Tax and Financial News for March 2017
Wait a Minute – My 1099 Doesn’t Look Quite Right
The rules around Form 1099s are long and can be complex. So what are you supposed to do if someone sends you a 1099 that doesn’t look quite right? Perhaps they made a mistake and put an extra zero on it, taking your income from $2,000 to $20,000! Worse yet, what if it looks like they intentionally put down the wrong amount? Mistakes and fraud both happen, and we will look at how to handle each situation below.
First, let’s start by understanding why 1099s are so important. They are sent out by payors to both you and the IRS. They act as your record of the interest, fees or other income you earned that year. The types of 1099s include:
- 1099-MISC: miscellaneous income
- 1099-DIV: dividends
- 1099-G: tax refunds
- 1099-INT: interest
- 1099-R: pensions
Since these forms go to both the IRS and you, the IRS will match up any 1099s they receive as sent to you against what you report on your return when you file. Failing to report a 1099 all but guarantees you will receive a tax notice.
Unfortunately, incorrect Form 1099s are not uncommon. The first thing you should do if you know or suspect the 1099 you received isn’t right is to ask the payor to correct it. If they haven’t sent the corresponding copy to the IRS, then they can simply destroy it and reissue a new one; if they’ve already sent it to the IRS, they can issue a corrected version. Remember that 1099s are supposed to be mailed out to recipient taxpayers by Jan. 31, but issuers have until the end of February to send the IRS their copy. So if you check your form and act promptly, it can potentially save you a lot of hassle.
The type of error also matters. If you don’t get a 1099 at all, for example, you can simply report all the income since over-reporting income doesn’t create a “mismatch” issue with the IRS. The IRS’ only concern is people trying to hide income – never the opposite.
Be extra careful if you contact the payor to issue a corrected 1099 or because you didn’t receive one you think you should have. They could end up issuing two 1099s to you and the IRS because of timing overlap between the original issuance and your request to correct. If this happens, the IRS’ computer system will think you have double the income you actually do.
At this point, you are probably thinking, “Wow! This is a lot of work on my part for someone else’s mistake.” If so, you are correct. And the IRS agrees with you, so they created penalties for 1099 issuers to ensure they are timely and accurate. However, this is not the IRS’ main motivation for these rules. Most penalties apply to failures to issue the forms since the most important thing to the IRS is that no one can skip out on reporting income. Issuers have little motivation to not issue a 1099 at all as well since this helps substantiate expenses and deductions.
In the end, the best thing you can do is to check out your 1099s as soon as you receive them to make sure they are accurate – and contact the issuer right away if they are not to avoid the IRS receiving double 1099s. Also, remember that you can always over-report income above and beyond a 1099 received or never received at all if the error falls that way.
General Business News for March 2017
What Owners Should (and Should Not) Do When a Company is Acquired
For some, starting a business becomes a lifelong endeavor that gets passed down to the next generation. For others, creating a business is only a temporary venture with a shorter-term hope of having it acquired by a more established corporation. What are some considerations for those whose company is in the process of acquisition?
Considerations Before Acquisition: Financials
Whether a company is looking to be acquired or is approached by company with an acquisition offer, there are some recommendations concerning the company’s financials. Buyers are often concerned with the last 36 months of financial statements, on a quarterly and annual basis, including any reviews of the financial statements by an independent auditor.
Other concerns buyers often have might include what present and potential liabilities exist, such as lawsuits or product warranty claims, and how those will be resolved in the future. This can also include debt obligations’ terms and guarantees and how those will be addressed with regard to repayment.
Proprietary & IP Concerns
Acquirers will also want to look at what types of intellectual property the company owns. This could include what patents a company possesses and how it protects its patents through non-disclosure agreements with employees. It also may include how the company deals with ownership of intellectual property created by independent contractors through contract clauses addressing confidentiality and copyright ownership. Depending on how services performed are negotiated and documented with an independent contractor, questions may arise as to whether a work is under license or considered a “work made for hire.” This can and does impact authorship and usage for the acquiring party.
Another important consideration for a seller is if a non-compete is part of an acquisition package and how the terms will be addressed by both parties. Along with negotiating a non-compete agreement with a reasonable timeframe, another important consideration is where the seller may not engage in commerce geographically, subject to the contract’s agreed upon definition of what commercial activities are prohibited. As more and more businesses develop e-commerce operations, ones that provide services only may be subject to wider geographical restrictions compared to operations that manufacture and ship their products because it’s more logistically prohibitive.
When a business is subject to acquisition, buyers often request an indemnification claim to ensure reasonable compensation for losses they may suffer from a seller’s misrepresentation or error. Examples of when a buyer may be able to make an indemnification claim during an acquisition include issues with the seller’s improper accounting practices or when the seller is subject to a breach of contract lawsuit from a client or supplier. These issues can occur during a financial audit of the seller’s financial statements or if regulators notify the acquiring company of a seller’s potential legal violations.
Sellers are able to negotiate with the buyer on their legal responsibility for indemnification through the so-called Baskets and Caps concept. Under the Caps concept, there’s a ceiling on the amount the seller is responsible to indemnify the buyer. Depending on how it is structured, there are different levels of financial responsibility for the seller.
- If a “tipping basket” is set up, when total losses exceed the agreed upon threshold the seller is responsible for all losses.
- If a “deductible basket” is set up, the seller is responsible for all losses in excess of the agreed upon deductible threshold.
Whether you’re thinking about selling your business or you’ve been approached to sell, knowledge is power.
What’s New in Technology for March 2017
Technology: Oops! Recalling Emails
Perhaps it’s a glaring typo in a business email or a hastily written rebuke that you regret sending, but probably everyone wishes at times we could undo the send button. Depending upon which email program you use, and some other factors, you may be able to recall an email. Here’s how:
- Recalling a message in Outlook with an Exchange Account is easy if both you and your recipient are using Microsoft Exchange email and you are both on the same server. You won’t be able to recall messages that you have sent to a Gmail or Yahoo account because once an email has left your server, you have no further control over it. If you and the intended recipient are both Outlook users with Exchange accounts on the same server, here’s what to do:
- Navigate to Sent Folder and open the message you want to retrieve. Make sure you have the Message Tab open, and then click on Action;
- From Action, select the option Recall This Message;
- You will then have two options: Delete Unread Copies or Delete Unread Copies and Replace with New Message
- Additional Factors that Prevent an Outlook Recall:
- If the recipient gets to the email first and opens it before your recall request is received;
- If the recipient’s inbox has a rule that moves your incoming email to another folder;
- If the email lands in a public inbox and is opened by someone other than the intended recipient, you won’t be able to recall it;
- Recall efforts will not work if the intended recipient is viewing their emails outside the Outlook Desktop Program, for example on their smart phone or iPad or through Outlook Web.
- Outlook Message Transmittal Delay is useful for an Outlook user who uses the recall feature frequently and/or has email contacts that can’t be recalled through a common server. To activate the delay feature, navigate the File tab to find Manage Rules & Alerts. You then can set up a delayed delivery – up to 120 minutes. This feature also allows you to bypass the delayed feature for specific people and customize the conditions to suit your needs.
- Recalling a Gmail message can be easy if you have enabled the feature that allows you to do so. With Gmail, a little advanced planning can save you from yourself. To do this, click on the Settings (the little gear symbol) in Gmail and navigate to the General tab. Check that Enable Undo is selected, and finally click on Save Change.
- To recall an email using Gmail (only if you have the above-mentioned function enabled), click Cancel immediately and then click Undo when Cancel appears. You will still need to be pretty fast off the mark for this to work – at least 5 seconds to Unsend by default and up to 30 seconds if you have changed the time allotment in Setting. If you are someone who is likely to use the recall function, increase the time allotment.
Bottom line: there are some recall options for Gmail and Outlook, but there are obvious pitfalls involved in relying on them. There is often a good chance you won’t be fast enough, or that your Outlook account can’t connect with the recipient’s email program. Try to avoid sending a message any time you are angry or upset. Put your message in the Drafts folder and revisit it when you’ve had a chance to recover your composure, or when you’ve had a chance to talk to a colleague.