If you’re running a business, you probably shudder at the thought of having to deal with another tax-related form that takes up your valuable time. The truth is, even if you find 1099s annoying and a drain on your time, your business will almost certainly make qualifying payments requiring 1099 filings with the IRS.
What Is Form 1099?
Form 1099 is designed by the IRS to stop taxpayers from under-reporting their income. 1099s provide the IRS with information about various types of income received that are not part of your regular salary from a job.
A W-9 Form is used by your company to collect required information from the person or unincorporated business you wish to pay. Best Practice: Request that this form be completed before the contractor performs any work for your business. You can request a completed W-9 from all vendors to be on the safe side. Just because they fill out the W-9, does not mean they qualify for a 1099-MISC.
Still not sure how this relates to your business? Here are five keys to understanding 1099s:
There Are Many Varieties Of 1099 (MISC, INT, DIV)
There are many different types of 1099 forms that you should be familiar with. Typically, as a small business owner you will need to complete a 1099 Miscellaneous. This form is for any business (that’s you!) which makes certain types of payments to an individual or independent contractor who is a sole proprietor or member of a partnership or LLC. 1099 MISC is just one type of form in the rather large 1099 family. There is also Form 1099 INT, which is used to report interest payments made to you. A 1099 INT is prepared by a person or entity that makes the payments to you, usually a bank or government agency. Form 1099 DIV reports on the ordinary dividends, qualified dividends, capital gains, non-taxable distributions, federal income tax withheld and more. The 1099 DIV is completed by financial institutions and sent to investors. When you file your taxes, information from these forms and other 1099s that apply to your business must be included.
Timing Is Everything
Unfortunately, you can’t report and send out 1099 forms whenever you feel like it. The deadline to have 1099s filed for 2016 is January 31, 2017. Although this is the primary deadline for most of the major 1099s, there can be slightly different due dates for other types. Late filing of 1099s can lead to penalties from as small as $30 to a maximum of $500,000 a year. If you are running late or are having some difficulties, speak to an accountant or contact the IRS. They can steer you in the right direction, issue a substitute form or enable you to apply for an extension.
Report Every 1099
Don’t underestimate the importance of 1099 forms. They may seem like an insignificant burden, but they are critical to your tax returns. Each 1099 form is automatically matched to your social security number so the IRS can easily see if you fail to report one on your tax return. Failure to report every 1099, even if it’s just an honest mistake, could lead to an audit on your business. While you might have recently scrubbed up on your business’ requirements, the IRS is constantly changing and revising rules and regulations surrounding 1099 forms. It’s important to stay up to date and understand your obligations.
If You Pay Someone $600+ During The Year, You Must Report
Your business needs to file a form 1099 MISC anytime you pay an individual or an independent contractor who is a sole proprietor or member of a partnership or LLC at least $600 over a calendar year. You don’t have to file a 1099 MISC for payments for non-business related services. This includes payments to independent contractors for personal services like housekeepers or gardeners. A 1099 MISC should only get filed and sent out when services are performed within your trade or business. For more detailed information about 1099 MISC filings, visit Scale1099.
It’s The Ubiquitous Tax Form Nearly All Businesses Must Send Out
Unless you run an incredibly small business, chances are you will have to report and send out several 1099s each year. According to the IRS website “If you made or received a payment during the calendar year as a small business or self-employed (individual), you are most likely required to file an information return to the IRS.”
As companies increasingly rely on small contractors and outsourcing to help save on costs, 1099s are a reality of modern business. It’s best to get used to it! Don’t let your 1099 requirements stress you out. If you’re struggling to understand your business’ responsibilities, seek advice from an accountant. Visit the IRS website for more detailed information about 1099 forms.