Form 1099-MISC is an informational return used to report certain payments made in the course of a trade or business.

Under the old Form 1099-MISC rules if a business paid more than $600 in non-employee compensation, prizes or rent to any non-corporate entity during the year, the business was required to send that person or business a 1099-MISC. For example, if a business paid more than $600 during a calendar year to an independent contractor for services, the business must issue the contractor a Form 1099-MISC and furnish a copy to the IRS. Form 1099-MISC were also required for smaller payments such as at least $10 in royalties and at least $10 to a broker in lieu of dividends or tax-exempt interest.

The Small Business Jobs Act and the Patient Protection and Affordable Act in 2010 expanded the 1099 reporting requirements.

The Small Business Act included a provision requiring that individuals who receive rental income issue 1099-MISC forms to service providers for payments aggregating $600 or more during the year. For example, if you owned rental real estate and paid an individual $600 or more during the year to paint a rental property then you were required to report and issue a 1099-MISC to that individual.

The Patient Protection and Affordable Act contained two changes to 1099 reporting. The first change was to include payments to corporations. The second change was to include amounts paid to a single payee for property such as merchandise, raw materials and equipment.

For example, if a business spent $700 at an office supply store, it would have had to issue a 1099 to the office supply store. Just think of all the forms you would have to prepare and file. Payments that were greater than $600 were required to be reported on a 1099-MISC.

These two changes were enacted to generate income for the government. The IRS estimates that billions of dollars in tax revenue goes unreported each year and changing the 1099 reporting requirements would be one way to establish a paper trail and to hopefully close the tax gap.

The good new is that on April 14, 2011, President Obama signed the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4; 1099 Act), which repeals both the expanded Form 1099 information reporting requirements mandated by last years health care legislation and also the 1099 reporting requirements imposed on taxpayers who receive rental income enacted as part of last year’s Small Business Jobs Act.

As a result of the repeal, payments to corporations and payments made for purchase of property (merchandise, raw materials, and equipment) generally do not have to be reported.  Landlords with activities that amount to a trade or business continue to be required to report payments of $600 or more to service providers.

So today we are back to the old rules. A 1099-MISC is required when payments are made in the course of a trade or business. Non profit organizations are considered to be engaged in a trade or business and subject to the same reporting requirements.

A payer is engaged in a trade or business if it is operating for profit. A payer must file Form 1099-MISC once it pays a recipient.
• at least $10 in royalties,
• at least $10 to a broker in lieu of dividends or tax-exempt interest,
• $600 in rents,
• $600 for services, including parts and materials, purchased from someone in a trade or business,
• $600 in prizes and awards,
• $600 in other income payments,
• $600 in medical and health care payments,
• $600 in crop insurance proceeds,
• $600 in cash payments for fish or other aquatic life purchased from someone in the trade or business of fishing,
• $600 in cash paid to an individual, partnership or estate from a notional principal contract,
 any fishing boat proceeds,
• $600 in gross proceeds to an attorney.

Form 1099-MISC is also used to report direct sales of $5,000 or more of wholesale customer products to a buyer without a permanent retail store.
When a Form 1099-MISC is required, it must report:

• Total amount paid for the calendar year
• The name and address of the payee
• The taxpayer ID number (TIN) of the payee
• Contact information for the payer
• The payer’s TIN

If a 1099-MISC is required we recommend having the payee complete IRS Form W-9 before payment is made. Form W-9 will gather the required information needed to prepare 1099-MISC.

Failure to file 1099-MISC could result in penalties from the IRS. Penalties range from $30 to $100 per form not completed timely and correctly. If you are found to have intentionally disregarded the forms, the penalty is $250 per form and there is no maximum penalty.

Many people in the U.S. have foreign financial accounts. While there is nothing improper about setting up or maintaining such accounts, many people may mistakenly believe their accounts are not large enough on a combined basis to trigger reporting obligations. Foreign account owners may have to report their accounts to the government, even if the accounts do not generate any taxable income.

U.S. persons are required to file a Report of Foreign Bank and Financial Accounts (FBAR), Treasury Department Form TD F 90-22.1, each year if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.

For 2010, the due date for filing the FBAR is Thursday, June 30, 2011, though some financial professionals will have until June 30, 2012 to file. Unlike with federal income tax returns, requests for an extension of time to file an FBAR cannot be granted.

The FBAR is not an income tax return and should not be mailed with any income tax returns. It is due by June 30 of the year following the calendar year in which the aggregate value of the foreign accounts, on any one day, exceeds $10,000. But for 20009 and earlier years, the due date is generally Nov. 1, 2011 for individuals whose filing deadline was properly deferred under Notice 2009-62 or Notice 2010-23, and have no financial interest in a foreign financial account but with signature or other authority over that account.

FBARs are filed with the U.S. Department of the Treasury, P.O. Box 32621, Detroit, Mich. 48232-0621.

Civil and criminal penalties for non-compliance with the FBAR filing requirements are significant. Civil penalties for a non-willful violation can range up to $10,000 per violation. Civil penalties for a willful violation can range up to the greater of $100,000 or 50 percent of the amount in the account at the time of the violation. Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a $500,000 fine or 10 years imprisonment or both. Civil and criminal penalties may be imposed together.

If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if IRS determines that the late filings were due to reasonable cause. Keep copies, for your records, of what you send. If, however, you have any unreported taxable income related to the foreign accounts, you should instead follow the procedures for making a voluntary disclosure to IRS under the 2011 Offshore Voluntary Disclosure Initiative.

The address for delivery of an FBAR by a method other than U.S. mail is: U.S. Department of the Treasury, Currency Transaction Reporting, 985 Michigan Avenue, Detroit, Mich., 48226.

The FBAR form is not available for electronic filing, but many income tax software packages can prepare a printed copy. FBAR forms and instructions are also available on IRS.gov or the Financial Crimes Enforcement Network website, FinCEN.gov, and by calling 1-800-829-3676.

Taxpayers who need assistance completing Form TD F 90-22.1 can contact the IRS by telephone at 1-800-800-2877, option 2, or via email at FBARquestions@irs.gov.

Source Information:  IRS Newswire Issue Number: IR-2011-70  

Posted June 27, 2011

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Posted on: February 18, 2011

The federal estate tax and related provisions are among the most complex in the Tax Code. This information listed below presents a high-level overview of the provisions in the new law. For more details, please contact our office.

Estate tax rates. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) repealed the federal estate tax for decedents dying in calendar year 2010. After 2010, pre-EGTRRA estate tax provisions were scheduled to return. The 2010 Tax Relief Act revives the estate tax.

Under the new law, the federal estate tax will again apply to the estates of decedents dying after December 31, 2009 and before January 1, 2013. The new law sets a maximum estate tax rate of 35 percent with a $5 million exclusion ($10 million for married couples).   Additionally, executors of estates of individuals who died in 2010 can elect out of the estate tax (and apply modified carryover basis rules) or can elect to have the estate tax apply.

Portability. The 2010 Tax Relief Act provides for portability between spouses of the $5 million estate tax exclusion after December 31, 2010. Portability allows a surviving spouse to elect to use any of the unused portion of the estate tax exclusion of the predeceased spouse, allowing married couples to effectively shield up to $10 million from estate tax.

Credits for state taxes. EGTRRA changed the tax credit for state death taxes to a deduction for estates of individuals dying after December 31, 2004. The 2010 Tax Relief Act extends the deduction through 2012.

Gift tax rates. For gifts made in 2010, the 2010 Tax Relief Act provides that gift tax is computed using a rate schedule having a top tax rate of 35 percent and an applicable exclusion amount of $1 million. For gifts made after 2010, the gift tax is reunified with the estate tax with a top gift tax rate of 35 percent and an applicable exclusion amount of $5 million.

Generation Skipping Transfer (GST) Tax. For 2010, the new law provides a GST tax exemption of $5 million, with a zero percent tax rate. For transfers made after 2010, the GST rate would be equal to the highest estate tax rate in effect for the year (35 percent for 2011 and 2012).

Additional provisions. The 2010 Tax Relief Act also extends EGTRRA’s provisions affecting conservation easements, small and family-owned businesses, and installment payments for closely-held businesses.

These are just some of the provisions relating to the estate, gift and GST tax extended by the 2010 Tax Relief Act. Please contact our office if you have any questions about these provisions.

Posted on: January 24, 2011

Individuals

Tax rates. Among the most valuable tax breaks for individuals in the new law are a two-year extension of individual income tax rate reductions and a payroll tax cut.   Both will deliver immediate tax savings starting in January 2011.   The new law keeps in place the current 10, 15, 25, 28, 33, and 35 percent individual tax rates for two years, through December 31, 2012. If Congress had not passed this extension, the individual tax rates would have jumped significantly for all income levels.   The new law also extends full repeal of the limitation on itemized deductions and the personal exemption phaseout for two years. Married couples filing jointly will also benefit from extended provisions designed to ameliorate the so-called marriage penalty.

Payroll tax cut. The payroll tax cut is designed to get more money into workers’ paychecks and to encourage consumer spending. Effective for calendar year 2011, the employee share of the OASDI portion of Social Security taxes is reduced from 6.2 percent to 4.2 percent up to the taxable wage base of $106,800. Self-employed individuals also benefit. Self-employed individuals will pay 10.4 percent on self-employment income up to the wage base (reduced from the normal 12.4 percent rate).   The payroll cut replaces the Making Work Pay credit, which reduced income tax withholding for wage earners in 2009 and 2010. The payroll tax cut, unlike the credit, does not exclude some individuals based on their earnings and has the potential of significantly higher benefits (with a maximum payroll tax reduction of $2,136 on wages at or above the $106,800 level as compared to a maximum available $800 Making Work Pay credit for married couples filing jointly ($400 for single individuals)).

Capital gains/dividends. The new law also extends reduced capital gains and dividend tax rates.   Like the individual rate cuts, the extended capital gains and dividend tax rates are temporary and will expire after 2012 unless Congress intervenes.   In the meantime, however, for two years (2011 and 2012), individuals in the 10 and 15 percent rate brackets can take advantage of a zero percent capital gains and dividend tax rate.   Individuals in higher rate brackets will enjoy a maximum tax rate of 15 percent on capital gains, as opposed to a 20 percent rate that had been scheduled to replace it and with dividends taxed at income tax rates.   Only net capital gains and qualified dividends are eligible for this special tax treatment. If you have any questions about your capital gain/dividend income, please contact our office.

AMT patch. More and more individuals are finding themselves falling under the alternative minimum tax (AMT) because of the way the AMT is structured. To prevent the AMT from encroaching on middle income taxpayers, Congress has routinely enacted so-called “AMT patches.”   The new law continues this trend by providing higher exemption amounts and other targeted relief.

More incentives. Along with all these incentives, the new law extends many popular but temporary tax breaks. Extended for 2011 and 2012 are:

• $1,000 child tax credit
• Enhanced earned income tax credit
• Adoption credit with modifications
• Dependent care credit
• Deduction for certain mortgage insurance premiums

The new law also extends retroactively some other valuable tax incentives for individuals that expired at the end of 2009. These incentives are extended for 2010 and 2011 and include:

• State and local sales tax deduction
• Teacher’s classroom expense deduction
• Charitable contributions of IRA proceeds
• Charitable contributions of appreciated property for conservation purposes

Businesses

Bonus depreciation. Bonus depreciation is intended to help businesses depreciate purchases faster against their taxable income, thereby encouraging businesses to invest in more equipment. Bonus depreciation allows businesses to recover the costs of certain capital expenditures more quickly than under ordinary tax depreciation schedules.   Businesses can use bonus depreciation to immediately write off a percentage of the cost of depreciable property.   The new law makes 100 percent bonus depreciation available for qualified investments made after September 8, 2010 and before January 1, 2012. It also continues bonus depreciation, albeit at 50 percent, on property placed in service after December 31, 2011 and before January 1, 2013. There are special rules for certain longer-lived and transportation property. Additionally, certain taxpayers may claim refundable credits in lieu of bonus depreciation. 100 percent bonus depreciation is a valuable tax break and businesses have only a short window to take advantage of it. Please contact our office so we can help you plan for 100 bonus depreciation.

Code Sec. 179 expensing. Along with bonus depreciation, the new law also provides for enhanced Code Sec. 179 expensing for 2012. Under current law, the Code Sec. 179 dollar and investment limits are $500,000 and $2 million, respectively, for tax years beginning in 2010 and 2011. The new law provides for a $125,000 dollar limit (indexed for inflation) and a $500,000 investment limit (indexed for inflation) for tax years beginning in 2012 (but not after).

Research credit. Many businesses urged Congress to make the research credit permanent after the credit expired at the end of 2009. While this proposal enjoyed significant support in Congress, its cost was deemed prohibitive. Instead, Congress extended the research tax credit for two years, for 2010 and 2011.

More incentives. Other valuable business incentives in the new law include extensions of:

• 100 percent exclusion of gain from qualified small business stock
• Transit benefits parity
• Work Opportunity Tax Credit (with modifications)
• New Markets Tax Credit (with modifications)
• Differential wage credit
• Brownfields remediation
• Active financing exception/look-through treatment for CFCs
• Tax incentives for empowerment zones
• Special rules for charitable deductions by corporations and other businesses
• And more

Energy

In 2010, Congress had been expected to pass comprehensive energy legislation including new and enhanced tax incentives. For a number of reasons, an energy bill did not pass. However, the new law extends some energy tax breaks for businesses. The new law also extends, but modifies, a popular energy tax break for individuals.

Businesses. For businesses, one of the most valuable energy incentives is the Code Sec. 1603 cash grant in lieu of a tax credit program. This incentive encourages the development of alternative energy sources, such as wind energy. Other business energy incentives extended by the new law include excise tax and other credits for alternative fuels, percentage depletion for oil and gas from marginal wells, and other targeted incentives.

Individuals. Individuals who made energy efficiency improvements to their homes in 2009 or 2010 are likely familiar with the Code Sec. 25C energy tax credit.   This credit rewards individuals who install energy efficient furnaces or add insulation, or make other improvements to reduce energy usage. The new law extends the credit through 2011 but reduces some of its benefits. Although 2010 is soon over, there may still be time to take advantage of the more generous credit. Please contact our office.

Education

The Tax Code includes a number of incentives to encourage individuals to save for education expenses. In 2009, Congress enhanced the Hope education credit and renamed it the American Opportunity Tax Credit (AOTC). Like many other incentives, the AOTC was temporary. The new law extends it for two years, through 2012. Along with the AOTC, the new law also extends:

• Higher education tuition deduction
• Student loan interest deduction
• Exclusion for employer-provided educational assistance
• Enhanced Coverdell education savings accounts
• Special rules for certain scholarships

Estate and gift taxes

The federal estate tax, along with federal gift and generation skipping transfer (GST) taxes, was significantly overhauled in 2001. At that time, Congress set in motion a gradual reduction of the estate tax until abolishing it for 2010. Under budget rules, however, those changes could extend for only 10 years; starting in 2011, the estate tax had been scheduled to revert to its pre-2001 levels of 55 percent and a $1 million exclusion.

Estate tax. The new law revives the estate tax, but with a maximum estate tax rate of 35 percent with a $5 million exclusion. The revived estate tax is in place for decedents dying in 2011 and 2012. The new law gives estates the option to elect to apply the estate tax at the 35 percent/$5 million levels for 2010 or to apply carryover basis for 2010. The new law also allows “portability” between spouses of the maximum exclusion and extends some other taxpayer-friendly provisions originally enacted in 2001.

This far-reaching multi-billion dollar tax package affects almost every taxpayer. Keep in mind that many of its provisions are temporary. It is important to plan early to maximize your tax savings. Please contact our office if you have any questions.

Posted on: December 21, 2010

The BPE is a local education fund and not-for-profit that has one goal – excellence in every classroom, in every school, for every student in Boston Public Schools.   Their mission is to make sure every child in Boston graduates and is prepared for success in college and in life.

I was invited to join Massachusetts Secretary of Education Paul Reville to spend a day at the Haley Pilot School in Roslindale.   Having heard so much about the trials and tribulations of inner city schools, I was unsure what kind of environment I would encounter.   Through the course of the day, any preconceived notions I had were thoroughly quashed.

Paul Reville and I were greeted by Ross Wilson, principal of the school, who was warm, engaging, enthusiastic, and very proud of the students and the school.   This warmth, engagement, enthusiasm, and pride was evident not only with us but in his conversations with the students and with the faculty throughout the day.

At morning assembly, the students were met with a rousing “Good morning Haley Pilot School” led by James and Mandy, Boston College graduates and members of a team of City Year interns who spend all year at Haley.   There was The Pledge of Allegiance and the school’s Pledge for Peace.   We were introduced to all, followed by some fun facts, a word of the day, and the weather forecast.

When the students broke for class, we were invited to visit each class to observe them in action. What we experienced over the next few hours was that, despite my preconceived notions to the contrary, there are inner city schools that are making a difference.   We met teachers who are clearly passionate about their students and about their profession.   We met students who are clearly drawn to learn.   We saw small classes with students from vast backgrounds: Americans, Puerto Ricans, Albanians, Indians, Chinese, and more.   We saw students, who despite their racial and ethnic differences, worked together as one.   We saw three and sometimes four teachers to a class working hand in hand with students who need to be challenged and students who are themselves facing challenges.

Most importantly, what we saw left us with a profound sense of optimism that the goals outlined in the Boston Plan for Excellence Mission – excellence in every classroom, in every school, for every student in the Boston Public Schools – is one that can be achieved.

I want to thank BPE for the invitation to participate, Haley Pilot School for allowing me to share their day with them, Ross Wilson for answering all my sometimes tedious questions, the faculty and students for allowing us to interrupt their day, and finally members of the extended Braver family, Jenny, the school’s curriculum coordinator and a client of Braver, and Julie, a teacher and sister of one of our managers for your warm welcome.

I strongly urge each one of you to learn more about the Boston Plan for Excellence and, if given the chance, take part in Principal for the Day.   It is an experience whose benefit is well worth taking us away from our daily routine.

For more information about the “Principal for a Day” program please contact Boston Plan for Excellence by phone at 617-227-8055 or email at info@bpe.org.

Patrick B. Riley, CPA
President & CEO

November 23. 2010

Posted on: May 27, 2010

Posted on: April 30, 2010

About Braver PC

Braver is a financial services company employing 200 professionals providing services in accounting, wealth management, business strategies and technology solutions — but it’s the way we do business that makes the difference. Braver’s accounting, auditing and tax services group was recently ranked the 8th largest CPA firm in Massachusetts. The wealth management division manages $400 million in assets and offers fee-only financial planning.

Posted on: April 30, 2010

Brown brings a unique perspective to his role as COO. For more than 20 years, he has had a connection to Braver. First as a client of Braver, he steered his office products business through succession issues, growth, recession, recovery and ultimately its sale to a FORTUNE 100 company. Next he and his co-owner in Nolan Brown Partners, a local business consulting firm, merged with Braver to become Braver Business Strategies LLC, where for the last five years Brown has been providing strategic and tactical business advice to a wide range of companies. Most recently, over the last two years, Brown has worked closely with Braver’s executive committee, CEO and management team to help steer the firm through a period of significant growth.

Brown has extensive experience working with client ownership and senior management, building value that is sustainable and transferable. His expertise in organizational development and ability to work effectively across disciplines is an important addition for the Braver leadership team. Brown will also continue to work with clients of Braver Business Strategies.

“It is an honor to be appointed to the role of Chief Operating Officer of Braver. First as a client, then a partner in Braver Business Strategies, and advisor to the leadership team at Braver, I have experienced first-hand how success can be achieved through a strong commitment to superior client service. As COO, I welcome this opportunity to work with Patrick Riley, CEO of Braver PC to help lead our firm to continue its success,” said Brown.

“Steve is the perfect choice for this position because he has seen Braver from all sides. As we work through challenging economic times, Braver remains committed to delivering the best service to our clients, which will create and sustain rewarding career opportunities for our employees, and allow us to continue making meaningful commitments to our communities,” comments Patrick Riley, CEO of Braver.
Brown is a Boston native, a graduate of The Boston Latin School and Bates College and holds an MBA from The Sawyer Business School at Suffolk University.

About Braver PC

Braver is a financial services company employing 180 professionals providing services in accounting, wealth management, business strategies and technology solutions — but it’s the way we do business that makes the difference. Braver’s accounting, auditing and tax services group was recently ranked the 9th largest CPA firm in Massachusetts. The wealth management division manages $400 million in assets and offers fee-only financial planning.

Posted on: April 6, 2010