There are two main categories of reports that are due January 31st.
The first category is that which deals with your employees. These are the reports that tell the IRS, the social security administration and the states, the different amounts that you paid to and withheld from your employees. These are also the forms that your employees use to prepare their personal income tax returns. You will typically have a payroll company that takes care of these reports and payments.
The second category of reports that is due January 31st is the category that deals with the payments you made during the year. Whenever you file your return, you typically want to claim every allowable expense you are entitled to, so that your tax bill is reduced. However, there are certain payments in which you must report who the recipient of these payments was in order for the payment to be allowable as a deduction. What you do, is you provide this information in forms that you give the payee with a copy to the government. If you do not file these forms, you cannot claim that expense in your return and your tax bill will much higher. There are people that claim these expenses without following the reporting requirements, which may subject them to penalties that can be substantial.
The purpose of these reports is to avoid these payments.
What I will do now is give you a limited list of the most common types of business payments that you must report in these forms. Remember, the deadline is January 31st.
Backup Withholdings. You must have the payee’s taxpayer identification number to properly report the payments. If the payee refuses to give you the number, or sign the request, then you may have to withhold 28% of the payment and send it to the IRS along with the proper form.
Rents. These is typically business rent including office, warehouse, and business equipment.
Royalties. These are payments you make owners of intellectual property, such as for franchises, copyrights and trade secrets.
Independent Contractors. These are payments made to domestic individuals for services.
Interest. Typically, business debt must have interest whether you paid it or not and you are entitled to a deduction for the actual amount paid, or imputed, or original issue discount amount.
Cancelation of Debt. If you have determined that you will write off a debt that someone has with you as uncollectable, along with the interest, you will have to report it.
Distributions to Owners These are the distributions to the owners which are neither salaries nor interest.
Legal Fees. Payments to legal counsel, even if the lawyer works under a corporate name.
Medical & Health Care Payments. This is only for business expenses. So if you made medical payments on behalf of someone, then you should report them.
Abandonment of Secured Property. If you had secured property that you abandoned or was repossessed, and you want to claim a deduction then you must report it.
Changes in Control or Capital Structure of the Corporation. If the structure of a corporation changed, that means if it merged with another one, or if it acquired another one, if it distributed property, cash, or stock, then you must report it.
Real Estate Payments. If you engaged a title agency or a law firm, then these firms typically take care of these forms, however, it is your responsibility to make sure it gets filed.
One last word: If you don’t think you will be able to have all the forms filed by the due date of January 31st, you can still file an extension and avoid all the penalties you will be otherwise subjected to. Any questions, shoot me an email at firstname.lastname@example.org or text me at 754-422-9814.