1099 Rules for Business Owners in 2019
We almost never touch on administrative topics in this blog, but the administrative work must be done and January is a very administrative time of year. We are trying to get our businesses off to a great start in the new year but are sidelined by forms, taxes and other administrivia. But, the administrative tasks must be done correctly and on-time especially when dealing with the IRS!
I had a client email me last week asking me if he had to send me a 1099 or if I was exempt. It was a great question. Many business owners and their accounting staff are not aware of the rules surrounding 1099s. Those rules change often and the IRS has increased the penalties for late and misfiled 1099s.
So, let’s get these 1099s knocked out so you can get back to growing your business. Below are the highlights of the information you need to know. By the time you get to the bottom of this article, you’ll realize that filing your 1099s is probably a great task to outsource to your CPA. They do a lot of these and will make sure you get it done right.
Penalties – Let’s start with the information that gets our attention. What will the IRS charge me if I misfile, file late or just forget to file a 1099? The penalties range from $50 to $530 per return. That can add up quick! Click here for a full overview of the potential penalties. Now, how can we avoid these penalties?
Timing – Taxpayers are required to mail out all Form 1099s to vendors by January 31st and you must submit them to the IRS by the same date if you reported any payments in box 7. You can find details about what types of payments must be reported to the IRS by when in the “General Instructions for Certain Information Returns” mentioned below. Most states require you to file with them as well, so check with your state.
Do I Have to Send 1099s? – 1099s are to be issued for payments made in the course of your trade or business. These payments can be for rents, services provided by non-employees, prizes and awards – pretty much any payments to a non-employee that totaled over $600 last year and that are not excluded. You can find the exclusions in the “2019 Instructions for Form 1099-MISC” referred to below. Nonprofits are considered to be engaged in a trade or business and do need to file 1099s when required by the rules, just like any other trade or business.
Who Do I Have to Send 1099s To? The general rule is that you have to send 1099s to any non-employee who you paid over $600 in the past year. There are exceptions to this rule. The most used exception is that you do not have to send 1099s to companies that are taxed as C or S Corporations. You’ll need a W-9 to know that information. When in doubt, go ahead and file. Special Note: Attorneys and law firms are an exception to the exception. Regardless of the entity type of your law firm, you must send them a 1099.
What About Credit Card Payments and Paypal? Thankfully, those payments must be reported by the third party payment networks on Form 1099-K, not by you.
The Glorious W-9 – The W-9 can be your best friend when working to file your 1099s correctly. Implement a policy that you do not pay anyone who has not given you a W-9 if you expect to pay them over $600 in the year. To make things even easier just require a W-9 from any non-exempt person or entity before you cut them a check.
The Bottom Line – Are you a pro at filing 1099s? If you are, then you already knew most of this. If you are not, ask your CPA to help you get your 1099s filed.
If you are all about doing this yourself, don’t rely solely on this post. Go and pull the following instructions from the IRS to make sure you are filing correctly:
**This blog is not intended as legal or tax advice but is meant to raise your awareness that filing your 1099s properly and on-time is a big deal. Seek competent professional advice and get back to executing your new year growth plans. Trying to save a few bucks on tax filings is not wise.**
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