Everybody needs to read this blog today! That’s because I have a prediction of what is going to happen January 2012. The Internet will be clogged with “How do I do this?” type of questions about the new Form 1099 rules.
And the answer will be, “You’re too late. Look for the penalty notice from the IRS and as an added surprise – an IRS audit too!”
Unless Congress changes the laws that are currently set to begin January 2011, business owners and real estate investors alike are responsible for sending Form 1099-MISC to everyone they pay more than $600 in the year.
And you’ve got to get those Form 1099s done by January 31, 2012 (one month after year end.)
Don’t do it and you’ve got a penalty, plus increased IRS scrutiny. And considering the fact that they recently DOUBLED the number of auditors, that’s not a good thing.
Here are three 3 steps to avoid Form 1099 penalties:
Step One: Starting January 1, 2011, get a Form W-9 LINK from everyone that you pay for goods and services for real estate investments and your business. Period. No excuses. Everybody completes a Form W-9 or they don’t get paid.
Some questions I’ve gotten on Step One:
- What if they don’t want the Form 1099 in their Social Security number and they haven’t set up a company yet?
See Step One. (Everybody completes a Form W-9 or they don’t get paid.)
- I’m shopping at Home Depot for materials for my real estate rent. Do I really need to get a Form W-9?
See Step One.
Etc…. Obviously, the bottomline is that until Congress reins back these crazy Form 1099 reporting rules you are taking a HUGE risk if you pay ANYONE without first getting a Form W-9. No excuses. No exceptions. If you don’t, and this rule doesn’t change, you’re going to have a big problem come January 2011.
Step Two: Track all payments (credit card, checks, cash) in a computerized accounting program like QuickBooks, PeachTree and the like.
A spreadsheet is not a computerized accounting program. Manual books are not a computerized accounting program.
Is this an absolute must? No, but be prepared for a lot of tedious work in January because you’re going to have track all goods and services by vendor and prepare Form 1099’s by year end. I suspect most bookkeepers and accountants will be flooded and so it will either be impossible to find someone to do the work, or the fees will be astronomical. (It’s the old supply and demand economic – the more people want something and the scarcer the resource, the higher the price.)
Step Three: Issue Form 1099-MISC in accordance with the rules by the due date.
Just three steps to ensure compliance with these crazy new rules. If you don’t comply, you’ll likely get a penalty and an audit.