As another year has come to an end, I would like to make you aware of some possible year-end filing requirements. In the course of your trade or business, if you paid $600 or more to subcontractors, freelancers, or other individuals, you are required to:
Issue them a Form 1099 by January 31st
Submit copies of the 1099s and 1086 to the IRS by February 28th
The penalty for late filing can be as much as $100 for each Form 1099.
Typically, you must issue 1099s to subcontractors, your landlord, accountant, attorney, landscaper, computer/copier repair people, etc. If these service businesses are incorporated, they are exempt from the reporting requirements and you are not required to issue them a 1099. The only exception to this rule is lawyers, who need a 1099 regardless if they are incorporated or not.
Please keep in mind that the IRS’ preference is to eliminate as many independent contractors as possible, so it aggressively pursues classifying these non-employees as employees. We suggest that you carefully determine whether a person should be treated as an employee, and to avoid conflicting reporting that may bring about a labor audit. For example, treating a person as an employee and an independent contractor simultaneously may not be in compliance with the law. The internal Revenue Service has been very strict in this area and the penalty is quite severe. For more information, please visit www.irs.gov to view publication 15-A
California State Senate bill 542 was passed in 1999, which requires businesses to report specific independent contractor information to the Employment Development Department (EDD). Beginning January 1, 2001, any business (or government entity) that is required to file federal Form 1099-MISC will now be required to file form DE542 Report of Independent Contractors.
Form DE 542 must be filed within twenty days of either making payments totaling $600 or more OR entering into a contract for $600 or more with an independent contractor, whichever is earlier. If you own a California business, you must report all independent contractors who meet the above criteria, even if they do not live or work in California. In addition, ant out-of-state business owners must report to EDD all independent contractors deriving trade or business income from sources within California.
The Employment Development Department may assess a penalty of $24 for each failure to comply with the new independent contractor reporting guidelines. If the failure is due to conspiracy between the business and independent contractor, a penalty of $490 may be assessed.
If you would like us to prepare any of the above forms for you, please complete the form below by January 25, 2012. If the information is received after this date, we can not guarantee that we will be able to meet the deadline.
If you have any questions, please call our office.
Very truly yours,
Certified Public Accountant
Darrel Whitehead CPAs
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