Posted by: Colleen Kaminsky, CPA
If you filed any of the following tax returns or schedules, you may have noticed two new questions on your 2011 federal income tax return -
- 1040 Schedule C
- 1040 Schedule E
- Form 1120
- Form 1120S or
- Form 1065.
The new questions are:
- Did you make any payments in 2011 that would require you to file Form(s) 1099?
- If "Yes," did you or will you file all required Forms 1099?
While most small businesses commonly file Form 1099-MISC to report rents paid and nonemployee compensation more than $600 paid to individuals and other non-corporate payees, these questions also encompass Form 1099-INT and Form 1099-DIV, which are used to report interest and dividend income to the IRS.
Why is the government asking these questions? Quite simply, they are trying to improve compliance with the 1099 filing requirements and minimize unreported income, thus closing the tax gap. So, what happens if you answer "yes" to the first question and "no" to the second question? While there are no guarantees of this, it is quite possible that you would be selected for a correspondence audit by the IRS. It is, therefore, important that these questions be answered truthfully and accurately. Have you ever read the small print beneath the signature block on your tax return? Go ahead and read it now. As you can see, when you sign your tax return, you are making an oath that, "Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete." This is what is known as a perjury statement. Take it seriously.
As you are no doubt aware, failure to file the required Forms 1099 by the February 28th deadline, or filing inaccurate forms can result in monetary penalties being assessed on a per-return basis. Did you know that penalties can often be waived if you can show "reasonable cause"? However, if you answered "yes" to the first question above, but did not file the required forms, it will likely be much harder to avoid those penalties.
The moral here? Make certain that you file all the required 1099s for all required payments you made in the course of your business year. You will save yourself a lot of grief!
For further information on the 1099 filing requirements or the related penalties, please contact a Zinner professional. Let us provide you with the knowledge and experience to get you on track!
