1099's not being issued

[diligentbiz]

I'm finding more biz's aren't issuing 1099's this year. Anyone else find similar?

[Randall]

I don't know about the increased frequency this year. But the tendency (especially for new businesses) is to just start paying people. They either don't know or somehow think they can still deduct the expense without any paper work. I usually don't see them until tax time. If it's not too much, I explain to the client, he can treat it as a gift and not deduct and do it right from here on out (W-2 or 1099, whichever applies).

I'd be interested in how others deal with this type of thing. I filed late 1099s in the past and don't know think the client was ever penalized. I keep hearing about the penalties though.

[michaelmars]

"he can treat it as a gift and not deduct"

YOU ARE KIDDING RIGHT?

[lbbwest]

I don't know about the increased frequency this year. But the tendency (especially for new businesses) is to just start paying people. They either don't know or somehow think they can still deduct the expense without any paper work. I usually don't see them until tax time.

"If it's not too much, I explain to the client, he can treat it as a gift and not deduct and do it right from here on out (W-2 or 1099, whichever applies)"

Will you do my taxes? lbb

I'd be interested in how others deal with this type of thing. I filed late 1099s in the past and don't know think the client was ever penalized. I keep hearing about the penalties though.

[Pacun]

"he can treat it as a gift and not deduct"

YOU ARE KIDDING RIGHT?

Actually, that's a good technique so our clients understand how important it is to issue 1099mis to any contractor that they pay more than $600 for labor. If you tell them, since you didn't issue them a 1099misc, it is understood that you gift them the money and you can only deduct $25.

[Booger]

I HOPE CERTAIN OF YOU ARE KIDDING ON THIS POINT.

Just because your client DID NOT ISSUE a 1099, doesn't make the

payment nondeductible.

HOW IN THE WORLD are you retaining clients with that attitude?

Booger

[jainen]

>>it is understood that you gift them the money and you can only deduct $25. <<

I think that's nonsense. It might work as an interview technique to emphasize the point, but it would be irresponsible to seriously consider it for the tax return. Subcontractor expenses are properly deductible if the company has reasonable records of the payment. The IRS might do whatever the IRS might do, but it is not OUR job to audit the client's books and determine that some slip of paper is not in the right folder. My source for that opinion is the Circular 230 standards of practice.

[Pacun]

I HOPE CERTAIN OF YOU ARE KIDDING ON THIS POINT.

Just because your client DID NOT ISSUE a 1099, doesn't make the

payment nondeductible.

HOW IN THE WORLD are you retaining clients with that attitude?

Booger

We are talking about interview techniques here. We would tell them, we are going to do it this year only... next year please issue 1099misc.

Also, remember... in front of an auditor, your client will say... "no one told me that I should have issued 1099misc". If you refresh their memory by saying "remember I told that if you didn't issue 1099misc, it was assumed a gift".

[Booger]

Glad you clarified that. If I was your client who paid big $$ out to subs, and my preparer said

that I could only deduct $25 per sub, I would tell you to go pound salt and I would

find a preparer who is MY advocate, NOT the IRS Advocate.

BTW, Pacun spelled backward is NUCAP.

Booger

[michaelmars]

ACTUALLY THIS GUY HAS SOMETHING AFTER ALL since none of my individuals 1099 me i am going to consider them gifts and i just orders a few couple of hundred thank you cards to send out all preprinted. "Thank you for your generous gift this year and to show my appreciation i would like to assist you next year to fill out your tax forms for as you know reading IRS literature is a HOBBY of mine." THANKS AGAIN MY FRIEND FOR YOUR ... GIFT ...

[schirallicpa]

Unfortunately most of my returns run under $600.................

[BulldogTom]

ACTUALLY THIS GUY HAS SOMETHING AFTER ALL since none of my individuals 1099 me i am going to consider them gifts and i just orders a few couple of hundred thank you cards to send out all preprinted. "Thank you for your generous gift this year and to show my appreciation i would like to assist you next year to fill out your tax forms for as you know reading IRS literature is a HOBBY of mine." THANKS AGAIN MY FRIEND FOR YOUR ... GIFT ...

I would love to represent you at audit under that one. I could pick up a billing hour just watching the auditor laugh.

Tom

Lodi, CA

[michaelmars]

I would love to represent you at audit under that one. I could pick up a billing hour just watching the auditor laugh.

Tom

Lodi, CA

NOT A BILLING HOUR a gift hour - get with the program - we can start a movement here

[Randall]

>>it is understood that you gift them the money and you can only deduct $25. <<

if the company has reasonable records of the payment.

A big IF. Actually, I wasn't joking. But it is mostly a get your attention type of thing. I explain the requirements. I give them W-9s to get everyone on board. I'll accept the numbers the first year IF they seem reasonable and IF the client has decent records. But if they just throw out a big number, I'm not going to audit them and I'm not going to do the return.

[SunTaxMan]

....it is understood that you gift them the money and you can only deduct $25.

I beg to differ:

- he didn't "give" anything. It's compensation - if it looks like a horse, acts like a horse, eats oats, and puts "road apples" down as it walks, lets call it a horse! For it to be (read that as "have been") a gift, takes tax planning, not terminology "restructuring."

- he didn't give (just) $25.00. Just because you are thinking of limiting it to a "gift" that could be deductible, doesn't mean the amount is automatically lowered to, and limited to, $25.00. The amount "paid" is, and always will be, the actual amount of money involved.

I can understand the rationale of using this kind of "explanation" to enforce the significance of documentation and correct handling and reporting, but it needs to be expressed specifically as a "theoretical" and not an actual potential!

I think this "argument" is better left unsaid!

As Mr. Farmer, when accused, "Weren't you working when Reagan was shot?" - he said, "Not on my shift!" And for those of you who don't recognize the quote, dig in the archives and watch the movie, "Bodyguard!"

[indyscott]

Just to point out the obvious thing that no one has so far stated.. the IRS is seriously against seeing one business deduct expenses that do not show up as income on someone else's return. And, they do have the power to disallow those deductions.

[SunTaxMan]

Indyscott

short, sweet and to the point - an attribute I have never mastered.

And... on target!

[diligentbiz]

Interesting! I encourage more opinions. 1099's, for whatever reason, are not coming in this year. Clients have told me that their employers would rather pay the penalty than deal with 1099's. Software cost? Don't we understand! that! Please explain the $25 "gift".

[Randall]

Just to point out the obvious thing that no one has so far stated.. the IRS is seriously against seeing one business deduct expenses that do not show up as income on someone else's return. And, they do have the power to disallow those deductions.

That was my original point, but not so well stated.

[JohnH]

No doubt the IRS wants to eliminate unreported income, but where exactly is it stated that failure to prepare a 1099 invalidates an otherwise legitimate deduction?

[BulldogTom]

I think it is somewhere in the 6000 series of the code. I don't have the exact quote, but it goes something like - a taxpayer must maintain sufficient records to prove the deductions claimed on the return to the satisfaction of the Secretary.

It is pretty overreaching. The check and balance to this is the right to appeal to the courts as to the sufficiency of the records to prove the deduction. So, if the Secretary says they must have a 1099 to prove the deduction to his satisfaction, then the only recourse is to go to court with your other proof.

I am not at the office, so I can't look it up exactly, but I know it has a meaning like that.

Tom

Lodi, CA

[Julie]

Just so long as your clients actually report their income, just in case the "employers" (You do explain that part, don't you?) get caught and have to tell IRS whom they paid.

Gifts given in business are limited to a $25 deduction per recipient. This is common practice in real estate, for example, and I know of a notary who routinely gives her clients $50 bottles of liquor. She can only deduct $25 per client. (Exception is for items costing less than $4 and that have her name on them. She can give her clients as many emblazoned pens, letter openers, etc. as she wants.)

I am not buying the argument (intriguing that it might be) that an expense becomes a gift when no 1099 is issued. For one thing, expenses under $600 do not require the 1099 in the first place, where gifts are limited to $25.

Interesting! I encourage more opinions. 1099's, for whatever reason, are not coming in this year. Clients have told me that their employers would rather pay the penalty than deal with 1099's. Software cost? Don't we understand! that! Please explain the $25 "gift".

[diligentbiz]

I've been told the biz's aren't concerned about penalties. My view is of the possible dominoe effect. I asked my clients to provide a personally written, signed statement showing their figure that should have been on a 1099. At least, that helps protect me, I hope.

[Randall]

Good points. And I try to get my clients to get W-9s. Have the info ready at year end to prepare 1099s. And those who tell the client they're a corporation, ok, give the client a W-9 with corp name and EIN. I don't see why a long time business would NOT want to issue 1099s. Some may think I'm an advocate for IRS (we all are indirectly), but I see it as being an advocate of the client. Why not try to avoid the problem down the road.