You’ve probably been hearing about changes to Forms 1099 for purchases of goods, payments to corporations, real estate rentals, and credit card transactions.
Are you wondering how your business will be affected? The first thing to know is that none of the new rules apply to the 2010 Forms 1099 you will file in January 2011. As in prior years, you’ll report payments to independent contractors and other vendors totaling $600 or more.
Reportable payments generally include amounts you pay for services in the course of your business, such as contract labor or bookkeeping. For 2010 returns, there’s no need to send Forms 1099 to corporations with which you do business. Exceptions to this rule include payments you make for certain medical or legal costs.
You can continue to use Form W-9, “Request for Taxpayer Identification Number and Certification,” to gather the name, mailing address, and identification number of vendors. Keep the completed Form W-9 with your tax records.
In cases when a vendor fails to provide an identification number, the rate you’ll use to withhold federal income tax – known as backup withholding – remains at 28%.
One change that takes effect this year is increased penalties. For example, the penalty for failing to file correct information returns can be as much as $100 per Form 1099.
Information reporting requirements continue to expand, with new rules for real estate rental expenses and credit card transactions applying to payments made during 2011.
We’ll keep you updated. Please call if you have questions.