Issuing 1099 forms Milwaukee WI

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Because you are a responsible businessperson, you probably already know the rules for issuing 1099 forms. But if you’re new to business, or if this is the first time you made payments that require a 1099 form, you may not be on top of the rules. Here’s the breakdown of who needs to receive a 1099 form from you. Oh, and by the way, don’t send a 1099 form whenever you hit the threshold for required forms. Wait until the end of the year and send out your 1099 forms all at once. The IRS requires that the 1099 forms be mailed by January 31 of the year after the payments are made. See the “Sending 1099 forms to your workers” sidebar for the complete rules for preparing and mailing 1099 forms.

1099-MISC: You are required to send a 1099-MISC to any person or partnership to whom your business paid $600 or more for service or for rent (not for stuff you buy) during the entire year. Included in the definition of person or partnership is any attorney, even if the attorney is incorporated. If you paid $599 or less, no form is necessary.

1099-INT: Send a 1099-INT to anyone to whom your business paid $10 or more in interest during the year.

1099-DIV: If your business pays dividends, you must send a 1099-DIV to anyone to whom you paid $10 or more in dividends during the year.

1096: Form 1096 is the cover sheet that needs to accompany all of your various 1099 forms when you send them to the government. Filing 1099 forms is serious business. You can be penalized up to $50 per form for each form you neglect to file.

You’re Self-Employed: You’ve Created Your Own Job!
If your business sends out a lot of 1099 forms, you may already have a system in place for processing these forms and may be doing so electronically. If you only need to send out a few forms, poke around the Internet — you can find some great online services that take care of all of this paperwork for a really small fee.

Offsetting income with expenses
In addition to keeping track of how much money your business rakes in, you’ve got to keep track of how much you spend. There are several reasons why you might want to have this information.

Taxes: The more you spend on your business, the more you can write off on your tax return, thus lowering the income on which your tax is calculated (and possibly encouraging a personal visit from the friendly auditors at the IRS). There’s really nothing to worry about when it comes to IRS examinations as long as you can (a) justify the expenses you deduct on your tax return as legitimate business expenses, or (b) schedule a lengthy trip out of the country when it’s time for your examination. When you start taking deductions for dog food, toys for the kids, and that business (wink, wink) trip to see your old high school buddies at a posh resort, the IRS inevitably starts taking a closer look at your expense deductions.

Knowledge: When you’re operating a business, no matter what kind of business it is, you need to know how much money you have. Keeping track of what you earn is one part of the picture. Keeping track of what you spend is another. If you don’t monitor your spending and just hope there’s money in the bank every morning, you’ll probably learn soon enough that you have a lot more to worry about than whether or not the IRS is going to disallow your dog food deductions.

Investors and lenders: At some point, you may want to expand your empire and bring some outside investors into the mix. In order to encourage people to invest in or loan money to your business, you need to show them how well your business is doing, and this means you need to provide detailed and accurate reportsof how much you make and how much you spend.

Future planning: Crystal balls may not really exist, but you can get a pretty good prediction of how your business is going to do in the future by looking at how much you earned and how much you spent in the past. To keep track of your expenses, you should keep a paper trail of what you spent by writing checks or using a charge card instead of paying cash. You’ll get bank statements and charge card statements each month itemizing all of your transactions, and then you can have the fun of reconciling those statements to make sure everything was recorded properly. Fortunately, the days of bank statement reconciliation headaches are a thing of the past thanks to the wonders of Quicken.

Sending 1099 forms to your workers If you have a service take care of preparing and sending your 1099 forms, you’ve succeeded in avoiding a major headache each January. If you prepare and send the 1099 forms yourself, follow these steps in order to avoid raising the ire of the IRS. 1. Acquire blank 1099 forms. If you don’t have any blank forms, contact the IRS at 1-800-TAX-FORM (give them about two weeks’ notice) and ask for the blanks, or visit your local IRS office and pick up the forms yourself. Be sure to get a 1096 form while you’re at it. Although most IRS forms can be downloaded from www.irs.gov, forms 1096 and 1099 are exceptions. You must submit scanable versions of these documents, so be sure to get these forms directly from the IRS or from an office supply store; otherwise, you might be fined by the IRS. 2. Prepare the 1099 forms and the 1096 summary form. 3. Mail the recipient copies of the 1099 forms to the people whose names appear on the forms by January 31 of the year after the payments were made. 4. Send the 1096 and the government copies of the 1099 forms to the IRS by February 28th. (This deadline is March 31st if you’re filing the forms electronically).

Estimating taxes
Somewhere between the days when you are an employee and the days when you are so wealthy that you can hire someone else to take care of paying your taxes for you, you’re going to have to pay your own taxes on your selfemployment income. Employees have it easy because their bosses pay the taxes for them. When you’re self-employed, you not only have the chore of making the tax payments yourself, but you also get to pay way more tax than employees do thanks to the wonders of our federal stealth tax system. If you’re an employee, you have the regular tax withholdings of federal income tax, Social Security tax, Medicare tax, state income tax, and maybe city income tax too. You may be lucky enough to live in a state or city where there is no income tax, in which case you either pay a higher sales and property tax than the rest of the country, or you have a lot of holes in your roads. The upside of being an employee, from a tax point of view, is that you get to work for an employer who matches your Social Security and Medicare tax payments with equal amounts out of his own pocket. Self-employed people don’t have those employers hanging around to pick up the slack, so they have to pay double the Social Security and Medicare taxes themselves. These Social Security and Medicare taxes, which are called selfemployment taxes when you’re self-employed, get combined with your federal income tax and paid to the government in the form of estimated taxes. You should pay one-fourth of your estimated tax for the year with each payment. The estimated taxes for self-employed individuals are supposed to be paid quarterly, based on following schedule:

First quarter payment: Due April 15

Second quarter payment: Due June 15

Third quarter payment: Due September 15

Fourth quarter payment: Due January 15 after the year ends
For our purposes, due means postmarked by, and if the 15th falls on a Saturday or Sunday or federal holiday, you get until the next business day to get the postmark. Note that the rules for making estimated payments are different for corporations. The January payment is due on December 15th. Consider making monthly payments. The IRS won’t object if you want to make your payments early. Sometimes it’s easier to budget tax payments if you pay 1⁄12th of your estimated tax each month instead of paying 1⁄4th of the tax four times a year. The amount you’re supposed to pay for estimated taxes is calculated with one of the following formulas:

Your estimated payments should add up to at least 90 percent of your current year’s income tax, or

Your estimated payments should add up to at least 100 percent of your previous year’s income tax, keeping in mind that,

If your taxable income is more than $150,000 ($75,000 if you’re single or married filing separately), your estimated payments should add up to at least 110 percent of your previous year’s income tax. It probably goes without saying that it’s easier to calculate what your estimated tax should be if you keep track of your income and expenses during the year. By keeping good records, you are also prepared for any tax you owe in the spring and won’t have any nasty surprises that involve having to go into hock to pay your tax bill.

Keeping Track of Earnings from Your Investments
When you think of investments, you probably think of things like bank savings accounts, money market funds, brokerage accounts, shares of stock, savings bonds, retirement funds, Swiss bank accounts, that stash of cash hidden in your parents’ freezer, and so on. These are all called cash investments because the only thing you can do with them is turn them into cash (or in the case of Enron stock certificates, make a nice campfire). Other types of investments include stamp and coin collections, artwork, antiques, jewelry, rare books, classic cars, vintage Mr. Potato Head kits, and just about any kind of tangible object you might own that is worth more today than what you paid for it. It’s important to know how much money you are making off of your investments, or by how much your investments are increasing in value, so you can make decisions about whether you want to keep your money tied up in those investments or change your investing strategy. Besides knowing how much your investments earn, it’s useful to know how much your investments are worth. Although the financial institution holding the money usually insures cash investments, the insurance on tangible objects is your responsibility. Make a list of all of your valuable stuff and how much it’s worth, and then pay a visit to your insurance agent. Find out what is covered by your homeowner’s or renter’s insurance and decide what other type of insurance coverage you might need. For cash investments, the banks, stockbrokers, and other companies that process and hold your investments send you regular statements showing how your investments are doing. Be sure to hang on to these statements — especially the one you get at the end of the year — so you’ll have a record of your progress. If your cash investments aren’t making particularly stellar progress, at least you can use the statements for packaging material around your precious (and much more valuable) collection of Monkees memorabilia. In addition to statements, each of these organizations will send a 1099 form to you in January showing your earnings for the previous year. The information on your 1099 forms must be included on your tax return. The IRS gets a copy of your 1099 forms, and they check to make sure there are like amounts on your tax return, so no cheating! You don’t have to attach the 1099 forms to your tax return — they are for your records. The exception to this rule is that if there is a record of taxes withheld on your 1099 form, you should attach the form to your tax return. exchange for the letting the bank have the use of the money. The bank can lend out the money at a higher rate of interest, and thus make a profit on the use of your savings money. Meanwhile, you are required to pay tax on the interest that the bank gives you. At the end of the year, your bank statement reflects the amount of interest you earned for the entire year and that amount is also reported to the IRS. (Unless of course you earned less than $10 for the year, in which case the IRS doesn’t get a statement, but you’re still supposed to abide by the honor system and report the earnings on your tax return.) If you use a paper passbook and record your interest the old-fashioned way, by writing down the amount of interest every month when your bank statement comes, or if you’re more modern and use Quicken to automatically record the interest each month, you already know how much interest you earned and won’t have to wait for the bank to summarize the interest for you. If you bank online at your bank’s Web site, or if you use Quicken’s funds transfer features, you can move money into your savings account right from your computer. Saving money doesn’t get any easier than that.

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For Dummies is a registered trademark of Wiley Publishing, Inc. in the United States and other countries. Used here by license.

Terrence K. Rice, CPA

414-277-7789
316 N. Milwaukee St. #212
Milwaukee, WI