Answer: Generally you only need to furnish 1099s to independent contractors who are individuals (SSN) or LLCs taxed as either sole proprietors or partnerships (EIN).  Currently only corporations are exempt from 1099-MISC requirements.

The preparation task is relatively simple and made easier if you require your contractors to submit Form W-9 (http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=3) at the time of payment or with signed contract.

In order to obtain appropriate annual forms I suggest that you go the Internal Revenue Service located in the Federal Building here in Old Town Fort Collins on the corner of Howes and Olive.  You will need to ask for the following forms:

• Form 1096 (transmittal)
• Form 1099-MISC (carbonless forms)

You will then send the “red copies” to the Internal Revenue Service (Kansas City, MO 64999) while Copy B is mailed to the recipients.

Make copies for your records.

Form 941 – Federal payroll and withholding taxes

Form 940 – Federal unemployment insurance taxes

Form DR 1094 – Colorado withholding taxes

Form UITR-1 – Colorado unemployment insurance taxes

the late penalties can be substantial – 10% or more. Accordingly, I recommend that business owners consider paying the largest amount (typically Form 941 taxes) with a credit card via “official payments corp” whose website link is https://www.officialpayments.com/index.jsp.

Please note that you must pay a 2 to 3% convenience fee since government agencies do not eat this standard credit card merchant fee, but that’s considerably less than the potential government penalty.  So while the business owner may now have an outstanding debt, it’s with a credit card company and not a government agency.  Thus, the business owner is compliant in both filing required payroll tax returns and paying required payroll taxes in a timely manner.

A good thing indeed.

Answer – The best answer depends on three different circumstances.

• If the amount exclusively relates to a life insurance policy, then no amount is taxable and the fiduciary (life insurance company) should not have asked you to complete a Form W-9 or asked if you wanted any Federal or State income tax withheld.

• If the amount relates to an annuity whose fiduciary happens to be a life insurance company, then a portion of the required account liquidation is taxable (gross amount of contract less investment(s) made or allocated).

• If the amount relates to an IRA whose fiduciary happens to be a life insurance company, then a portion of the lump-sum or partial account withdrawal is taxable (you must consider any non-deductible contributions made and previously reported by the decedent on Form 8606).

Case in point. The online Colorado Department of Revenue Wage Withholding Zero Filing System failed on October 31, 2009.

I happened to file a number of 3rd Quarter returns for my clients on that very date.I always print out the confirmation screen from the state DOR website as well as the received email confirmation.  Always.

Two weeks later my clients received a “nonfiler notification” letter informing each of them that the State’s records showed that their respective 3rd Quarter returns had not been received.

Fortunately no penalties or fines were assessed because we were able to demonstrate the returns had been submitted. What I couldn’t prevent was the initial shock my clients experienced upon opening the nonfiler correspondence ….and my frustration in having to respond to each erroneous letter.

Of course, as you may already know, starting on January 1, 2011 CPA practices will be required to file all client income tax returns electronically. Hopefully all of the bugs will be worked out of each separate filing system one year from now.

In practice however, a couple can file a joint return as Colorado residents as long as they meet these five widely-held tests:  1) they are not already married to someone else, 2) they present themselves as being husband and wife, 3) they consent to the common law marriage, 4) they cohabitate, and 5) they have the reputation in the community as being married.  Further, a signed affidavit can be presented when proof of common law marriage is required (e.g., for insurance).

As mentioned above, cohabitation is required but no specific duration is needed. The most critical item that can negate common law marriage marital status is not regularly introducing or referring to each other as “my wife…” or “my husband…”

Filing joint tax returns is widely regarded as the most important signifier of a common law marriage as the couple is representing themselves to the government, under penalty of perjury, as being married.

A retailer is nothing more than a conduit for State and Local tax authorities as a retailer merely collects sales tax at the time of sale and then remits these amounts to the appropriate tax authority in a timely manner.  This is why I typically recommend to all retailers, large and small and especially new, that a “monthly” filing frequency is a wise business decision.  Why?  Because otherwise the money to be earmarked for remittance simply grows in the business’s bank account and is often times spent for other purposes without consideration of “holdback” for pending sales tax liability purposes.

An employer is nothing more than a conduit for Federal and State tax authorities as an employer merely collects applicable wage withholding taxes on behalf of the employees at the time of payroll processing and then remits these amounts to the appropriate tax authority in a timely manner.  This is why I typically recommend to all employers, large and small and especially new, that outsourcing payroll processing (compute payroll, issue checks, make tax deposits, and file returns) is a wise business decision.  Why?  Because being short of funds at the time the taxes are due can be crippling as the actual and inferred penalties for non-compliance are quite high.

So yes, retailers and employers have critical responsibilities beyond just providing great products and services to customers and clients.

Think before you blink.

In this hypothetical instance, say you had not withdrawn any funds from your LLC and had earned approximately $20,000 during year-to-date 2009, you could save roughly $2,400 on your 2009 Form 1040 (individual income tax return) by electing S Corporation status for your LLC.

A sole proprietor (Form 1040, Schedule C) is subject to the 15.3% self-employment tax regardless if the owner pulls the money out of the business account.

On the other hand, S Corporation owners pay self-employment taxes when they actually pull out money (profit) from the Company. And then a decision is made as to how much to subject to income tax when computing owner wages v. owner draw. A conservative allocation is 50/50 while a more aggressive allocation is 25/75.

Therefore, while one might enjoy considerable tax savings in this instance ($2,400); it’s possible you may pay as much as $1,800 the next year in payroll taxes (Federal, FUTA, SUTA) if you were to allocate $10,000 to wages.

Plus don’t forget the preparation fees to produce quarterly returns and W-2s.

Therefore, an S Corporation election may not be in one’s best interest because it’s predicated on your business activity and also your other personal income and deductions.

Of course, sometimes it’s EASY – a no-brainer decision; other times a much more difficult decision and involves the proverbial “crystal ball”.