Many small business owners do not know the rules for 1099 preparation and in their struggles fail to submit them at all. This can be a costly mistake! The fines vary from $30 – $100, depending on how far past the deadline they are. If the IRS finds that the business intentionally disregarded the filing requirement, the minimum fine is $250 per statement! As you can see, the fines can add up very quickly.
Here is the basic information all business owners should know about filing Form 1099:
Who is required to send a 1099? You are required to send a 1099 to vendors and/or sub-contractors you paid more than $600 to during the year. These include payments made by cash, check, wire transfer, electronic check, ACH, online bill pay (bank to bank only), or direct deposit.
Who are considered Vendors or Sub-Contractors? This can be anyone or any business (Partnership, LLC, LP, or Estate) you paid for services that is not your employee
Are there exceptions? Of course, there are exceptions. It would not be tax law if there were no exceptions. The list is pretty lengthy, and contact us for more information but, the most common are:
- Vendors operating as S or C-Corporations
- LLCs or Partnerships, ONLY if they are taxed as a S or C-Corporation
- Sellers of merchandise, freight, storage, or similar items
- Payments of rent to or through real estate agents
What about credit card payments and Paypal? The IRS allows taxpayers to exclude payments made through credit card, debit card, gift card, or third party payment networks, like Paypal.
How do I gather all of this information? Clark Sclater, LC recommends as a best practice that each company require every person and company to complete form W-9 BEFORE you pay them. Using this as a normal business practice will give you all the information (like the vendor’s mailing information, Tax ID number, and whether they are a corporation or not) you need to fill out the 1099 in the next year. You can download a W-9 from here.
“Awesome, I have all my information together! I’m going to the IRS’ website to print off a bunch of forms.” Hold up. You cannot do that! The form is “pre-printed’ in triplicate by the IRS. This means you have to order the Forms from the IRS, pick them up at an IRS service center, or grab them before they disappear from your local Post Office or Office Supply Store. Also, to save you time and hassle, Clark Sclater, LC can handle all of your 1099 needs!
When are 1099s due? You should issue and mail out all 1099s by January 31stof each year.
Cool. I’ve completed and mailed out all my 1099s! Time to relax. Whoa! You are not done yet. As a business, you have to let the IRS know. You have to send a copy of all your 1099s as well as a 1096 (which is essentially a “Cover Letter” Form) to the IRS by January 31st. Note: This is a change from previous years requirement of the end of February
Do I need to file electronically? If you have over 250 forms to file, you MUST file electronically. If you fail to do so without the approved waiver, you will be subject to a fine up to $100 per return over 250 allowed via paper filling.
In conclusion, please do not ignore 1099s. It is much easier to get the information you need during the year than at the beginning of the year. You will also save money in possible fines. Most CPAs and accountants have an affordable option to assist in the filing and can be a huge resource to you! Be careful trusting websites just to save a few bucks. It can cost you big time if you miss the smallest little thing.
If there is any good news in this post, Clark Sclater, LC can provide this service smoothly and inexpensively! If you need support or have questions, please Contact Us.