Are you following the 1099 rules?
There have been many changes and updates regarding the reporting rules for 1099-Misc Forms and it’s important to make sure that you are following all the rules so you can avoid huge penalties.
First, keep in mind that the “general rule” is that business owners must issue a Form 1099-MISC to each person to whom you have paid at least $600 in rents, services (including parts and materials), prizes and awards or other income payments. You don’t need to issue 1099s for payment made for personal purposes. You are required to issue 1099 MISC reports only for payments you made in the course of your trade or business.
Here are the basics you should know:
- Who are you required to send a Form 1099? You are required to send Form 1099 to vendors or sub-contractors during the normal course of business you paid more than $600, and that includes any individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP) or estate.
- Who are considered vendors or sub-contractors? Essentially, this is a person or company you have paid for services that isn’t your employee.
- What are the exceptions?The list is fairly lengthy, but the most common is that you don’t need to send a 1099 to:
- Vendors operating as S or C-Corporations (you’ll find their status out when you get a W-9…see below)
- LLCs or partnerships (ONLY if they are taxed as an S or C-Corp . . . again, see the W-9 below)
- Sellers of merchandise, freight, storage or similar items.
- Payments of rent to or through real estate agents (typically property managers). However, keep in mind you need to issue a 1099 to a landlord you are paying rent, unless they meet another exception.
- Don’t worry about credit card payments and PayPal.The IRS allows taxpayers to exclude from Form 1099-MISC any payments you made by credit card, debit card, gift card or third-party payment network such as PayPal. (These payments are being reported by the card issuers and third-party payment networks on Form 1099-K.)
- Deadline to Payees. Taxpayers are required to issue and mail out all Form 1099s to vendors by January 31st. (Wish you would have kept better records when paying folks during 2017?)
- Deadline to IRS. Next, don’t forget you have to compile all of your 1099s and submit them to the IRS with a 1096 by January 31st as well (NOT the end of February- the old rule). Also, depending on state law, you may also have to file the 1099-MISC with the state. Sounds like fun …right? (This is where delegating the task to your accountant may come in helpful).
- Procedures for 2018. Moving forward this year, make sure to get a Form W-9 from all your vendors before they can get paid. This will save you a lot of headaches next January so you don’t have to track down their mailing addresses or EINs.
Don’t ignore the 1099, or the process. Following the rules could save you major penalties if you are audited by the IRS. It can cost you big time if you miss even a small rule or procedure.
If you have any questions regarding your business’ 1099-MISC filing or need assistance, click here to speak to a tax professional.