As we embark on the start of 2019, tax preparers are preparing for the start of busy season. With January comes due dates for 1099s and W-2s. Most of the time, taxpayers do not realize that they need to prepare any 1099s. Within the last few years we have seen the following questions appear on Schedule Cs, Schedule Es, and business tax returns:
1.) Did you make any payments in 20XX that would require you to file Form(s) 1099?
2.) If “Yes,” did you or will you file required Forms 1099?
As paid preparers, we have to make sure that we answer these questions correctly, which means verifying with you, the taxpayer, whether or not you had any required 1099s to be filed. The penalty for not filing a 1099 ranges from $50 per 1099 to $100 per 1099, depending on when the forms are filed.
Do You Need to Prepare 1099s?
If you have paid someone over $600 for services (including subcontractors, repairs, computer service and any other service someone provided you) or for rent, then you most likely need to send them a 1099. However, if you paid a corporation or paid them via credit card, debit card, Paypal or Stripe, then you are not required to send a 1099. Some corporations are still required to receive a 1099, such as attorneys. We advise all clients to have people who are providing services for them to fill out a W-9. This helps us determine if they need to receive a 1099 because they have to tell us what type of entity they are by checking a box. The following payments would require issuance of a 1099:
-Rent over $600 – reported on 1099-Misc
-Royalties over $10 – reported on 1099-Misc
-Other Income over $600 – reported on 1099-Misc
-Nonemployee Compensation over $600 (Independent Contractors) – reported on 1099-Misc
-Gross Proceeds Paid to an Attorney over $600 (this is reported in Box 14 of 1099-Misc it typically applies if you paid out a settlement, any other legal services would be reported in Box 7 on 1099-Misc)
-Interest on Business Debt to Someone over $10 (excluding interest on an obligation issued by an individual) – reported on 1099-Int
-Dividends or other distributions to a company shareholder over $10 (most applicable to C Corporations) – reported on 1099-Div
What Do We Need to Prepare a 1099?
As mentioned previously, you should have anyone fill out a W-9 who will be receiving payment for any of the items listed above. On the W-9, they list their legal name, federal ID or social security number, address and type of entity. I cant stress the importance of having the W-9 before you pay the person. If you pay somebody one time for $2,000 and do not have any of their information, and then in January you are not able to reach the person to get their information, youre in trouble and potentially could face penalties from the IRS for not submitting a complete 1099.
Please feel free to reach out to us if you have any questions regarding 1099s.