As the year 2011 starts thoughts turn to completing all the IRS tax forms that are required to keep your business in compliance.
Allow Business Cornerstone Services to take the strain of all those W-2s, 1099s etc. Call 251-458-1586 and tell us what we can do to help.
Filing tax forms, So You Don’t Have To.
It can be if the solution or new idea you are searching for is easy itself, but what if you are searching for a new product that no one else has in the market or trying to find a solution to a problem that has eluded many people? What if you are part of a group which cannot come up with an idea or solution that you all agree on or that doesn’t really resolve the issue fully?
Brainstorming is the answer.
This article will provide you with the brainstorming processes to help you get the right results every time and include a working example for each method so you can try it for yourself.
Having a formal process for a brainstorming session can help focus people on the solution.
When people are focused and understand that everyone will get chance to have their ideas discussed there is a better chance that the final solution will be accepted by everyone thus reducing the pressures of change management.
• It provides a process for creating lots of ideas.
• It ensures that all ideas are thought through properly, no matter how good, bad or just plain crazy.
• It helps identify the root cause of problems and wasteful activities.
If the people in the brainstorm don’t know each other, a facilitator may like to use an ice-breaker game to introduce people to each other and get the group in the right frame of mind; several examples are available at the Business Cornerstone Services web site.
We will look at three different methods in more detail:
• Manic List: A way of getting lots of new ideas about a subject.
• Spider’s Web: Ensure that all ideas are thought through properly.
• Ishikawa: Identifying the root cause of problems, wasteful activities etc.
There are certain guidelines to be followed for all Brainstorming sessions.
The facilitator or meeting leader should set a time limit and appoint someone to monitor the time. The time-keeper should announce when there are 5 minutes remaining. Extra time should be allocated at the end to have a round table follow up to make sure that everyone’s ideas were heard and have been documented.
If the issue is to be reviewed (and resolved) at the same meeting the agenda should have that time allocated separately.
Alternatively the ideas generated may be documented and distributed to interested parties for a review meeting at a later date.
Someone with a good memory and quick writing skills should be appointed as a scribe. Ideally this person will be neutral to the issue under discussion so that they don’t “forget” to write down ideas which don’t conform to their own way of thinking. Use a flip chart or whiteboard that everyone can see to record the Brainstorm session; alternatively if you have someone who is a good typist you may want to enter the ideas straight into a computer – project the image so that everyone can see.
If you are in a brainstorming session and your idea doesn’t get documented, keep a note of it yourself and ensure that it gets added at the end.
After every brainstorm there should be a review to make sure everyone understands what each idea, issue or conclusion means.
If the session has resulted in an agreed course of action, ensure that the minutes of the meeting or the subsequent business proposal include the anticipated benefit to the business, an indication of any new costs & resources as well as an estimated time to complete or implement.
Having a documented owner is vital if the solution is going to be effective; this person will be responsible for the implementation and any change management that may be needed.
Visit Business Cornerstone Services web site for more discussion on Change Management.
Now that we have a guide for a generic brainstorm, let’s look at some of the available methods.
The Manic List method is used when you want to get as many ideas as possible, no matter how crazy they seem.
Explain the basic guidelines of brainstorming and appoint a scribe and timekeeper. When the time starts simply ask people to shout out the first thing that comes into their head when faced with the subject. Don’t analyze or discuss them yet, just make sure everything is written down.
When time is called go through the list item by item, asking for explanations if required and take a popular vote (for example by show of hands) if the group thinks the idea should be rejected or retained.
At the end of the ‘storm you should have a number of ideas that you can work with, either by allocating them to people to investigate and write business proposals or by using them as inputs to a Spider’s Web brainstorm.
You are in the marketing division of a company that makes Paper Clips. Your sales are being eroded by the fact that more people are using copy machines that automatically staple documents. You need to re-market paper clips based on their versatility to do things other than holding 2 or more pieces of paper together…
Objective: How could people use a paper clip?
Time: 10 Minutes to Storm plus 5-10 minutes to reject or retain ideas.
How many ideas did you get? Any crazy ones? Any brilliant ones?
If you found a great one and go on to become a millionaire by marketing the idea don’t forget your old pals at Business Cornerstone Services… 
This method requires more time and explores ideas to a logical conclusion, whilst allowing you to revisit previous concepts.
Start in the centre of a large whiteboard or flip chart and summarize the main concept that you are working on.
The facilitator should invite the participants to give 3 to 5 ideas that they wish to explore. Unlike the Manic list if suggestions are too remote from the concept or issue then the facilitator has the right to veto the idea (although you should document it anyway just in case you need to revisit it later). These ideas should be written around the main concept.
One by one each idea should be discussed through to a logical conclusion, i.e. does this idea provide us with a solution? If not, go back to the centre of the web and start again with another idea.
Often, when discussing an idea, other ideas form. This then becomes the new centre of the web – represented by Idea 2A in the diagram.
With the New Idea (2A) at the centre of the web the participants can now discuss how the ideas interlink and reach a solution that everyone agrees on.
You are in the engineering division of the Paper Clip Company. The marketing department had a brainstorm to see how they could diversify their market share and came up with the idea that the machines that produce paper clips could also produce cable tie wires. The main concept of your Spider’s Web is that you need to change the engineering process to produce wire that is thinner and more flexible. Think of 3 (or more) ideas how this could be achieved and then use the Spider’s Web to discuss each one to see which could be an achievable solution.
We’ve seen two ways to think of new ideas; now let’s look at a way to reverse engineer the thinking process to find the root cause of a problem.
The Ishikawa, or Fishbone, diagram is used to identify the root cause of problems. The problem is placed at the head of the “Fish”. From the backbone a number of bones are drawn at an angle (the number usually depends on the industry or nature of the problem)
For each of the main topics, ask “Why?” up to a maximum of five times and add the answers to the fishbone pattern. For example, in the Manufacturing Ishikawa diagram above, you would ask “why is manpower contributing to the problem”. If the answer is “Lack of skills” you would then ask: “Why is lack of skills an issue?” eventually this line of questioning may lead to the fact that the training budget isn’t sufficient.
Please note the diagram above is only an example; as you ask the “Why?” questions your fish should grow a much bigger skeleton and you may even decide to spawn new fishbone diagrams for each individual subject.
The main subjects added to the backbone depend on the problem or industry; here are some examples, feel free to add your own:
• Materials, Man Power, Machinery & Methods.
• Surroundings, Suppliers, Systems & Skills.
• People, Process, Policies, Procedures.
• Product, Price, Place, Profit.
Please note that alliteration isn’t compulsory for a good Ishikawa diagram but it does make it more memorable.
You are the Quality Control Manager at the Paper Clip Company. You have been receiving complaints that the new cable ties are breaking too easily. Arrange a brainstorming session with the Engineering department supervisors to brainstorm why the finished goods are not meeting customer expectations.
Here is a template to get you started:
When you have identified the Root Cause (or potentially multiple root causes) of a problem you may need to conduct a Force Field Analysis to identify where improvements &/or changes are needed.
For more details on Force Field Analysis please visit the Business Cornerstone Services web site.
Using different Brainstorming techniques can achieve different objectives.
A good facilitator will understand which method to use and how to coach the attendees in how to optimize the process.
Every process, whether it be in our business or in our personal lives needs to be optimized.
If a process isn’t challenged every once in a while it can become costly in terms of time and/or money and can lead to mistakes.
This article provides a guideline for how to look for waste in a process.
Your process should already have been mapped so it should be easy to list the inputs. If it hasn’t – check the Business Cornerstone Services web site for help on mapping a process.
When analyzing the inputs, make sure you have considered all the factors, for example:
People
• Knowledge – do the people know what is required of them?
• Skills – even if they know, do they have the talent to provide optimal results?
• Morale – even the most talented people can have off days if morale is low.
• Time – time management and the ability to focus on the task in hand.
Information
• Objectives – if the output objective is not clear the quality of input can suffer.
• Procedures – preparing complex information may involve sub-processes which also need review.
• Documentation – is the whole process clearly defined and documented?
• Feedback – is feedback, both positive and negative, acted on?
• Accuracy – inaccurate information at this stage can destroy the entire process.
Materials
• Stock – are the raw materials (including data) available when the process demands them?
• Scrap – are materials being scrapped because of expiry dates or redundancy?
• Waste – how are waste materials handled; can recycling add value to the process? Is old data slowing down a process?
Facilities
• Layout – are linked processes carried out close to each other?
• Housekeeping – are physical facilities clean? Are virtual facilities well organized?
• Maintenance – are physical machines and tools well maintained? Are virtual tools (software, web sites etc) up to date, supported and backed up?
If the inputs include outputs from other processes over which you have control these processes should also be analyzed to ensure that what they are providing is timely and accurate.
When thinking about optimizing a process, don’t be fooled into thinking that as long as a process has been completed that the work is over.
Check if you are getting any negative feedback from subsequent processes, for example if the process involves selling a product are you getting customer complaints or returns. If it is an internal process are you being asked by colleagues to correct data errors or re-work the process?
Any issues with the output of a process need to be traced back to the root cause and corrective action taken to prevent reoccurrence.
Some examples of indicators that the process is not working:
Services
• Service Failures.
• Customer Complaints.
Information
• Errors causing subsequent processes to fail.
• Re-work requests.
Products
• Returns from customers.
• Rejects from QA.
• Increases in warranty work
Once the Inputs and Outputs have been identified and analyzed for problem areas a DOITS test needs to be applied to the Process itself.
Each stage of the process can be assigned a DOITS symbol depending on the nature of the action involved. Values can then be applied to show if there are any bottlenecks and areas for improvement.
Working Example:
This is the process in Paper Clip Co. when a supplier invoice is received.
Each Activity needs to be analyzed and questioned – especially Delays.
Look at the time involved for each activity – can it be reduced by adding more resource (but at what cost?)
Look at the tangible costs associated with each action (like the cost of a third party archive in this example) but remember the often overlooked overhead costs as well, for example how much does the Accounts Payable clerk get paid and how much of the facility costs are attributed to the department; what portion of the overhead can you associate to a “cost per transaction”?
Look at distances involved – can the layout of the office be improved so that departments that communicate with each other are physically closer?
Note: The time can be recorded in terms of minutes, hours, days etc. as long as it is consistent. Similarly distance could be yards, meters or miles depending on the nature of the process.
When analyzing a process, also take into consideration the resources and controls as these are areas that could either produce sub-optimal results or be compliance/policy decisions that cannot be changed.
In our example, could adding an extra resource (another A/P clerk) reduce the time that the invoice sits in the in-tray? Or perhaps there is a control in place which means that the apparent delay in the purchasing department is genuine as there needs to be a manager’s signature to approve the payment and hiring an extra high salaried executive to reduce the workload is not practical.
Here are some questions to get you thinking about how a process can be improved:
• How can we eliminate Delays?
• Are all Operations necessary?
• Are all Inspections necessary?
• Are all Transportations necessary?
• Are all Storages necessary?
Challenge EVERY activity
And finally, the ultimate question to ask…
If it isn’t adding value, or providing input to a process which adds value, why are we doing it?
If you encounter a problem in business or in your personal life, making the correct decision is crucial.
This 6 step process will help you reach the right decision every time.
To help you remember the process, here is a mnemonic:
IABEAD
I Am Better Equipped At Deciding
Identify, Analyze, Brainstorm, Evaluate, Anticipate, Do It…!!!
These are the 6 processes you should consider when you have a decision to make.
Depending on the complexity of the issue you may need to formally document each process so that the decision can be reviewed or amended based on changes in any of the steps.
Some complex decisions will require all 6 processes to be completed in order to be sure that you have reached the right decision. During a complex decision making process it is good practice to review the outputs of previous processes to ensure you are still on track.
Some decisions will be easier to make and will not require a formal decision making process. These tend to involve jumping straight to “Do It” – although if you carry out a post mortem on the decision you may find that you have subconsciously completed most, if not all, of the other processes.
What is the gap between what is happening now and what should be happening?
Without identifying and documenting the real issue or problem the other processes will fail and the final decision will be flawed.
Example: The product delivery was made after 2pm when the contracted time was 10am.
There is always a risk of overdoing this step but it is still critical to the process and the easiest way to analyze a problem is to ask a “W(H) Question” five times. (Who, When, Why, Where, What or How)
Example:
1. Why was the delivery late? (Because the driver was late arriving at work).
2. Why was the driver late? (Because he had to work overtime yesterday and needed his mandatory rest period).
3. Why did he have to work overtime? (The previous order wasn’t ready to ship).
4. Why wasn’t the order ready to ship? (The packing machine stopped working).
5. Why did it stop working? (Someone had loaded the wrong size packing film and it jammed).
In this example you can now see we have 5 possible reasons why today’s delivery was late. During the analysis, collect evidence for and against each possible cause and give each a “Score” to help find the most likely (root) cause.
Now that you know the issue and cause, you can begin to work on making an informed decision.
Using the analytical evidence as input, brainstorm what the options are. Depending on the nature of the decision to be made the brainstorm session might be searching for a solution to a problem (as in the example) or it could be any other decision making process.
Brainstorming techniques are outside the scope of this article but for more information look for the Business Cornerstone Services Brainstorming Guide.
Brainstorming in a nutshell:
• Record all ideas.
• Encourage crazy ideas.
• Don’t evaluate them yet.
So now we are half way towards our goal; we know what the issue is and what our options are – now it’s time to really start deciding on things that are going to change the future.
This is perhaps the most important part of the process as this is when the actual decision is made. (But that’s not to say you should ignore the last two phases).
The input for this phase is taken from the Brainstorm session and we need to evaluate the most rational alternatives to improve our overall chances of making the correct decision.
Each option should be scored against set criteria. In our example of the late delivery these criteria might be things that directly affect the company’s bottom line e.g. cost, time, resources or intangibles such as the effect on customer service etc. therefore something that doesn’t cost very much to implement might score 9/10 but something that takes 6 months and extra resource to maintain the solution might only score 2/10.
Using a spreadsheet matrix is a good way of ensuring all aspects have been evaluated and allows extra weighting to be given to critical criteria such as cost.
For example:
| Brainstorming Suggestions | Cost (x2) | Time | Service | Total (out of 40) |
|---|---|---|---|---|
| Extra training for maintenance crew. | 7 | 8 | 6 | 28 |
| Buy new packing machine. | 1 | 5 | 9 | 16 |
| Hire temporary drivers to cover shifts. | 4 | 7 | 8 | 23 |
| Tell customers orders will be late from now | 10 | 10 | 0 | 30 |
Review the gap or problem from the identify stage. Does each suggestion make sense?
Perhaps one solution stands out that is clearly the correct decision, or maybe a process of elimination is needed to reduce the number of options. In our example, maybe there is no capital budget available to buy a new machine so that option can be ruled out of the process. Similarly, telling customers to expect late deliveries doesn’t cost anything and is quick to do but reducing customer service may lose customers completely.
If more than one person is involved in the decision making process make sure that everyone is in agreement (or that you have a majority vote). Document any objections; you may need to revise your decision if it doesn’t work.
Ask: “What could go wrong?”
Always have a “Plan B” in case the decision made doesn’t work the way you intended it to. Review the brainstorming notes, there may be a good idea in there that slipped through the process that you could re-evaluate.
With any decision comes a future action.
Who owns the project/process? Make sure this is documented and communicated.
What resources are needed? Who will do what? By when?
Conduct a Post Action Review: Did the decision produce the expected results or do you need to go back a couple of steps in the process to re-evaluate, re-analyze or even start over to make sure the issue was correctly identified?
Was it the right decision?
The example used throughout this article is about a problem in a place of work, but the decision making process could simply be:
Where shall we eat dinner tonight?
Think about the process of getting a group of people to have a meal together. You need to identify what each person likes and dislikes; you need to ask who, where, when; two or more people may discuss different restaurants and then the group decides on one they would all like to try. If it is a very popular restaurant you may have a backup option in case you can’t get a table. Someone will be tasked to drive or ring for a taxi, someone else may be in charge of making the booking…
Congratulations, you’ve just used IABEAD.
The final part of this 4 part series looks at how a small business needs to get ready for the new 1099 regulations.
This series of articles is intended for informational use only and does not represent tax or legal advice; the information is believed to be correct at the time of publishing; the author cannot be held liable for any losses resulting from actions taken on the strength of the information provided. If you need assistance with 1099s or any other IRS related form you are encouraged to visit the IRS Web Site and/or seek the services of a reputable tax lawyer.
In this series:
Part 1: Existing Laws and the 1099 Contractor.
Part 2: The New Legislation.
Part 3: Business Implications
Part 4: Essential Preparations
What can a small to medium business do to get ready for 2012?
Firstly, if you are using your social security number (SSN) as a tax identifier, stop..! Go to the IRS web site and apply for an Employer ID Number (EIN)
If you are a sole-proprietor, partnership or some other non-incorporated entity you should talk to a tax or legal professional about your liability if someone fraudulently uses your SSN or EIN.
Start collecting data on vendors now. The IRS requires that you have the information on hand at the time of the transaction, not just when filing your taxes. All businesses should be aware of the new requirements and should be cooperative but if you want to formalize the process or follow up on a company that hasn’t responded you can use the W-9 form from the IRS web site. Please verify with the site that you are using the latest version.
If you have a stubborn supplier, politely remind them that if you continue to buy goods or services from them beyond January 1st 2012 and they have not provided their TIN you will be legally bound to withhold 28% of their fees/payment.
Ensure the vendor information you collect is entered accurately into your accounting system. Check that your vendors are going to include their tax ID on their receipts and invoices so that you can cross refer to your own database and make sure that different outlets of the same store are using the same information so that you know to file individual or consolidated 1099s (e.g. if you buy gas from a certain brand but from different locations).
Make sure that payment types can be identified and reported on in your accounting system. For each payment, record whether it was paid by cash, check, credit card etc. If the rules change for credit card payments you’ll be glad that you got in to this habit early.
If you don’t have a company credit card, get one. Pay it off every month to make sure you don’t get hit with unwanted interest charges but use it to full advantage if the laws change and you want to reduce the number of 1099s you prepare.
If you don’t already have one, talk to your bank about a merchant account so that you can accept credit card payments. If the rules change, some companies may only do business with people that can process credit cards. There are a number of web based solutions that provide a virtual terminal for capturing credit card payments; monthly fees should be around $30 to $50 and then they take a commission of around 3-5% depending on the amount per transaction. Discounts are often available if the total amount processed each month goes above a certain threshold.
You will be receiving 1099s yourself so ensure payers have your correct details. Update your address directly with payers, as well as putting a forwarding order in with the U.S. Post Office if you move. You’ll want to see any forms the IRS sees so don’t just put arriving 1099s in a pile; open them immediately and make sure the information tallies with your own sales data. If you spot an error ask the payer to send in a corrected form to the IRS. There’s a box on the form to show it is correcting a prior 1099 so that it shouldn’t be processed twice – but always request a copy of the revised form and double check that you have been taxed correctly.
Some people may forget that banks are obliged to send 1099s as well. Let’s hope that you are a successful business and have some capital safely banked in an interest bearing account. However, if you forget to report the interest you earned the IRS will know about it and will bill you for the tax owed.
Don’t forget state taxes – the state will receive a copy of the 1099 so check with your local tax offices or a tax professional that specializes in your state’s legislation.
It can all be a bit overwhelming but it is important to keep up to date with the changes on the IRS web site. A good starting place would be to watch these IRS videos for small businesses
We would love to hear your comments, particularly if you have relevant news about changes to the laws or suggestions on how an SMB can cope with the extra work. Please note, however, that this is not a political forum. Please limit your comments to the facts as we know them, how they will affect businesses and how the small business community can help each other. Any obviously political statements will be edited or deleted.
Of course Business Cornerstone Services would be happy to review your requirements and quote for providing assistance, after all, if you don’t have the skills or resources to process 1099s…
The third part of a 4 part series looks at how the new 1099 legislation will affect businesses, especially small businesses.
This series of articles is intended for informational use only and does not represent tax or legal advice; the information is believed to be correct at the time of publishing; the author cannot be held liable for any losses resulting from actions taken on the strength of the information provided. If you need assistance with 1099s or any other IRS related form you are encouraged to visit the IRS Web Site and/or seek the services of a reputable tax lawyer.
In this series:
Part 1: Existing Laws and the 1099 Contractor.
Part 2: The New Legislation.
Part 3: Business Implications
Part 4: Essential Preparations
Under current law, a business is only required to file a 1099 with the IRS for services totaling $600 or more in a given tax year paid to individual workers that are not part of the wage or salary infrastructure of the company. Freelancers, sole-proprietors, “1099 Contractors” etc. receive 1099s each year from their clients in place of the W2 which is sent to full-time employees.
The new rules dictate that purchasing goods from a supplier would also require a 1099 if the annual total was $600 or more.
Some examples to illustrate the impact:
In all these examples the business would need to obtain the legal name, federal tax number, business address and contact details for each supplier in order to complete the 1099 accurately and all this information needs to be kept in an auditable state in case the IRS comes calling.
And if the IRS calls and finds a business has failed to file a 1099 there is a $50 fine for each one. If the failure is considered to be intentional the fine rises to $100 per instance.
What if a vendor won’t supply their tax id number? You are required to withhold tax at a rate of 28%
If you are a sole proprietor there is a good chance you use your social security number for tax purposes; this will become public through printing on receipts, invoices, W-9s etc. leaving a very large security hole for the identify thieves.
For larger companies, or even small businesses that deal with a lot of suppliers, if you file more than 250 1099s they must be sent electronically. If you have less than 250 forms they can still be filed electronically, but if you send in paper forms then they must be accompanied by a form 1096 which provides a summary of the submission.
Of course it would be relatively easy if there were only one 1099, but there aren’t. Here is a link to the different types of forms that you may need to know about. (Please check the IRS web site for the most recent versions)
Several bills and amendments have been introduced that would repeal the amendments made to IRC § 6041 by PPACA. The Small Business Paperwork Mandate Elimination Act, S. 3578 and H.R. 5141, would repeal PPACA § 9006. Similar language was proposed in amendments to H.R. 5297, 20 and in § 1 of H.R. 5982.21
In other legislation, from January 2011 all credit card processing companies must report annual credit card transactions in excess of $20,000 and 200 transactions submitted to them for processing by any business.
This could be potentially good news for business owners as any purchases made on company credit cards would not require a 1099 to be filed. The down side to this is that small business that can’t accept credit card payments may be overlooked for trade in favor of those that can.
Other proposed legislation would exempt businesses with fewer than 25 workers and raise the reporting threshold from $600 to $5,000.
The consequences of any full or partial repeal of the bill, new legislation, plus the implications of the credit card processing laws need to be monitored carefully over the next 12 months.
Part 4 Essential preparations
In this second part of a 4 part series we look at the new legislation for 1099s that will come into effect from January 1st 2011.
This series of articles is intended for informational use only and does not represent tax or legal advice; the information is believed to be correct at the time of publishing; the author cannot be held liable for any losses resulting from actions taken on the strength of the information provided. If you need assistance with 1099s or any other IRS related form you are encouraged to visit the IRS Web Site and/or seek the services of a reputable tax lawyer.
In this series:
Part 1: Existing Laws and the 1099 Contractor.
Part 2: The New Legislation.
Part 3: Business Implications
Part 4: Essential Preparations
The Patient Protection and Affordable Care Act of 2010 was a massive 2,400+ pages but hidden in plain sight on page 737 was a very important section.
Beginning in January 1, 2012 for tax returns in 2013 all companies will have to issue 1099 tax forms to any individual or corporation with whom they spend $600 or more in goods or services in a tax year.
The two major changes are that it expands 1099s to track payments not only for services but also for physical goods. Plus, it requires that a company issues 1099 to both individuals and corporations.
Here is the wording of the amendment:
SEC. 9006. EXPANSION OF INFORMATION REPORTING REQUIREMENTS.
(a) In General.–Section 6041 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsections:
“(h) Application to Corporations.–Notwithstanding any regulation prescribed by the Secretary before the date of the enactment of this subsection, for purposes of this section the term `person’ includes any corporation that is not an organization exempt from tax under section 501(a).”
“(i) Regulations.–The Secretary may prescribe such regulations and other guidance as may be appropriate or necessary to carry out the purposes of this section, including rules to prevent duplicative reporting of transactions.”(b) Payments for Property and Other Gross Proceeds.–Subsection (a) of section 6041 of the Internal Revenue Code of 1986 is amended–
(1) by inserting “amounts in consideration for property,” after “wages,”,
(2) by inserting “gross proceeds,” after “emoluments, or other”, and
(3) by inserting “gross proceeds,” after “setting forth the amount of such”.(c) Effective Date.–The amendments made by this section shall apply to payments made after December 31, 2011.
The Congressional Research Service provides a document on the new 1099 Information Reporting Requirements.
The key points are:
Coming in Part 3 – Business Implications
A sequence of numbers from an IQ test? A quarterback calling a last minute change of play? No, just some of the numbers that could mean a major headache to all companies in USA, but especially small businesses that do not have the resources or expertise to handle a potentially huge increase in accounting paperwork and tax procedures.
What do the numbers mean? 737 is the page number of the Patient Protection and Affordable Care Act of 2010 that details changes to section 6041 of the Internal Revenue Code of 1986 which will affect submission of tax form 1099 for the year 2012.
This series of articles is intended for informational use only and does not represent tax or legal advice; the information is believed to be correct at the time of publishing; the author cannot be held liable for any losses resulting from actions taken on the strength of the information provided. If you need assistance with 1099s or any other IRS related form you are encouraged to visit the IRS Web Site and/or seek the services of a reputable tax lawyer.
In this series:
Part 1: Existing Laws and the 1099 Contractor.
Part 2: The New Legislation.
Part 3: Business Implications
Part 4: Essential Preparations
It might make for some heavy reading, but I would recommend at least skimming through the following links:
Section 6041 of the internal revenue code of 1986
IRS Instructions for completing form 1099-Misc for 2010
In summary, current law states that a business must file a 1099-MISC form for annual payments totaling $600 or more to consultants, contractors, freelancers and other service providers that aren’t incorporated so that the IRS has a record of these workers for whom the business would withhold taxes if they were regular employees. Both the contractor and the IRS need to receive copies.
Corporations typically would not receive a 1099; however there are exceptions such as law firms.
The sole-proprietors, partnerships and small businesses that provide these services are often known as 1099 Contractors.
A 1099 contractor is a term used to refer to the type of worker that contracts his or her services out to a business and is not an employee of that business. The term 1099 refers to the IRS form which must be submitted if a contractor receives $600 or more in a tax year from any given business.
1099 contractors are classed as being self-employed and as such are responsible for their own income and social security taxes and these are paid as quarterly installments against their projected tax responsibility for the year.
Deductions against this tax responsibility can reduce the amount owed, for example: home office costs, work related vehicle use, computer purchases, office consumables etc.
Starting from 1st January 2012, all businesses will need to account for all services and goods purchased from vendors that total $600 or more in the tax year. The old exemptions have been removed to include corporations and even non-profit organizations such as charities, churches etc. will need to keep appropriate records and file 1099s in January 2013.
In Part 2 we’ll look at The New Legislation
The day we decided to start Business Cornerstone Services we ate Chinese food.
My fortune cookie said: “Many people are seeking you for your sound advice.”
If that isn’t a good prophecy for starting this business I don’t know what is, and just in case the lottery lucky numbers on the back said….
You didn’t think I would share those did you?
We will be sharing a lot of our knowledge and research though, so please let us know how we are doing and feel free to suggest topics for future blogs and free stuff on our web page.
All the best
The Cornerstones.