IMPORTANT CHANGE TO SCHEDULES C, E AND F
IRS recently released 2011’s form 1040 and its corresponding schedules C, E and F. These schedules are used by sole proprietors to report different kinds of business income. IRS has added questions dealing with 1099 reporting to all three schedules for tax year 2011. The first question asks if the taxpayer has made any payments in 2011 that would require him/her to file Form(s) 1099. If the answer is yes, then the next item asks whether the taxpayer did or will file all required Forms 1099.
Generally, a taxpayer must file Form 1099-MISC if he/she paid at least $600 in rents, services, prizes, medical and health care payments and other income payments. There are a few exceptions to this rule, for instance, payments made to corporations. Additional exceptions and other instructions (including due dates) can be found on IRS’ “General Instructions for certain information returns,” available online at www.irs.gov.
Though we are unaware of what the ramifications will be, it is likely that leaving these items blank or answering no to the second question could potentially trigger additional questioning from the IRS. Thus, it is very important that these questions be addressed when preparing your tax return.
1099 reporting compliance is more important than ever. We advise you to not only keep a good record of payments made to your different vendors, but to also be proactive in obtaining Federal Employee Identification Numbers (EINs) on an ongoing basis from them as well. This will make 1099 reporting more accurate and easier. Thus, when it’s time to file your tax return, answering these new questions correctly will not be an issue.
As IRS continues to finalize its forms for tax year 2011, we will continue to keep track of important changes so stay tuned for upcoming blog entries.