Preface: Form 1099 filing is required for IRS compliance. Most every business must file Form 1099-MISC yearly. This blog is written to provide greater light on the importance of Form 1099.

 

Understanding the Importance of Preparing Forms 1099 for your Business

An appreciation for preparing Forms 1099-MISC promptly is rarely a high priority for many entrepreneurs. Yet, every business is required to file them for payments greater than $10 on royalties, or $600 for rents, services, prizes, or say attorney fees. Filing Form 1099-MISC documents and verifies reportable business expenses for tax deductions, and also helps the IRS monitor cash flows. Exceptions for Form 1099-MISC filings include payments to Corporations, or an LLC that is taxed as a C or S Corporations. A W-9 Form, Request for Taxpayer Identification Number and Certification is often issued to the 1099-MISC recipient for the required filing information such as social security number or business employer identification number and other pertinent information including address and telephone number.

Forms 1099-MISC must be issued to vendors before January 31 of the tax year. If you don’t plan to file the Forms 1099-MISC for your business, your tax accountant will need to prepare the Forms 1099-MISC. Penalties for failure to file Forms 1099 are calculated upon when you file [late 1099s are serious business]. Penalties begin at $30 per form, and increase.

To whom do you issue a Form 1099? Generally, independent contractors, and non-employee compensation paid for services on behalf of your business, e.g. subcontractors, must receive a Form 1099 if they are paid more than $600 during the tax year. This includes mechanical work or say landscaping services. Director fees paid to for board members must be reported on Form 1099-MISC too, and issued when members receive more than $600 for board services during the tax year. Escrow agents for say construction projects with oversight responsibility for the owner or general contractor must file Form 1099-MISC for payments of $600 or more. Rental of land is also subject to Form 1099-MISC reporting for payments in excess of $600. If your business pays rents on real estate for say office or warehouse space to an individual or business, (that is not a real estate agent, or Corporation) of more than $600 for the tax year, a business must issue a Form 1099-MISC to the landlord.

Rents for equipment must also be reported on Form 1099-MISC, e.g. if you rented a lift for your business during the tax year and the rental costs exceeded $600, you must issue a Form 1099-MISC on the payment. Payments to attorneys of $600 or more during the year for advice or legal documents will need reported on a Form 1099-MISC. Note: the exemptions for reporting payments to Corporations does not apply to attorneys. Sales taxes charge on services are reported on Form 1099-MISC too. For instance if you pay $1,000 for services and $60 in sales tax for an invoice sum of $1,060, Form 1099-MISC would report the payment as $1,060.

The Form 1099-MISC is not required to report employee business expense reimbursements. Only in certain cases when per diem or mileage allowances are applicable are these expenses reported on a W-2. Talk with your tax accountant for specific tax advice on any required reporting of employee reimbursements.

Form 1099-MISC is also required for direct sales of $5,000 or more of consumer products to a person for resale in a business other than a retail establishment. A dollar amount is however not required to be reported on the form.

Form 1099-MISC that are filed incorrectly, can be a corrected after filing. Form 1099-INT are also required for interest payments in excess of $10, a Form 1099-DIV is required for corporations issuing dividends in excess of $10. Form 1099 information is reported to the IRS with an additional Form 1096.

 

Summary: Filing Forms 1099 for your business is required yearly for IRS compliance. Often businesses trust their CPA firm or tax accountant to file those forms timely. Forms 1099 must be filed before February 1, of each calendar year. Now is the time to begin working on gathering the required information for those filings from vendors. Contact your CPA firm or tax accountant with your Form 1099 questions.