Who needs to file a 1099?
A 1099 is a form that a business or non-profit (both referred to as businesses for the rest of this post) files to inform to both IRS and one of their vendors of the amount of reportable payments that the business made to them during the year. Most Forms 1099 are due by January 31, 2018, although it is possible to extend the date for filing with the IRS by 30 days. Payee copies remain due January 31. .
Form 1099 is a business form, so payments made for personal purposes do not need to be reported. Payments made to corporations also don’t usually need to be reported. Most small landlords do not need to file form 1099, but there has been some confusion about that which is discussed in a separate post.
Businesses need to report several different kinds of payments made to non-corporate payees, but the two most commonly overlooked are rent and non-employee compensation. Basically any time a business makes six hundred dollars or more in reportable payments during the calendar year to one payee, they need to file form 1099. Payments made to pay for legal or medical expenses for business purposes need to be reported on form 1099, even if made to a corporate payee.
Timely Filing More Important than Ever Before
Although congress repealed the provisions of the 2010 which would have expanded the categories of payments that need to be reported and who needs to report them, it did not repeal the increased penalties for failing to file a 1099 when required. Small businesses, defined as businesses with gross receipts below $5,000,000 per year, have lower penalties for late 1099s than larger businesses. For small businesses, the penalty for failing to file a 1099 with the recipient or the IRS by their respective due-dates is now $50 if less than 31 days late. If more than 30 days late, the penalty becomes $100 for the payee copy and $100 for the IRS copy as long as the forms are filed by August 1. Forms 1099 filed after August 1 incur a penalty of $260 per return, and intentional disregard of the rules can result in penalties of $530 per return. Additionally, the IRS has added questions to schedule C, schedule E, and the corporate and partnership tax forms which ask if the taxpayer is required to file form 1099, and if they have done so (IRS). This essentially compels taxpayers who may be filing their income tax returns in March or April to turn themselves in if they forgot to file 1099s in January
1099s for Rent Paid
Businesses don’t always realize when a 1099 is required, and 1099s for rent are especially problematic. Rents payed to a single payee for business proposes must be reported if the total rents payed to that person exceed $600 for the year. Rents paid to a real estate agent do not need to be reported on a 1099, but the agent must file form 1099 to report report the amounts collected and remitted to a landlord. Self-rental income must also be reported on form 1099. Paying rent to the shareholder can be a great way to get cash out of a closely-held corporation, but many small businesses fail to file a 1099 to report that income.
1099s for Non-employee Compensation
Businesses sometimes run into trouble when it comes time to issue 1099s because they haven’t gathered the information that they needed to during the year. For example, they may not have asked a contractor for his or her employer ID number or social security number at the time when services were provided, they may not even have gotten an address where they should send the 1099 to, or they may not have maintained a list of which vendors are individuals or partnerships and which are corporations.
It’s a good idea when hiring a vendor for any sort of service to ask if they are incorporated, and to collect their name, address, and employer ID number or social security number. Some accounting programs, such as QuickBooks, include all of the necessary fields in the vendor record, and also include a check box that can be marked to indicate that the vendor needs a 1099. If this information is captured when the vendor is hired, then the company can quickly and easily print a report with all of the information they need to file their 1099s at year-end.
Keep in mind that a company cannot avoid payroll taxes or other obligations by classifying a worker who should be considered an employee as an independent contractor.
Hill, Claudia. (2013, March 6). Should Landlords be Filing 1099s for Service Providers. Forbes.com. Retrieved 6, January, 2014 from http://www.forbes.com/sites/irswatch/2013/03/06/should-landlords-be-filing-1099s-for-service-providers/
Internal Revenue Service. (2018). Increase in Information Return Penalties https://www.irs.gov/government-entities/federal-state-local-governments/increase-in-information-return-penalties-2
Internal Revenue Service. (2018). Instructions for Form 1099-Misc. Retrieved from http://www.irs.gov/pub/irs-pdf/i1099msc.pdf