Filing IRS Form 1099-MISC: 14 FAQs
Like the robin heralds the coming of spring, the IRS Form 1099-MISC heralds business tax season. The 1099 applies across a wide range of businesses and circumstances.
With a filing deadline of Jan. 31, it behooves companies to not wait until the last minute to ensure they have the information they need ready to go.
At Boyer & Ritter, we often hear questions about the 1099. Here, we answer the 14 most commonly asked questions.
- Who is required to file 1099s? Anyone engaged in a trade or business must file 1099s for all reportable payments made.
- What is a “reportable payment”? It’s a payment of $600 or more for services rendered by sole proprietors or unincorporated businesses.
- What types of businesses must file 1099s? I’m a sole proprietor, so am I included? Yes, sole proprietors must file 1099s, as well as partnerships and corporations, including nonprofit organizations.
- Do payments to a corporation have to be reported on a 1099? No, unless the payments are for medical or health care services, attorney fees, gross proceeds paid to an attorney, and a few other miscellaneous situations. For instance, consultation services received from an attorney employed by a corporation must be reported on a 1099, using the EIN that the corporation showed on its Form W-9.
- Do payments to an LLC need to be reported on a 1099? Yes, unless the LLC elects for treatment as a corporation for federal tax purposes.
- Do payments other than cash need to be reported? Yes. The amount reported is determined by the fair market value of the property or service at the time of payment. For example, awarding a vacation worth $2,000 to a top-selling consultant would generate a report of $2,000 on the 1099. Payments made using virtual currency are subject to the same reporting requirements.
- Are purchases of merchandise reportable? No. The 1099 typically covers services provided, so purchases of products, including inventory, are not reportable. For example, think of a janitorial service. Payments for the janitorial service itself are reportable on the 1099 but purchases of supplies for the janitor’s use are not.
- What is the due date? Recipients must have their 1099s for non-employee compensation – mailed or electronic – in hand by Jan. 31 of the following year. That same deadline applies to filing with the IRS. Other payments reported on a 1099-MISC must be filed with the IRS by February 28 if filing by paper or by March 31 if filing electronically.
- How are 1099s submitted to the IRS? Payers issuing 250 or more returns must file electronically. Payers with fewer than 250 returns can choose to submit by paper or electronically.
- How do I obtain the recipient’s identification information? Recipients submit the IRS Form W-9, showing the appropriate information, such as Social Security Number or EIN. Payers should get the W-9 as soon as they start doing business with a vendor.
- When should I start preparing my 1099s? It’s wise to start checking information for accuracy, such as SSNs and EINs, around October or November. That way, if any misalignments appear, there’s time to get the correct information from the vendor before the holidays arrive and, right on their heels, the filing deadline.
- What happens if there’s a mistake on a 1099? It gets sent back to you for correction and refiling, taking the accounting department’s time to rectify.
- What are some common preparation and submission errors? There are plenty of opportunities to slip up, like sending the same information to the IRS more than once (such as filing by paper and electronically), or omitting the decimal point between dollars and cents. Some payers submit the forms to the IRS in incorrect formats, such as photocopies, stapled or torn, or for the wrong tax year. Note that the form does not use dollar signs, and 0 or “none” should not be entered in money boxes where no entry is required.
- What are the penalties for not filing? Failure to file incurs penalties of $50 per return if filed no more than 30 days late, $110 if filed between 31 days late and Aug 1, and $270 if filed after Aug 1.
Timely filing of 1099s is an important task at the beginning of the year. Boyer & Ritter LLC can help companies make sure their processes are efficient and accurate. When strong 1099 procedures are in place, vendors are assured the documentation they need, while businesses start the tax season on the right foot.
Raymond Brown is a CPA and principal of Boyer & Ritter. Ray provides accounting, auditing and tax services for a variety of clients and industry groups, including small businesses and nonprofits. Contact Ray at 717-761-7210 or firstname.lastname@example.org