This time of year can bring chaos, headaches and unneeded stress for employers and businesses. That's right, it's tax form filing season.
Keeping track of the necessary year-end forms and staying up to date on new rules and regulations can be confusing and time-consuming. Businesses are constantly evolving, which can change how they hire employees, conduct operations or utilize outsourcing tasks traditionally handled in-house. Assuming your business has experienced one or all of these changes, you are probably asking: "Is there a form for that?"
To relieve the anxiety typically associated with tax reporting, Greatland Corporation, a company that provides W-2 and 1099 forms and e-filing services to small and mid-size businesses, has compiled a list of the most frequently used forms.
Currently, the rules governing the IRS penalties for failure to file information returns and furnish payee statements allows for the penalty amounts to increase every five years for inflation. Recently, legislation was passed that eliminates the "every five years" clause and instead, allows for a potential increase every year based on cost-of-living.
What does this change mean for you? The IRS is cracking down on non-compliance of wage and information reporting, which makes it even more important for businesses to find a compliant solution. Although penalties may not increase every year, they now have the potential to do so if the cost of living increases.
According to the experts at Greatland, there are more than 20 year-end reporting forms a taxpayer could potentially receive but to save time companies already don't have, listed below are more common forms used by small businesses:
- A W-2 is the form employers use to report annual pay and withholding information. Due to the typical filing deadline (January 31) falling on a weekend, the 2015 deadline for employers to mail this form from the previous tax year is February 2. Employees will receive four copies of this form to report federal, state and local income, and maintain a copy for their records. It is suggested that taxpayers hold on to W-2 forms for a minimum of three years to ensure proper documentation if needed.
There are a variety of forms 1099 that account for other sources of income. Issuers must mail out these forms to recipients by February 2 this year. However, 1099 forms do not have to be issued to the IRS until February 28, allowing businesses to catch potential mistakes and correct them. This is also true for W-2s, although they are issued to the Social Security Administration rather than the IRS. The most often used 1099 forms are listed below:
- A 1099-MISC is the form used to report miscellaneous income, such as income earned as a contract or freelance worker, as well as fees, royalties, commissions and rental income. Payments for prizes, awards, attorney fees, and other non-employee reimbursements (mileage, automobile, etc.) may be reported on this form as well. If you used a contractor or freelance worker and paid them more than $600 in 2014, your business must issue them a 1099-MISC form.
One of the most important topics in tax reporting this year is Taxpayer Identification Number (TIN) matching. TIN matching was introduced by the IRS to increase compliance and reduce costs associated with sending notices and additional processing. Costly penalties can occur if TINs are filed late, filed in an incorrect format, filed with missing or incorrect information, or filed on an incorrect media. The maximum penalty for businesses for furnishing an incorrect TIN to the IRS is $500,000. As an added benefit to users, Greatland provides an automated TIN matching service, alleviating any worry or potential fine associated with non-compliance.
- Form 1099-DIV is a statement that shows the dividends and capital gain distributions received by an account holder in the most recent tax year. It is sent by mutual fund companies to shareholders for tax return purposes.
- 1099-G forms are used to report unemployment compensation, state and local income tax refunds, agricultural payments, and taxable grants.
- Form 1099-INT is used to report interest income received from your bank or from other financial institutions or investment companies. Payers must fill out one of these forms to every party they paid interest to throughout the year. Alternately, form 1098 reports mortgage interest or mortgage insurance premiums paid, which can be used as deductions on an income tax form.
- Form 1099-R is used to show distribution from retirement accounts and can be utilized to report distributions from IRAs, pensions, annuities and will typically show items such as the gross amount of the distribution and the taxable amount of income.
- Another commonly used form is the 1099-S, which reports sales or exchanges of real estate. Most individuals only receive this form if a house is sold, but can get it for selling land or air space, inherently permanent structures, a condominium unit or stock in a cooperative housing corporation.
Source: Greatland Corporation