. Note: You do not have to file corrected return for incorrect payer information, TIN or incorrect payer name and address. Step 1- Identify Incorrect Return Submitted A. Prepare a new information return B. Enter and X in the CORRECTED box (and date optional) at the top of the form. C. Enter the payer, recipient and account number information exactly as it appeared on the original incorrect return, however, enter 0 (zero) for all money amounts. Step 2 Report Correct Information A. Form 1098, 1099, 5498 or W-2G 1. Prepare a new information return 2. Do not enter and X in Corrected box at the top of the form. Prepare the new return as though it is an original 3. Include all the correct information on the form including the correct TIN, name and address B. Form Prepare a new transmittal Form Enter the words Filed to Correct TIN, Name and/or Address in the bottom margin of the form 3. Provide all requested information on the form as it applies to the returns prepared in Steps 1 & 2 4. File form 1096 and Copy A of the return with the appropriate service center 5. Do not include a copy of the original return that was filed incorrectly. **Note** If ADI filed your 1099-MISC, please send correspondence and we will make the corrections!** Est Accounting Department, Inc. Team@AccountingDepartment.com

11 Notes for the Oregon Company: 1099 Filing Regulations Oregon has different rules for their state 1099 filing. If you are an Oregon business filing 1099 s, you MUST, as in HAVE TO, file using iwire, Oregon s 1099 online system. Our preferred online solution, Track1099, is the only solution we have found that will provide a file that can be created and used to import into the Oregon iwire system. If you d like more information here is the link: About Us The Accounting Department provides remote full cycle bookkeeping services. We offer packages to suit all the needs of small to medium sized businesses as they embark on their financial adventure. Our team approach and 28 years of accounting and bookkeeping background provides many avenues of success to each of our clients. The Accounting Department is located in the Portland, OR Metro area, but services clients far and wide. Our team also works on matters that mean the most to Entrepreneurs: learning, processes, systems, technology and business growth. The past fourteen years of building our own business gives us the examples and experience we now share with others so that they, too, can reclaim their joy and passion in their business journey. We hope you enjoy our whitepapers and worksheets and also hope to see you online in our virtual communities! Continue the Journey with Us! (Twitter) Feel Free to Contact us at: team@accountingdepartmentinc.com Est Accounting Department, Inc. Team@AccountingDepartment.com