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1099 Letter

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1099 Requirements for 2012

The IRS requires that you file information returns (1099’s) for cash and check payments issued by your trade or business to individuals not treated as your employees as well as non-incorporated entities.

The payments include such things as:  
  Amount Requiring Reporting
Contract Labor, Commissions, Director Fees and  
                   Other Non-employee Compensation $600 or more
Dividends, Interest and Royalties  $10 or more
Professional Fees  $600 or more
Rents (other than to real estate agents) $600 or more
Attorneys Fees for legal services $600 or more
Payments to attorneys for settlements ALL
   
At this time, payments to corporations are exempt with the exception of legal services.

For 2012, there is an important change to 1099 reporting that must be considered in compiling your 1099 amounts. The new 1099-K form will be issued for all merchant and third-party network payments. Basically, this new form will report all payments made to businesses via credit card processor. The merchant and third-party companies are responsible for preparing 1099-Ks; therefore, any items a business pays through a credit card should not be included in the amounts compiled for 1099-Misc forms.  Also, please forward any 1099-Ks received to our office as we must have them for use in preparation of your 2012 business income tax returns.

Baldwin CPAs is a partnership for income tax purposes and thus all clients who pay our firm over $600 are required to prepare a 1099 for our professional services. Our federal EIN is 20-1416603. Keep in mind, per above information, if our invoices were paid via credit card, a 1099 is no longer required.

Baldwin CPAs would be happy to prepare or assist you in the preparation of your 1099s. To ensure accurate preparation, please forward the name, address, social security or federal identification number, amount and type of compensation (rent, dividends, commissions, etc), and phone number for all recipients. To comply with the IRS deadlines, please provide necessary information to our offices by January 15, 2013.

Certain W-2 Requirements

You should also be aware of what must be included on your employees W-2’s for 2012.  The following items must be included in gross wages:

  Subject to FICA Tax
Wages Yes 
Christmas bonuses Yes
Tips Yes
Other compensation Yes
Value of group life insurance policy in excess of $50,000.00 Yes
Amounts paid to employees for business
     expenses under a non-accountable plan
     or payments in excess of allowed amounts
Yes
Moving expenses In Some Cases
Scholarships and fellowship grants In Some Cases
Sick pay  Yes
Fringe Benefits:  
     Automobiles furnished (personal portion) Yes
     Club dues Yes
     Tickets to sporting events Yes
     Flights on company planes Yes
     Discounts on property or services Yes
     Financial counseling plan benefits Yes
     Education assistance payments In Some Cases
     Legal and educational services Yes
Retirement plan contributions (employer’s match) No 
Health insurance coverage for 2% owners S Corporations No

 

Beginning with 2012 form W-2, Employers who filed 250 W-2s for 2011 must now report the aggregate (employer and employee paid) cost of employer-sponsored health insurance coverage on From W-2 in box 12, using code DD.  

Recipient copies of 1099s and W-2s should be distributed on or before January 31, 2013. Form 1099s and W-2s along with their respective transmittal forms should be submitted to the Internal Revenue Service by February 28, 2013. If you have over 250 information returns, you must file all federal forms electronically. Kentucky requires electronic filing on all returns over 100 forms.

For 2012 returns, penalty amounts include a $250 penalty per 1099 for intentional disregard of filing requirements and an additional $250 penalty per 1099 for not furnishing 1099 to payee. Improper filing and failure to file information returns can result in substantial penalties. In addition, the government has backup withholding regulations that require you to deduct and withhold income tax at a 28% rate if the payee fails to furnish an identification number to you.

We are able to provide you with any of the required forms outlined above. The laws and regulations surrounding 1099s and W-2s can be very complex. Please call us if you have any questions or need assistance.

Sincerely,

Baldwin CPAs, PLLC

TO COMPLY WITH U.S. TREASURY REGULATIONS, WE ARE REQUIRED TO INFORM YOU THAT ANY TAX ADVICE CONTAINED IN THIS MESSAGE OR IN ANY ATTACHMENT IS NOT INTENDED TO BE RELIED UPON AND CANNOT BE RELIED UPON, TO AVOID PENALTIES UNDER THE INTERNAL REVENUE CODE