Countdown to Tax Day: What Businesses Need to Know
The clock has begun its countdown to the string of deadlines that federal and state governments impose on businesses. For startups new to the game, or expanding enterprises growing in complexity, it might be tempting to think there’s plenty of time to spare. But think again, and recognize that there may be a number of things you don’t know about your company’s taxes.
- 1099: The IRS requires businesses to deliver 1099s by Jan. 31 to its contractors — sole proprietors and partnerships. Any contractor that received $600 or more from a business during a calendar year should get a 1099. Businesses have to send the government its copy (copy A) of the 1099 by Feb. 28 if sending paper. They have until March 31 if filing electronically. Only businesses submitting fewer than 250 1099s have the option of sending the government paper. And sending out hundreds of 1099s may indicate other problems — more on that in a second.
- W-2: The same deadlines apply to W-2s, the income-reporting instrument for a company’s employees. Something to note: the penalty failing to file either a 1099 or W-2 is $50 per violation. That’s a number that can add up quickly.
- Income tax returns: Corporations of all types must file their returns by March 15. Partnerships, just like individuals, have until April 15. And, of course, all entities have the option of filing an extension.
Issues for the Future
The IRS is finally taking the plunge into Internet commerce in 2011. Okay, that’s not fair, taxpayers have been able to deposit taxes online for many years, but 2011 is the year that it will be a requirement, said Lacey Bacchus, representing Barfield, Murphy, Shank and Smith, a CPA firm in Birmingham, Ala. Get more details on enrolling in the fed’s online payment system here.
Another issue to keep an eye on relates to 1099s. Current legislation would require businesses to 1099 everyone they pay, including corporations, for the year beginning 2012. This would be an enormous burden, especially for small businesses, which is why Congress has tried several times to repeal the legislation. No luck yet, so you might want to call your representatives.
For now, businesses continue to have the responsibility of collecting a W-9 from any person or organization that receives a check. The W-9 officially identifies what kind of taxpayer the business is paying, and whether that taxpayer should receive a 1099 or not.
Free-lancers are commanding an ever-larger presence in today’s work force. Why? The positive slant is that workers want more freedom these days. The negative, and more realistic, position holds that companies have shed full-time staff in favor of freelance help, because it’s cheaper and businesses aren’t on the hook for benefits.
One such benefit is 50 percent of payroll taxes, or 7.65 percent of salaried wages, which businesses don’t pay for free-lancers. But companies looking to unburden themselves of that cost should know that a free-lancer isn’t necessarily a free-lancer simply because a business issues a 1099.
“If they don’t have the freedom of an independent contractor, then that worker is an employee,” said Joy Child, a partner with Alexander Aronson Finning & Co., in Westborough, Mass. And misclassification can be expensive and disastrous for young businesses.
Keep It Simple
Successful businesses achieve that success because they do something well. That something probably won’t be accounting and tax functions. While admitting she had a vested interest in businesses following her advice, Child still encourages businesses to get outside help. Payroll issues can be complicated, with expensive penalties, she explained, and outsourcing payroll is relatively cheap. Child also noted that a good CPA will understand situations in which taxpayers can be more aggressive, such as with depreciation.
“People who start a business should be concentrating on growing their business rather than doing something that’s foreign,” Child said. “Leave it to someone who’s an expert.”