Posted on November 12, 2013May 31, 2016 by Jan Roberg

IRS Letters – the CP 2000: Common Errors and How to Fix Them

Photo by 401(K) 2012 at Flickr.com

Have you gotten a letter from the IRS that says something like this?

“The income and payment information we have on file from sources such as employers or financial institutions doesn’t match the information you reported on your tax return. If our information is correct, you will owe…”

That letter is called a CP2000—it’s from the Individual Automated Under Reporter Unit of the IRS. In 2012, they issued 4.5 million notices with an average of $1,572 in additional taxes owed. That’s over $7 billion dollars!

Just because you receive one of these CP2000 letters, doesn’t necessarily mean that you owe the IRS any money. So before you go writing the IRS a check, you need to take a look at your tax return and the CP2000 letter very carefully to make sure you owe before you pay. Let’s take a look at some of the most common things the IRS is asking about.

Missing W2: You’d be surprised how many people forget a W2 off of their tax return. It’s easier than you’d think. You could have a Christmas season sales job at Macy’s in 2011 but get a pay check for one day in January 2012. When you file that 2012 tax return in 2013, you’ve forgotten about that one paycheck. If you moved during the year, you might never get your W2. If you forgot a W2 on your tax return, usually it’s just best to sign the letter and pay the tax.

Missing stock trades: This is probably the most common type of CP2000 letter that I see and they fall into two categories. The first is employee stock options. If you work for a company that issues employee stock options, when you exercise those options, you pay the tax through your payroll withholding. Even though the stock options are accounted for in your paycheck, you still have to do additional paperwork on your taxes. If you don’t also report the employee stock options on a Schedule D, you’ll get an IRS notice. Usually, if this is what happened, you won’t owe any additional tax, you just need to submit the missing paperwork.

The other category of missing stock options consists of trades that just weren’t reported. Many people who made the election to receive their brokerage notices online didn’t realize that their 1099B notices were online also. I think that’s one of the most common reasons I’ve heard for people not reporting their trades. If you fall into this category, remember that the IRS doesn’t always include stock basis when they figure your tax. If you have stock trades on your CP2000, you’ll need to prepare an amended return and be sure to include the basis of all our stock trades. You may still owe the IRS money, but I’ve never seen one of these cases where the person owed the IRS the full amount that the IRS stated.

Mismatched documents: This happens all the time. For example, let’s say that you have three accounts at Bank of America. One earned $10 interest, another earned $15, and the other earned $20 of interest. You put $45 of interest down on your tax return. And that’s right. But the IRS may get the documents as 10; 15; and 20 and since it’s a computer and not a human that does the matching, you could get a notice saying you didn’t report your interest properly. You can usually solve issues like that with a simple phone call.

These are just a few of the more common and easy ways to solve CP2000 issues. If you receive a CP2000 letter and it doesn’t make any sense, or you just need some help, please call us. That’s what we do.

Check out the IRS link as well: http://www.irs.gov/Individuals/Understanding-Your-CP2000-Notice

Posted on November 20, 2012January 13, 2017 by Jan Roberg

Top Tips to Prepare 1099-MISC Forms on Your Own

You can prepare your own 1099 MISC forms. All you need are the right forms.

The 1099-MISC form is what you need to give to a contract laborer if you pay them over $600 in the course of the year. There’s a whole new emphasis on reporting and so many more businesses are finding that they need to be issuing 1099s. But there’s a lot of confusion about how.

A few years ago I was at the IRS office near my house asking if they had any of the new 1099-MISC forms that I could have. “What do you want them for?” The IRS agent asked me. So I explained to her that I was teaching a class about 1099s and wanted to have the actual forms to hand out to the class.

“Oh thank God!” She said. Now, I work with the IRS a lot. I do audits and debt resolution, and although I genuinely like most of the agents I get to work with, I can assure you that “Oh, thank God,” is not a phrase used when the IRS is dealing with me. (Unless it’s used as “Oh thank God she’s gone now, but that’s about it.)

So I asked her why she was so excited that I was teaching a 1099 class and she told me about all the mistakes that they see and the problems they have with bad 1099s. “Somebody’s got to teach this stuff,” she told me. So I figured it would make for a good blog topic.

The Basics

Here’s a link to see the 1099-MISC form. 1099MISC If you’re the business owner, you need to issue the 1099 to the recipient by January 31. New for 2017 – you must submit the 1099 to the IRS by January 31 also.

My directions here are just an overview; here are the official IRS directions: IRS 1099 Directions If you have questions, that’s the best place to look.

The Quick and Dirty

Generally, when you prepare a 1099-MISC you’ll put the dollar amounts in box 7 for non-employee compensation. If you’re preparing a 1099-MISC for any other reason, you should check the rules to make sure you’re using the right box. I’m talking about non-employee compensation. Write in the white part of the box, not the red.

Payers name, address, etc, is you. Recipient is who you paid. I recommend using EIN numbers instead of Social Security Numbers whenever that’s an option for safety.

You put the whole amount of money you paid the person into box 7. For example, let’s say I hired Brad the Painter to do some work in my offices. I paid him $600 for the labor, $75 for the paint, and $25 for his parking. If I paid that money to Brad, even though part of it was for supplies not labor, I give him a 1099 for the whole $700. Brad will write off the $75 for paint and $25 for parking as his business expenses.

Mail your 1099MISC with a transmittal form. 1096 Transmittal Form

The filer is you (or your company.) The forms being reported is the 1099-MISC. The total amount reported on the 1096 is the total of what you paid the 1099 contract laborers. Here’s a clue—that number you put in box 5 should also go somewhere on your business tax return as a 1099 contract labor expense.

The IRS’s Biggest Complaints

People are supposed to use the red forms. You have to use the real form; you can’t print it off the computer, even if you have a color printer. Those forms are scanned so it has to be the right paper. You can order your 1099-MISC and your 1096 transmittal from for free from the IRS. Here’s the link: IRS Forms Order
Don’t cut the copies. Leave all the pages whole. If you only have 1 form to issue, just leave the second one blank.
Don’t staple the returns. Don’t fold, spindle or mutilate them in any way. They have to go through a scanner so leave them plain.
That means you have to mail them in the big envelope. I keep getting asked about that. Don’t fold means use a big envelope.

Smaller Complaints

Do not use a $ sign when typing in the amounts. It’s already on the form.
Do use a decimal point and cents. So I didn’t pay Brad $700 I paid Brad 700.00
Do not put 0’s in spaces, just leave them blank.
Do not use # signs. For example, on the form 1096 where it asks for the number of forms, I would write 1, not #1.

A note about handwritten returns: Handwritten returns are more likely to have errors than other returns. Usually it’s a Taxpayer Identification Number and name mismatch. If you are using a person’s name—use their social security number. If you are using a business name, use the EIN number. That’s a common mistake. Be sure to use block print and not script. Yes, I need to say, print neatly.

If you are typing it on a typewriter, you need to use black ink and 12 point courier font.

The 1099-MISC reporting rules have a lot of people confused, but you don’t have to do this alone. We can prepare 1099-MISC for a fee and we e-file them with the IRS.

Posted on November 15, 2010January 13, 2017 by Jan Roberg

How to Get an EIN Number for your Business for Free

You can get an Employer Identification Number for your small business for free at the IRS website.

If your business needs an EIN (that’s an employer identification number), it takes about 5 minutes on the IRS website and you can get one for free. I mention this because I found a company online that will do it for you for $75. For an extra $75, they’ll put a rush on it. So you can pay $150 for the rush job, or you can do it yourself for free in less time than it takes to fill out their online payment agreement.

The first step is to go to the IRS website. This link will take you right to the EIN page.

IRS EIN link

This page has links to a lot of information so it’s pretty useful. It also has the link to go to the EIN application. The online application has limited working hours, you’re not going to be able to file the application at 3 in the morning. They’re basically open from 6 am until a little after midnight Monday through Friday with limited weekend service.

Before you actually apply for an EIN, think–do you really need one? If you’re a corporation or a partnership, the answer is yes. If you are an LLC, that means you are a limited liability company-that does not make you a corporation, so just because you are an LLC doesn’t mean you need to have an EIN. Other reasons for needing an EIN include if you have employees, need to pay excise taxes, are a non-profit organization, trust or estate.

You might not need an EIN per IRS standards, but it may be beneficial to your business anyway. For example: if you work as an independent contractor and do not want to give your social security number out or you are setting up a bank account in your business name. Some vendors won’t give you business discount rates unless you have an EIN number, and I had one client who needed one because a vendor wouldn’t work with her at all because she didn’t have an EIN and she really needed the account.

Generally,iIf you are working as a contract laborer and filing your return as a sole proprietor, it’s most likely that you do not need to have an EIN number.

Applying for the actual EIN: I recommend using the online application. The application is presented in an interview style format. It asks questions, you answer them and when you get to the end. voila’ you have an EIN number. It sort of has a dummy proof mode too that let’s you tab back if you’ve answered a question incorrectly. I recommend having access to a printer when you do it so that you can print out your new EIN when you’re done. You don’t want to lose that number once you’ve got it.

Before you do the online application, you might want to check out the written application form so that you have all of your information handy before you apply: http://www.irs.gov/pub/irs-pdf/fss4.pdf

To go straight to the online application, click this link:

https://sa2.www4.irs.gov/modiein/individual/system-unavailable.jsp

On little glicth, for some reason, if you need an EIN because you receive home health care services, you can’t apply for your EIN online, you have to use another application method. I suggest calling on the toll free number: 1 (800) 829-4933. That’s the toll free number for the tax and business specialty hot line. You will have to wait on hold for awhile, but it’s still faster than using the mail.