The IRS has published many 2011 tax forms on its website, and let me tell you, it is getting ugly. Each year, a greater compliance burden is placed on taxpayers, making tax reporting even more time consuming and complicated. Although I haven't had a chance to review all the form changes, I did look at Schedules C and E, and it is scary.
Schedule C is the form used by individual taxpayers to report the income and expenses of a business operated as a sole proprietorship or a single member LLC. Schedule E the form used to report the income and expenses of operating rental real estate. Each of these forms contains two new questions. The first is "Did you make any payments that would require you to file forms 1099?" The second question is "If yes, did or will you file all required forms 1099?"
Form 1099 is generally required to be issued to report payments made in the course of a trade or business to any individual or unincorporated entity if the total of the payments is $600 or more in a calendar year. This seems simple enough, right? Wrong! Whether you own a two family house or operate a small business on a part time basis, you are subject to the 1099 filing requirements. For you rental property owners, are the landscaper and snow plower corporations? What about the roofer and the plumber? If they are unincorporated, do you have their addresses and federal tax identification numbers? After all, you do need this information to file the 1099 forms with the government by February 15. Do you see where I'm going with this? And by the way, if the 1099's are late filed, you are subject to penalty, so unless you plan to prepare these forms on your own, you can't wait until whenever you get around to it to see your accountant.
Getting back to the two questions, how will you answer them if you are required to but do not file forms 1099? It doesn't take a genius to know that the IRS is not asking these questions for their health. Keep in mind that when you sign your tax return, you are doing it under penalties of perjury, so you do not want to give a false answer. I would love to hear your thoughts on this, so please comment if you have any. I will provide more information as it becomes available. And by the way, these questions also appear on the 2011 partnership tax return form 1065. S Corporation form 1120 S has not yet been released for 2011, but I suspect the question will also appear on it.
Next time, I will discuss the new basis reporting requirements on Schedule D and new form 8949, which requires disclosure of whether or not basis was reported to you on form 1099, and potentially requires the filing of six different forms 8949 to comply with these reporting requirements. Like I said, it is getting really ugly.
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