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Posts Tagged ‘IRS information returns’

Tax Requirements for Barter Exchanges

January 31st, 2011 No comments

Bartering, the oldest known form of economic activity, involves the trading of one item or service for another, often on an informal basis. Barters can be negotiated at any time, any place, and between any two (or more) parties or their intermediaries. However, they often occur in pre-arranged, contract-mediated marketplaces, known as barter exchanges. Barter exchange companies facilitate the fair transfer of goods between their members, often charging a percentage of the transaction.

The IRS requires barter exchanges to file a Form 1099-B to list proceeds from their brokerage of member trades. Certain exempt foreign individuals, and barter exchanges reporting fewer than 100 transactions per year, or those whose goods and services are worth less than $1.00, are not required to file. Those bartering their goods on exchanges will receive a Form 1099-B listing their profits, which they then must report as income on a Federal tax return.

The Form 1099-B list such items as the dates of sale or exchanged, the dollar amount and classes of stocks, bonds and other financial instruments exchanged, total dollar value of bartered items or services, the Profit or (loss) realized in the previous calendar year, unrealized profit (or loss) on open contracts, and aggregate profit or loss. The name, address, and taxpayer identification number of each member or client providing property or services in the exchange must also be listed.

Services and goods transferred by corporate members on exchanges are reported in aggregate at the end of every year. By contrast, each transaction by a non-corporate member is reported on an individual basis, leading to a potential required filing of multiple 1099-B Forms per year.

Failure to file 1099-B forms can lead to considerable IRS penalties, up to the amount of $250,000 per year in which returns are not filed, filed late, or filed incorrectly. Small businesses, which are defined for the purposes of the tax code as business with annual gross receipts of less than $3 million for the three previous years, are subject to smaller maximum penalties.

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About Information Returns

December 13th, 2010 No comments

An information return is a document that must be filed to update the IRS about wage and non-wage related business transactions and income for individuals, businesses, families, estates, partnerships and trusts. It does not specifically determine a tax liability, but allows for the assessment of earnings that might be relevant to such a liability.

Information listed on the return could include such earnings as interest payments and dividends, payments to subcontractors and changes in tax status, such as alterations in the makeup of a household (a marriage, the addition of new dependents, etc.). Copies of the return must be sent to the recipient of the income. Failure to file an information return can result in penalties and a higher tax liability down the road.

Information returns are necessary for a wide variety of additional transactions and earnings, including accelerated death benefits, broker transactions, advance earned income credit, fish purchases, agriculture payments, golden parachutes, allocated tips, annuities, attorney fees, employee awards, bonuses, awards, barter exchange income, employee car expenses, charitable gift annuities, crop insurance proceeds, education loan interest, insurance services, and many more.

Forms must be filed to report contributions of motor vehicles, boats, and airplanes, tuition related expenses reimbursements and government payments such as unemployment compensation, and tax refunds. Changes in corporate control and capital tax structure for a company also bears filing an information return.

IRS rules for information returns stipulate minimum proceeds necessary to mandate filing for a variety of transactions. For example, mortgage interest, student loan interest, and cancellation must be filed at a rate of $600 or more. Dividends and distributions, interest income, unemployment insurance and payments must be filed at $10 or more. Death benefits, health coverage tax credit payments, exercise of stock options, acquisition of abandoned property, and cancellation of debt, must be filed at all amounts.

Each type of transaction has its own form associated with it, and they are due at different times. This makes organizing and tracking information return filings a complex task. Most companies use an automated system to arrange returns and, where possible, file electronically. This can be done using our software at http://www.1099fire.com

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About Form 1098-T

September 29th, 2010 No comments

Form 1098-T is used by eligible educational institutions and is filed for each student for which a reportable transaction is made. Form 1098-T does not have to be filed in the case that the student does not obtain academic credit from their course. If the student is a non-resident alien the form also does not need to be filed unless the student requests it. Students who have their tuition and other expenses waived or who have their education completely paid for with scholarships and grants do not need to have a 1098-T form filed as well.

Form 1098-T reports amounts billed for tuition and related expenses by educational institutions.The form must be filed by eligible educational institutions for qualified students that the institution bills for tuition and related expenses. Institutions that are a part of a governmental unit are also required to file the form. The same reporting method is expected to be used for all calendar years except in the case that the IRS offers the institution the ability to change their reporting method. Insurers that are in the business of reimbursing or offering refunds for qualified tuition and related expenses are also required to fill a Form 1098-T for each student.

Eligible educational institutions are classified by Section 481 of the the Higher Education Act of 1965 that went into effect on August 5th 1997. Institutions include vocational schools, colleges, universities, or other postsecondary institutions. Most public, private, and non-profit institutions meet the classification of eligible educational institutions.

Qualified tuition and related expenses include any amount paid for a course. It does not include amounts paid for education relating to sports, hobbies, and games except in the circumstance that the course is a part of the student’s degree program or a part of his or her vocational training. Also, room, board, medical expenses, insurance, transportation, living expenses, and family expenses are not included.

Academic credit is defined by the IRS as the credit that is awarded to a student after the completion of a course that leads to a postsecondary degree or other type of educational credential. One Form 1098-T is required to be filled for every student enrolled in an institution for an academic period. Academic periods include semesters, trimesters, and quarters, or whichever particular type of period that the institution uses.

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