With tax season right around the corner, it’s time to start thinking about closing your books out for the year and preparing all your tax documents.
One of the required tax documents you may need to send out is the 1099-Misc. While this can be a tedious task, especially if you haven’t kept good records on your independent contractors, it is necessary to avoid penalties by the IRS. To help simplify things, here are the basics:
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 (included parts and materials), prizes and awards, or other income payments. You don’t need to issue 1099-Misc for payments made for personal purposes. You are required to issue 1099-Misc to report payments you made in the course of your trade or business. You’ll send this form to any individual, partnership, Limited Liability Company, Limited Partnership, or estate.
Some 1099 exceptions
There is a lengthy list of exceptions, but the most common one is payments to corporation. All payments made to a corporation do not typically require a 1099-Misc. This means that if you make payments to a company that is incorporated or to an LLC that elects to be treated as a C-Corporation or S-Corporation, then this would not be reported on a 1099-Misc. Unfortunately, this exception doesn’t apply to payments you made to an attorney.
Another exception is payments to vendors using a credit card or through a third-party payment network. You are not required to send a 1099-Misc for amounts paid electronically. Instead, the credit card companies and payment companies will handle any required reporting. Those electronic payment providers are required under certain circumstances to send out a different version of the 1099-Misc, called the 1099-K, instead.
Get those W-9s from vendors
To make the 1099 process easier, it is best practice for business owners to request a Form W-9 from any vendor you expect to pay more than $600 before you pay them. Form W-9 will give you the vendor’s mailing information, Tax ID number, and also require the vendor to indicate if it is a corporation or not. Having a completed W-9 will give you all the information to complete the 1099-Misc and save you a lot of headaches during tax season.
For the current year’s payments, businesses must send 1099-MISC to the recipients by January 31 of the following year. Businesses also must send copies of each 1099-MISC sent to recipients to the IRS. The deadline to the IRS is January 31. This deadline applies to Form 1099-MISC when reporting non-employee compensation payment in Box 7. Otherwise, paper filings must be filed with the IRS by February 28 and electronic filing by March 31. Also depending on the state law, businesses may also have to file the 1099s with the state.
We have your back
Rather than guessing at the IRS rules and requirements, why not let the KRS CPAs tax experts help? We will help you organize Form 1099 MISC recipient data and prepare all the necessary forms for you to submit. Contact Kelley DaCunha at [email protected] to get started.