It’s that time of year again, the time of year when you are required to send out a Form 1099 to vendors who meet certain criteria. As a general rule, you must issue a Form 1099-MISC to each person to whom you have paid at least $600 in rents, services (including parts and materials), prizes and awards, or other income payments. You will need to send this form to any individual, partnerships, Limited Liability Company, Limited Partnership, or Estate.
Corporations are NOT included in the list of entities to which you need to issue a 1099. Additionally, you don’t need to send 1099s to sellers of merchandise, freight, storage or similar items. Lawyers get the short end of the stick. Ironically, the government doesn’t trust that lawyers will report all of their income, so even if your lawyer is ‘incorporated,’ you are still required to send them a Form 1099 if you paid them more than $600.
The penalties for not issuing 1099s can vary from $30 to $100 per form, depending on how long past the deadline the company issues the form. If a business intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement with no maximum.
One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor’s mailing information, Tax ID number, and also require the vendor indicate if it is a corporation or not (saving you the headache of sending them a 1099 next year).
Regrettably, you simply can’t go to the IRS Website and download a bunch of 1099 Forms and send them out to your vendors before the deadline. The form is “pre-printed” in triplicate by the IRS. Thus, you have to order the Forms from the IRS, pick them up at an IRS service center, or hopefully, grab them while supplies last from the post office or some other merchant. Next, don’t forget you have to compile all of your 1099s and submit them to the IRS with a 1096 by the following month. Sounds like fun…right?
Finally, you are required to issue and essentially mail out all of your Form 1099s to your vendors by January 31. Then you have to send in the transmittal Form 1096 to the IRS before February 28. For those of you that ‘outsource’ this service, your accountant with the proper system can actually submit the 1096 and stack of 1099s electronically by March 31. Don’t forget as well, that depending on state law, you may also have to file the 1099-MISC with the state.
Also, if you hire a non-U.S. citizen who performs any work inside the United States, you would need to file 1099s. It is your responsibility to verify that the worker is indeed a non-U.S. citizen, and performed all work outside the United States. For that purpose, in the future, you might want to have that foreign worker fill out, sign, and return to you Form W-8BEN.
Don’t ignore the 1099 or the process and even if you miss the first deadline of January 31, get with your CPA and make sure to finish up the process before the end of March. This could save you major penalties if you get caught not filing the Forms and you can show reasonable cause for your delays.
Moving forward, make sure to get a Form W-9 from all your vendors before they can get paid. This will save you a lot of headaches next January so you don’t have to track down their mailing addresses or EINs.
If there is any good news, most accountants like Tentho will provide this service affordably and efficiently for you during the month of January so you can stay focused on your New Year’s Resolutions and making money rather than filling out paperwork.