1099 Reporting in Wisconsin

Here are the procedures for reporting 1099-MISC payments in Wisconsin.  The Wisconsin Department of Revenue provides Publication 117 to show you which forms they want, and to what address you mail the forms and the due dates by type of form filed: http://www.revenue.wi.gov/pubs/pb117.pdf

All 1099 forms are required to be printed on “red” forms for the Internal Revenue Service, and be accompanied by a summary transmittal Form 1096, also printed in red.  The IRS requires its copy by February 28th.

Payee/recipient copies are supposed to be in the hands of the payees by January 31st.

In order to prepare the forms, you need each payee’s name, address and taxpayer identification number.  The IRS provides form W-9 on which this information can be collected from each payee.  I strongly suggest before making any payments throughout the year to unincorporated payees for services or rents of $600 or more, that you obtain a completed W-9. http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=103

The W-9 instructions explain which taxpayer identification number is used for the various forms of business entities.  The most confusing is the single member LLC.  This kind of entity is a “look thru” entity, and is treated and reported as a sole proprietorship on the Form W-9 if not incorporated.  Read the instructions carefully!

To save cost when purchasing forms, you can photocopy the red printed copies for the recipient and the State.  In that way, you only need purchase the “red” forms.  QuickBooks does not print the form pages; it only prints the data that goes on the Forms 1099 that you need to purchase.

To sum up, you will need to produce:

Form 1096 red transmittal cover form with each group of 1099-MISC to the IRS

Form 1099′s to the State of Wisconsin (individually; you may have to cut them apart because they are two to a page)

Form 1099′s to the individual payees (recipient copy) by January 31st

Keep a copy for yourself, and note the dates mailed.  With the penalties at $500,000 now for failure to file, you need to take this seriously.

Note for owners of rental properties:  Remember that the rule to report 1099-MISC payments was repealed for you.  Per the IRS instructions for 2011 reporting, “The requirement described in the 2011 instructions for persons receiving rental income from real estate to report payments for certain rental property expenses on Form 1099-MISC was repealed by Congress.   You do not have to report those payments on Form 1099-MISC.”

1099-MISC TRAP!

New Federal rules just increased the penalty for FAILURE to file a 1099-MISC form from $50 to $500,000.  That makes Wisconsin’s $25,000 penalty for WRONGLY filing a 1099-MISC in the construction industry seem pale in comparison. 

Here are the details of the new Federal penalties for failure to file a Form 1099-MISC for payments for services in excess of $600 during the calendar, in your trade or business, to unincorporated payees:

A person that fails to file a correct information return by the due date and cannot show reasonable cause may be subject to a penalty. The penalty applies if the person fails to file timely, fails to include all information required to be shown on a return, or includes incorrect information on a return. The penalty also applies if a person files on paper when required to file electronically, reports an incorrect taxpayer identification number (TIN) or fails to report a TIN, or fails to file paper forms that are machine readable. The amount of the penalty is based on when the correct information return is filed. For returns required to be filed on or after January 1, 2011, the penalty is:

(1) $30 per information return for returns filed correctly within 30 days after the due date (by March 30 if the due date is February 28), with a maximum penalty of $250,000 a year ($75,000 for certain small businesses);

(2) $60 per information return for returns filed more than 30 days after the due date but by August 1, with a maximum penalty of $500,000 a year ($200,000 for certain small businesses); and

(3) $100 per information return for returns filed after August 1 or not filed at all, with a maximum penalty of $1,500,000 a year ($500,000 for certain small businesses).

For this purpose, a business is a small business for any calendar year if its average annual gross receipts for the most recent three tax years (or for the period it was in existence, if shorter) ending before the calendar year do not exceed $5,000,000.

Persons who are required to file information returns electronically but who fail to do so (without an approved waiver) are treated as having failed to file the return, and are therefore subject to a penalty of up to $100 per return unless the person shows reasonable cause for the failure. However, they can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically. The penalty applies separately to original returns and corrected returns.

For each fifth calendar year beginning after 2012, each of the dollar amounts described above is subject to indexing for inflation.

December 2011 Newsletter

Financial Phonics_Dec2011

IRS Standard Mileage Rates for 2012

Details here at the IRS:    http://www.irs.gov/newsroom/article/0,,id=250882,00.html?portlet=107

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

Year End Reporting 2011

When we prepare business income tax returns, we like to know we have correct and complete numbers.   This helps us to find all the deductions to which you are entitled, and to produce a tax return that will pass examination by the taxing authorities.

Some tax return preparers will not ask questions and can blindly accept whatever information you provide them.  This can cost you a lot in paying extra income taxes for missed deductions.  It can also lead to an audit examination if the relationship of the numbers creates a red flag to isolate your return for audit, and if the numbers can’t be proven to be accurate, you could be subject to more income taxes, interest, and negligence penalties for not maintaining accurate books and records.  

So below is what we ask of you to substantiate your business books and records at year end.   We have more detailed check lists for our healthcare clients where statistical data is also required for third-party reimbursement reporting.

YEAR END INFORMATION NEEDED

1.  If you use QuickBooks, provide us with the Accountant’s Copy, otherwise we need the cash receipts and disbursements history for the whole year.  Provide a computer printout of all transactions by account to show where all the money came from and how it was spent.  We call the totals from all of these accounts a trial balance. 

 2.  December 31, 2011 bank statements;  also copies of reconciliation’s of all cash and investment accounts if not done in QuickBooks.

 3.  Any 1099 interest or dividend forms received from cash or investment accounts; any K-1’s from investment in other companies.

 4.  End of year statement from any investments, which show the December 31 market value of the investment and dividend income for the year.

 5.  All quarterly and annual 2011 payroll tax report copies (Quarterly 941 or 944 annual, 940,  WT-7, W-3), or if all the wages are outsourced to a management company, a year end wage and benefits summary in total and a total compensation amount for each officer of the company.

 6.  Final itemization of insurance for 2011 calendar year.  (Worker’s compensation, Property, Liability, and Automobile).  Include copies of latest policy face sheet showing the premium billed.  Have any insurance premiums been paid ahead of the period to which they are to apply?  If so, we need a copy of the insurance billing which is being prepaid, either in part or in total.

 7.  Copies of invoices for any furniture, fixtures or equipment purchased throughout the year, and especially in the last month of the year, but not being paid until a later date.  We will need copies of the invoices if we don’t already have them.  Copies of closing statements for real estate transactions.

 8.  Accounts payable at December 31, 2011.  (These would be 2011 bills paid in January 2012 or later, plus copies of the invoices still not paid for 2011 when you send us the information.  If you are using the bill paying function of QuickBooks, this information will be part of your QuickBooks data file)

 9.  The most recent renewal copy of any notes or loans payable to any banks or other financial institutions.  (This will confirm in whose name the loans appear, the loan’s beginning balance, the interest rates and any other relevant terms).  Also need proof of year ending balance of principal owed and interest paid for 2011; an amortization schedule is ideal.

10.  Real estate and personal property tax bill copies paid or payable by the company for 2011.

 11. Copy of sales and use tax forms for 2011 sales or use tax purchases (Monthly, quarterly or annual).

 12. Any sales of equipment during the year including trade-ins?  Let us know date and amount and item.

 13. On new construction that has been completed, but not yet billed as of December 31, 2011: Please make sure you get a billing from the contractor for all work completed in 2011.  Send us a copy of anything that is billed with a December date, but not yet paid.  You can include it with accounts payable.

 14. A listing of accounts receivable at the end of the year, by customer name so that it can be traced in the event of a question as to what comprises the accounts receivable balance.  A listing of any bad debts which should be written off.  Let us know if these accounts are included in the listing of accounts receivable also.

15. A copy of the final, end of year, physical inventory counts if you maintain any inventories in your company.

 16.  Any changes in name, address, or company ownership (change in number of shares or owners of stock)

Social Security Wage Base Increases for 2012

On October 19, 2011, the Social Security Administration announced that the 2012 Social Security contribution and benefit base will be $110,100. This is $3,300 more than the base of $106,800 which has been in effect the last three years.

Optional Health Insurance Reporting

If it’s OPTIONAL, there is no need to comply.  Compliance costs both your time and your money. 

The latest rules released by the IRS explained here:  http://www.irs.gov/newsroom/article/0,,id=237870,00.html require that small employers (less than 250 W-2′s per year) do not have to report health insurance benefits paid on behalf of their employees.  Others will have to comply in 2013 when reporting 2012 W-2′s.

Draft of Form 940 for 2011

http://www.irs.gov/pub/irs-dft/f940–dft.pdf

Above is the latest draft release of Form 940 for 2011, which requires that you separate FUTA taxable wages for the first six months of the year from the last six months of the year.

941X for 2011 – The Amended Quarterly 941

On the IRS website, there is now a January 2011 version of Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, and the Form 941-X instructions. The form was last revised in September 2010.

The January 2011 version of Form 941-X can be viewed on the IRS website at http://www.irs.gov/pub/irs-pdf/f941x.pdf. The January 2011 version of the Form 941-X instructions can be viewed at http://www.irs.gov/pub/irs-pdf/i941x.pdf.

Unreported tips. A new line has been added to Form 941-X (Part 3, line 11) to report any corrections to the amounts reported on Form 941, line 7c (for quarters ending before 2011), or line 5e (for quarters ending after 2010), to the FICA tax due from an IRS “Section 3121(q) Notice and Demand” letter.

Daniel Lauer, Program Manager for the IRS National Tip Compliance Program, discussed the “Section 3121(q) Notice and Demand” letter during the May 12 payroll industry conference call. He pointed out that an employer will not have to report anything on this line of Form 941 (or Form 941-X) unless the employer has been contacted by the IRS about unreported tip income. Lauer said that this usually happens in three situations: (1) The IRS has conducted an audit of the employer and found that the employer failed to report some tips. (2) The IRS has uncovered some unreported tips using a new tip compliance program that it launched last year. (3) An IRS audit of an employee uncovered some unreported tips that the employer also failed to report.

A “Section 3121(q) Notice and Demand” letter instructs the employer to include the FICA taxes shown in the notice and demand letter on the employer’s next Form 941. Lauer said that an employer will not be subject to any interest charges or deposit penalties if it properly reports the taxes as instructed in the notice and demand letter, and remits the tax due with its Form 941, or if it timely makes a deposit in accordance with the instructions in the letter. The letter will be issued well before the end of the quarter. The deposit needs to be made before the end of the quarter to avoid penalties, Corrections to the amounts reported on Form 941 are reported on Form 941-X.

Payroll tax exemption in the HIRE Act. The new version of Form 941-X notes that the lines for the payroll tax exemption in the HIRE Act (Part 3, lines 12a-12c) should only be completed for corrections to quarters ending after March 31, 2010, and before Jan. 1 , 2011, since the payroll tax exemption in the HIRE Act can no longer be claimed after Dec. 31, 2010.

941X for New Hire Credit Update

IRS no longer behind in processing HIRE Act amended returns:  On the February 3 IRS payroll industry conference call, Debera Salam, Director of Payroll Information and Process Services for Ernst & Young LLP, informed the IRS that several of her clients who recently filed Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to claim the payroll tax exemption in the Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147) had received letters from the IRS stating that there was a backlog in processing these returns and that the returns may not be processed for several months. The payroll tax exemption relieves employers from their share of OASDI taxes (6.2% rate) on wages paid to certain new hires from March 19, 2010 to Dec. 31, 2010. The exemption could not be claimed on Form 941 until the second quarter of 2010. Some employers amended their returns using Form 941-X rather than claiming the exemption on an original Form 941.

The IRS delay in processing the returns was a concern for employers because they have reduced their payroll tax deposits to take into account the credit. Employers were worried that they could receive an IRS notice proposing a federal tax deposit penalty if the amended return was not taken into account. On the March 3 IRS payroll industry conference call, Shelley Dockstader, National Account Manager in IRS Electronic Tax Administration, informed participants that the IRS is now up to date in processing these returns.

IRS official provides some insights on HIRE Act audits:  On the March 3 IRS payroll industry conference call, John Tuzynski, Chief of Employment Tax Operations for the IRS’s Small Business/Self-Employed Division, provided some details on IRS audits of employers who claimed the payroll tax exemption in the Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147). The HIRE Act encouraged companies to hire unemployed workers from Feb. 4, 2010 to Dec. 31, 2010, by exempting certain wages received by the workers from the employer’s 6.2% share of Social Security taxes (payroll tax exemption). A new hire must have been employed for a total of 40 hours or less during the 60-day period ending on the date that the employment began. For employers to claim the exemption, they must have received a statement from the new hire certifying, under penalties of perjury, that he or she was either unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for anyone during the 60-day period. Employers could use Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, or a statement similar to Form W-11, to meet this requirement.

Tuzynski said that the IRS has been asking employers to provide a list of the employees for whom they claimed the payroll tax exemption on Form 941. Employers must provide documentation to support the wages that were paid to the workers and the date that the workers were hired. The audit is centered around Form W-11. The IRS will ask for copies of these forms. If there are only a few workers on Form 941, the IRS is likely to review all of their information. If there are many workers on the return, the IRS is likely to review some of the workers’ information. The IRS may ask if the worker was hired to replace another worker. If so, the IRS may ask why the worker was replaced. The examinations are not random. A return is selected for audit based on something on the return that was of interest to the IRS. Tuzynski said that roughly 1,000 exams are currently being conducted. He has been impressed with the level of compliance by employers. There haven’t been many irregularities on the returns.