The 1099-MISC form is an “informational return” designed by the Internal Revenue Service to enforce tax compliance. Essentially a business must report any payments over $600 made to a service provider. If the service provider on their tax filing does not report that income, or reports a lower figure, then the IRS questions the service provider over the discrepancy.
Starting in 2011 and forward, business owners are required to answer two questions on their tax return about their 1099 filing responsibilities (a) if the taxpayer made any payments that required filing a Form 1099 and (b) whether the taxpayer did file (or will file) all required Forms 1099-MISC.
Considering these new IRS efforts, we thought it would be helpful to review some of the important aspects of 1099-MISC filing. This discussion is not all inclusive so you may want to schedule an appointment to discuss detailed circumstances.
Trade or Businesses are Required to Report
The Form 1099-MISC reporting rules apply to any business (whether a sole proprietorship, partnership, or corporation) that makes a reportable payment in the course of its trade or business. Personal payments are not reportable.
More specifically 1099’s are required to be filed by:
- All entities engaged in a trade or business (sole proprietorships, partnerships and corporations)
- Landlords engaging in the business of renting property
- Nonprofit organizations, federal, state or local governmental agencies
- Trusts of qualified pension or profit-sharing plans of employers
Reportable Payments
Businesses are required to report miscellaneous income for each person to whom you have paid during the year:
- At least $10 in royalties
- At least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, and cash payments for fish you purchased from anyone engaged in the trade or business of catching fish
- Any fishing boat proceeds
- Gross proceeds of $600 or more paid to an attorney
Exceptions
Some payments for which a Form 1099-MISC are not required include the following:
- Generally, payments to a corporation are not required (except attorneys and medical and health care payments)
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
- Payments of rent to real estate agents.
- Wages paid to employees (report on form W-2)
- Military differential wage payments made to employees while they are on active duty in the armed forces or other uniformed services (report on form W-2)
- Business travel allowances paid to employees (may be reportable on Form W-2
More detailed instructions can be found here.
Information Needed
To report payments on form 1099-MISC, you must obtain the recipient’s TIN and mailing address. You may use form W-9 Request for Taxpayer Identification Number and Certification, to obtain the recipient’s TIN and address as well as the federal tax classification.
Due Dates
The filer of Form 1099-MISC must give the recipient a copy of the form by January 31. The due date for filing with the IRS is February 28. (March 31, if filing electronically)
Penalties
The penalties for failure to file Forms 1099 timely – or for filing them with missing or inaccurate information are time sensitive. The penalty is $30 per 1099 if filed 30 days after the due date, $60 per 1099 if filed by August 1, and $100 per 1099 if filed thereafter.
If you need help or advice on filing a 1099-MISC that accounts for your own particular circumstances we would be very happy to schedule a consultation. Call Jeff White at (281) 890 2554.