An important aspect of tax compliance for business owners is the requirement to file a 1099-MISC for certain payments made during the normal course of business. If you are a business owner, below is a summary of what you need to know.
What is a 1099-MISC?
IRS Form 1099-MISC is an IRS form that tells the IRS who has received payments from your business. The purpose of the form is to allow the IRS to match payments made by your business to the income reported on the recipient’s tax return.
Who needs to file a 1099-MISC?
Businesses that have made payments of $600 or more during the year to independent contractors, sole proprietors, LLCs, or partnerships for services performed during the normal course of business generally must file a 1099-MISC.
What payments are reported on a 1099-MISC?
For most businesses, the types of payments that must be reported on a 1099 typically include:
- Rent (but see below for an exception).
- Services performed for your trade or business.
- Medical and health care payments.
- Payments to an attorney.
Note that 1099’s are only required for business payments, not personal expenses.
I paid a corporation or an S-corporation. Do I need to file a 1099-MISC?
If your payment is made to a corporation, you typically do not need to file a 1099-MISC.
To determine if you are paying a corporation, request a completed W-9 form. On this form, the payee will provide their name, address, Tax ID number, and federal tax classification. If the recipient indicates that they are a C corporation, an S corporation, or an LLC taxed as a corporation, a 1099 form will generally not be required.
Of course, there are several exceptions. The most common exception is for payments made to an attorney or law firm. Even if the attorney is taxed as a corporation, a 1099-MISC must be filed.
What payments do NOT need to be reported on a 1099-MISC?
You do not need to file a 1099-MISC for the following types of payments:
- Rent paid to a management company. The management company itself will file a 1099 form for the property owner.
- Payments made to employees. These need to be reported on a W-2.
- Payments for merchandise, freight, storage, and similar items.
- Cable, internet, phone, electricity, and other utilities.
When are 1099-MISC’s due?
Employers must provide a copy to the recipient and file 1099’s with the IRS by January 31st. Extensions are no longer available.
What happens if I don’t file?
If you don’t file or provide a copy to a recipient, you may face penalties. The penalty starts at $50 per missed or late 1099 if you’re less than 30 days late, and quickly climb to $260 per form.
Do I need to file these forms myself?
You certainly can, but we are happy to file them on your behalf. For each recipient, we simply need the name, address, Tax ID number, and the amount paid. We will prepare the forms, send them to each recipient, and e-file copies with the IRS.
Call us today if you have any questions.