If you are a Realtor, freelancer, consultant, or operate a small business, you’ve probably heard of IRS Form 1099. But what is a 1099 Form exactly? Who gets a 1099? And how do you file a 1099 form?
What is a 1099?
There are many varieties of 1099 forms, but if you’re a small business owner, you’ll most often be dealing with form 1099 – MISC.
The form is required by the IRS to report non-salary income for federal tax purposes
Who gets a 1099?
Here’s The most important thing you need to know: if you paid someone to provide services to your business in 2019, and during the year you paid a total of $600 or more, you’ll need to complete a 1099 – MISC form.
The form is required by the IRS to report non-salary income for federal tax purposes. You send one copy to the IRS, and you give another copy to the person who provided you the service
Here’s an easy example:
-
Let’s say you arranged to have a graphic designer create a new logo for your business
-
You paid the designer $500 to start and then later paid another $500 when the project was completed.
-
You therefore paid the designer over $600 for services during the year, and are required to report this via a 1099 by Jan 31, 2020
Be aware that there are many types of “services“ that can be provided to you during the year, and that any or all of them may require you to report payments made via a 1099 filing.
These could include a cleaning service, repair service, web developer, copywriter, coach, consultant, accountant, bookkeeper, lawyer, social media consultant, and more
How do you fill out a 1099 tax form?
Here’s what a 1099 looks like. The basic information you’ll need is the name and address of the service provider, their taxpayer ID or Social Security number, and the amount that you paid during the year
How do you obtain this information?
A recommended “best practice” for any small business owner is to obtain a completed IRS form W9 from any independent contractor before you make any payment to them for services
IRS form W9, request for taxpayer identification number and certification, is provided by the government as a means for you to obtain the contractors information so you can accurately file the 1099 at your end
Here’s news that should not surprise you: if you don’t have a completed W9 on file, and you’ve already paid a contractor, then the likelihood you’ll get them to fill out a W9 with all the information needed at the end of the year is slim to none.
What if you don’t file 1099‘s?
The IRS doesn’t play around if you don’t comply. They charge penalties.
Plus they make it very hard for any small business owner to fly under the radar. On your income tax return, you answer two “Yes or no“ questions
-
did you make payments in 2020 that would require you to file forms 1099?
-
If the answer to question one is yes, did you or will you file all required forms 1099?
Notice that the way the questions are worded forces you to acknowledge that you are aware of the requirements, and also that you will meet them.
Otherwise, the penalty for failure to file a 1099 is $270 (ouch). The filing deadline is January 31, 2020.
That penalty is reduced to $50 if the form is filed within 30 days of the Jan 31 deadline; and $100 if you file more than 30 days late, but ultimately do so by August 1st.
Here’s a couple exceptions to the rules
-
Don’t file 1099’s for corporations
It is becoming more common for independent contractors to operate as a C corporation or an S corporation. In these cases you don’t need to file a form 1099, even if you paid the service provider $600 or more during the year.
How do you find out if they are incorporated? Well, they have to tell you that right on the W9 form when you request them to complete it. Be cautious about LLC‘s however. They can choose to file their taxes using a corporate form, but they don’t necessarily do so. What this means to you is don’t assume you’re off the hook when it comes to filing a 1099 just because they have the letters LLC behind the name. The requirement to file a 1099 only disappears if the LLC files taxes as a corporation.
-
Don’t file a 1099 if you paid via PayPal, credit card, or some form of electronic payment
Even if you paid a service provider more than $600, you don’t need to file a 1099-MISC when you’ve paid them electronically. In these cases, the credit card or 3rd party payment company (ie., Paypal, ApplePay, Square) will handle any required reporting.
Some business owners (and their accountants) send forms anyway. Their reasoning is that there are penalties for failure to send out 1099s, but there’s no penalty for sending them–even if they’re not required to do so.
Such a move may make you feel more secure, but put yourself in the recipients shoes. That web designer who you paid via Paypal now has a 1099 MISC from you, and a second 1099 (a 1099-K, in this case) from PayPal. It can lead to a double counting of income on your web designer’s tax return, if he/she is not careful.
It can even lead to the IRS inquiring about the income your report on your return, should they feel that there is a discrepancy between the income reported on your return and the income reported via 1099s filed with the IRS.
The bottom line–as with most things bookkeeping and tax-related–is that there are lots of ins and outs, lot’s of do’s and don’ts.
So …If you’d like help in filing 1099s, my firm provides 1099 filing services, along with the peace of mind knowing that you are compliant with all IRS regulations. We can do it all for you, including preparing forms for submission to the IRS, sending copies to contractors, and also providing copies for your records. Contact us at 757-312-0098 for more information today.
Jim Flauaus, EA
Anchor Accounting & Tax, Inc
Bookkeeping – Payroll – Taxes