The Great 1099 Tsunami of 2010

More Demanding Requirements for Issuing 1099s

Generally, all persons engaged in a trade or business and making payments to individuals or partnerships for services (including parts and materials) in excess of $600 are required to file Form 1099-Miscellaneous. In order to properly complete a Form 1099, you must obtain a Form W-9 “Request for Taxpayer Identification Number and Certification” from the payee.

Under the Patient Protection and Affordable Care Act of 2010 healthcare legislation, effective for payments made beginning 2012, the exemption for payments of $600 or less made to a corporation in the course of a trade or business is eliminated. The class of payments has been expanded to include all amounts paid in consideration for property, and all other gross proceeds for both property and services. Payments to exempt or governmental organizations, international organizations and retirement plans are not affected by this new provision.

This means that if you pay more than $600 to the power company, you must issue a 1099. If you pay more than $600 for liability insurance, you must issue a 1099 to the insurance company. If you purchase parts from a vendor in excess of $600, you must issue a 1099. It will be interesting to see how employee expense reimbursements will be handled.

The IRS has indicated that there may be some relief for payments made by credit or debit cards. Some of these transactions will already be covered by reporting requirements on payment card processors, who will be required to provide an annual information report to the merchant and to the IRS stating the gross amount paid to the merchant for calendar years beginning 2011. However, the uncertainty here is that this new reporting requirement for credit card processors only applies to individual merchants who receive more than $20,000 and conduct more than 200 transactions each year from an individual merchant. Until there is clarification on this matter, you will need to plan to issue 1099s to all your vendors to whom you pay more than $600 in 2012. And even if your credit/debit card payments are exempt, then you will need to come up with a system to segregate those payments from payments by check/wire transfer.

The primary purpose of this new reporting requirement is to ensure that all businesses are reporting all revenues received. Of course the amounts reported on the 1099s may not actually tie to the taxpayer’s revenues for the year due to the taxpayer’s method of accounting. Furthermore, if you are the recipient of a 1099, you should make sure that the amounts reported tie to your records and that the issuer hasn’t made an error in the amount listed.  As a payer, if you fail to issue 1099s then your expenses may become subject to review.

There are actually several different ways you may be penalized with regards to 1099 reporting. You are subject to penalties for failure to issue 1099s. If you are required to file 250 or more information returns such as 1099s, then you must file electronically or be subject to penalties.

You may be subject to penalties if the name and Taxpayer Identification Number on the 1099 doesn’t match the IRS’s records (or if you send incomplete information) and if you don’t follow the proper procedures to correct.

You may become subject to backup withholding requirements on payments to vendors, currently 28% through December 31, 2010. For example, if you filed  a 1099 without a TIN from the vendor and you are continuing to pay the vendor, you should start backup withholdings immediately. If you receive a notice regarding incorrect name/TINs reported on the 1099 that do not match up with name/TINs with the IRS then you may be required to begin backup withholdings. The various procedures are described in IRS Publication 1281, “Backup Withholdings For Missing and Incorrect Name/TIN(s)”.

The amount of late penalties vary  based on when you file the correct information return, ranging from $15 per information return (1099) if you file correctly within 30 days to $50 per information return if you file after August 1. Incorrect information may lead to a $50 per information return penalty. Filing 1099s by paper when you were required to file electronically may lead to a $50 per information return for each 1099 issued over the 250 threshold for filing electronically. Intentional disregard for filing a 1099 may lead to a $100 per 1099 penalty. Tax legislation that is before Congress (and that has not passed as of this writing) includes provisions to double these penalties as revenue raisers.

There is also the possibility of increased identity theft as more identification  information (name, address, taxpayer identification number) becomes available to more people.

What can you do? Become proactive. If you have not already collected W-9s from your vendors then you should plan to start collecting them in 2011 to make sure all information is on file in preparation of the 2012 requirement. Have procedures in place for collecting this information from new vendors. In requesting the information, make sure that you request that the vendor complete the W-9 showing the name and TIN as shown with the IRS in order to minimize mistakes. If there is a question as to name shown on a W-9, get clarification now. Be prepared to submit your information electronically. Do not ignore any notices received from the IRS regarding incorrect Name/TINs. Make sure that the information that you provide to your customers on your own business is correct so that your customers will not be required to start back-up withholdings on payments to you. Educate your personnel on these requirements to minimize mistakes. You may want to review with your financial institution/credit card companies any additional steps needed to safeguard your accounts.


More Down Than Up – Weekly Market Watch

This will be my last prediction for the summer of 2010.  So far, I am batting almost 1000 and close to being wrong every time.  Perhaps if I predict a lower market, I will put a jinx on the market and it will go up.

The news is all gloomy.  In spite of the overriding negative bias, we are not going to zero but I believe that we have some down side exposure and it could last for a while.  My Bruce indicator, which I wrote about a few weeks ago, predicted a bottom at 1,042 on the S&P 500 and the Bruce barometer proved to be wrong this time so perhaps Bruce was correct at least so far.

Next week is the beginning of earnings season and expectations are high for most companies.  These companies will most likely report similar earnings to the first quarter which were generally pretty good, but the market was not happy with them at that time and the market went down.  I think that the same scenario will help push the market down again as expectations are not likely to be exceeded in most cases.  This coupled with continued bad news about the new financial regulations, European debt problems, American debt problems, incompetent government leadership and the mother of all oil wells still spewing out oil will overshadow any good news.

My prediction is an S&P 500 below 950 within the next 90 days.  This will be a great buying opportunity if you have the stomach to dive in.

I generally believe that the economy is improving and that long term the market will go up.  Therefore, with some cash on the side I remain 80% plus or minus invested hoping that I am wrong and the market goes up.

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.  Investing in stocks, bonds, mutual funds and other investments involves risk, and may decline in value and are not insured by the FDIC or any other Federal government agency.

Contact Richard B. Taylor for additional information.

Distracted Driver Laws Effective July 1

Two new distracted driving laws go into effect July 1, 2010.  One is the House Bill 23 and the second is the Senate Bill 360.  The House bill prohibits drivers under the age of 18 from using wireless devices, whether they are using a hands free set or not.    The bill:

prohibits use of wireless telecommunications devices by persons under 18 years of age with an instruction permit or Class D license while operating a motor vehicle”

The Senate bill prohibits all drivers from texting, emailing or instant messaging while driving.  This includes when you are sitting at a red light.  You are allowed to pull over and put your car in park in a parking lot and type your message then.  This bill reads: 

“No person shall operate a motor vehicle on any public road or highway of this state while using a wireless telecommunications device to write, send, or read any text based communication, including but not limited to a text message, instant message, electronic mail, or Internet data.”

Of course, this begs the question, “how are they going to enforce this law anyway?”  Police officers will be looking for suspicious activity such as slamming on breaks and swerving.  Also, if a person causes an accident, the police can use the records from the various cell phone companies to prove whether a person was sending a text message or email.

So be careful out there and just remember that the email can wait until you get home or back to your office.  If it is urgent, pull over, put your car in park and check your messages.

Reasons to be Invested – Weekly Market Watch

The news continues to be focused on all of the negatives and not much positive at the moment.  This news often spooks investors into panic mode and causes them to exit the market.  By the time the average investor gets back in, the market has already recovered to beyond where they exited.

Here are a number of reasons to be invested for the long term:

  1. Statistics show that the U.S. recovery is underway and confidence is improving.
  2. The Yale Institutional Crash Confidence Index is improving.  This index measures the likelihood of a crash within the next six months and is declining.
  3. The Yale Institutional 1-Year Confidence Index indicating that the market will rise in one year is increasing.
  4. The Conference Board’s Leading Economic Indicators continue to predict near term growth.
  5. The University of Michigan Consumer Sentiment Index which measures consumer sentiment is improving.  The consumer is still holding back the recovery but is gaining some optimism.
  6. The ISM Manufacturing Index indicates that the recovery is stable.
  7. The 10 largest US companies achieved impressive quarterly sales growth.
  8. As measured by P/E ratio, most companies still sell for multiples that are lower than the historic S&P 500 average.
  9. Over the long term, the markets tend to always go up.

Hopefully these indicators accurately portray the confidence of investors as the market must have confidence in order to increase in value. While we recommend that investors remain invested, it might be wise to keep a little cash in the event that the market gives us an opportunity to buy cheap.

For additional information contact Richard Taylor.

We are Going Nowhere – Weekly Market Watch

Actually, we all might be going to lots of great places this summer but it appears that the market is going nowhere.

The news is continually bad and everything seems to be an overreaction.  The Euro is weakening and this is bad for the USeconomy; whoops maybe it is really good, European debt worries weigh heavy on the market, and job growth is slow. And to top it off, BP had to hit the mother of all oil discoveries in the gulf and everything that could go wrong with an oil well went wrong.   The president puts a moratorium on all deep water oil drilling.  Because of this once accident, it is assumed that safety at all oil rigs is bad.   The federal court overrules the Obama administrations ban on drilling which they will surely appeal.  Reaction by the president, perhaps an overreaction, and reaction by investors is certainly an overreaction.

The market was on a steady upswing until the BP well exploded.  We were expecting a correction after the first quarter earnings season but the correction is 3% to 4% more than expected.  The market simply cannot find itself and it seems that it is going to remain stuck in a trading range of perhaps 1040 to 1140 on the S&P 500 for the rest of the summer.  I do not believe that the market can recover until the oil well is plugged as that seems to override any other good news.

At this point, I expect the market to go perhaps nowhere for the next two months but with lots of excitement on the way to nowhere.

In next week’s blog, I will give you reasons why I believe you should remain invested.

For more information contact Richard Taylor. 

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.  Investing in stocks, bonds, mutual funds and other investments involves risk, and may decline in value and are not insured by the FDIC or any other Federal government agency.

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