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It’s tax time. This might not be your favorite time of the year, but not doing proper tax reporting is a problem you do not need in your small business. With the ever-changing requirements for businesses, it is easy to make a mistake or get caught up in tax myths.
Greatland Corporation, one of the country’s leading providers of W-2 and 1099 products for business, fields thousands of calls each year from questioning customers who often mistakenly believe in one of the many tax myths that plague small businesses. I reached out to them to get insight on the information you need to know to protect your small business. Failing to understand the real truth behind these myths can cost your business in the form of re-filing fees or fines if your reporting is not done correctly. Here is a breakdown of the top 10 myths about your small business taxes, so that companies can be better prepared.
Myth #1: If a small business owner gives a worker freedom to work, the worker should be classified as a 1099 independent contractor.
Reality: The general rule is that an individual is an independent contractor if the business owner has the right to control the assignment or direct only the result of the work. They must not specify where the work will be performed and how it will be done. An individual is an employee if the business owner can control what, where and how the work will be done even if the business owner gives the employee freedom of action. If the IRS determines the worker is an employee rather than a contractor, costly penalties are assessed and a large tax bill will result due to unpaid Social Security and Medicare costs.
Myth #2: You must file your W-2s and 1099s on all employees and independent contractors with the IRS by Jan. 31, 2014.
Reality: As a business owner you are required to give your employees and independent contractors W-2 and 1099 income statements by Jan. 31, 2014. You are not required to give the information to the IRS until Feb. 28, 2014.
Myth#3: State 1099 reporting for independent contractors is not required if there is no state tax withheld.
Reality: That may not be true. Check your state’s 1099 filing requirements. Many states still require 1099s to be filed even if there is no state tax withheld.
Myth #4: Copy A of a 1099 Form can be printed in black ink and filed to the IRS.
Reality: Copy A of a 1099 Form must be printed in red ink in order to be properly processed by the IRS.
Myth #5: All small business owners offering health coverage under an employer-sponsored group health insurance plan must report the cost of the coverage on the employee’s W-2.
Reality: Until the IRS issues final guidance for this reporting requirement, reporting is not mandatory for those business owners who filed less than 250 employee W-2s.
Myth #6: In order to prevent identity theft, the taxpayer identification number (TIN) can be truncated (ex: XXX-XX-1234) on Form W-2.
Reality: TIN truncation only applies to the payee’s identification number also known as the social security number on payee statements for Form 1098 series (excluding 1098-C), Form 1099 series, and Form 5498 series. Employer identification numbers (EINs) cannot be truncated.
Myth #7: Using the combined federal/state 1099 filing program meets all the state’s 1099 filing requirements.
Reality: Not all states participate in the combined federal/state program, and many states that do participate still require 1099s with state withholding to be sent directly to the state.
Myth #8: The electronic filing (e-file) threshold for state W-2/1099 filing is the same as the federal e-filing threshold.
Reality: Each state can set its own electronic filing threshold. Check your state’s requirements to ensure that you are in compliance.
Myth #9: When filing W-2s and 1099s on paper, a filer is required to use the official forms supplied by the IRS.
Reality: Substitute W-2 and 1099 forms are acceptable for filing as long as they meet the specifications outlined in IRS Publications 1141 and 1179 respectively.
Myth #10: Payments made to corporations are not reportable on Form 1099-MISC.
Reality: Generally, payments made to corporations are not reportable on Form 1099-MISC; however, there are exceptions. The following payments made to corporations must be reported on Form 1099-MISC:
Medical and health care payments
Attorneys’ fees
Gross proceeds paid to an attorney
Substitute payments in lieu of dividends or tax-exempt interest
If you don’t want to risk making any mistakes with your year-end tax reporting requirements, try filing all your required statements using Greatland’s web-based reporting tool www.speedEfiler.com. The software will make filing your W-2 and 1099 forms online hassle free, so you can spend less time worrying about your filing and more time focused on growing your company. From completing, filing, printing and mailing 1099s and W-2s, speedEfiler.com simplifies the entire reporting process, and makes sure your business’ forms are filed accurately and on time to avoid late fees, even with multiple state filings. With their help, your filing requirements are identified and, especially with the e-filing features, all of your W-2 & 1099 year-end reporting can be completed in a matter of minutes! Best of all, the software will automatically double-check your data to ensure accuracy.
The updated speedEfiler.com software even allows recipients to get their tax information on the day it is filed by the business owner. speedEfiler.com also enables small businesses to have copies printed and mailed directly to employees or recipients. The program offers dynamic pricing allowing customers to immediately calculate order totals right on the website.
For less than $60 you can take care of your filings for 10 employees with the federal and state W-2 and 1099 requirements. What is peace of mind worth to you in your small business?
Disclosure: Melinda F. Emerson, the publisher of Succeedasyownboss.com was compensated to write and publish this article.
About Greatland
Greatland (www.greatland.com) is the W-2 and 1099 specialist, focused on providing guidance, products, and solutions for small to mid-size businesses and accountants. Greatland offers an extensive array of specialized products for business: W-2 forms, 1099 forms, W-2 and 1099 software, online filing, business checks and check writing software, presentation materials, income tax preparation supplies, and mortgage forms. Greatland is an employee-owned company with locations in Grand Rapids, Mich. and Green Bay, Wis. Follow them on Facebook or Twitter: @GreatlandCorp
For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com.
Melinda F. Emerson, known to many as SmallBizLady is America’s #1 small business expert. As CEO of Quintessence Multimedia, Melinda educates entrepreneurs and Fortune 500 companies on subjects including small business start-up, business development and social media marketing to fulfill her mission to end small business failure. She writes a weekly column on social media for The New York Times. Forbes Magazine named her #1 woman for entrepreneurs to follow on Twitter. She hosts #SmallBizChat Wednesdays on Twitter 8-9pm ET for emerging entrepreneurs. She also publishes a resource blog http://www.succeedasyourownboss.com Melinda is also the bestselling author of Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works. Her latest ebook, How To Become a Social Media Ninja; 101 Ways to Dominate Your Competition Online.