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1099 Reporting – Penalties Make Compliance a Priority

February 15, 2012

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What is a 1099?

Form 1099-MISC is used to report certain types of payments made in the course of a trade or business. If you’re in business or self-employed, you may need to submit this report to both the Internal Revenue Service and the person or business you paid.

When is Form 1099-MISC Required?
Businesses will need to fill out a Form 1099-MISC for persons, vendors, subcontractors, independent contractors, and others in the following circumstances:

  • $600 or more per year is paid for cash payments to fishermen, crop insurance proceeds, medical and health care payments, prizes and awards, proceeds paid to attorneys, rents, services (including parts and materials), and other types of payments not covered by another information reporting document.
  • $10 or more per year is paid for broker payments in lieu of dividends or tax-exempt interest and royalties.

Reporting such payments is required if the recipient of the payment is not a corporation — for example, when the recipient is an individual, partnership, a limited liability company treated as a partnership, or sole proprietorship. However, payments must be reported when medical or health care payments and attorney legal fees are made to corporations. Fees paid to attorneys require the filing of a 1099. Other types of payments made to corporations may be reported using Form 1099-MISC, but is not required. If you are unsure of the requirement, issuing a 1099-MISC is a good practice.

Report Payments Made by Cash or Check, but Not Payments Made by Credit Card

Starting with the 2011 tax year, payments made via credit card and other third party payment processing services need not be reported on Form 1099-MISC.

Steps to Take to Prepare for 1099-MISC Forms

You should request that all of your vendors, contractors and other payment recipients submit to you a Form W-9. Even if you don’t end up paying the threshold amount, it’s a best practice to get the W-9 on file in case you need it. The W-9 will provide you with the legal name, address and taxpayer identification number for the vendor – the information you will need when preparing 1099-MISC forms.

You should also keep track of your payments in your bookkeeping system. You will need to know the exact amount you paid the recipient for the year, whether the payment falls under any of the categories listed above for reportable payments, and whether your payments to a particular recipient reaches the $10 or $600 threshold for reporting. When in doubt, the safe step to take is to issue a 1099. This will keep you covered and help you avoid potential penalties.

Deadlines for 1099-MISC Forms

Provide the recipient with his or her copy of the Form 1099-MISC by January 31 reporting income for the previous calendar year.
Mail the Form 1099-MISC to the IRS by February 28.
Or electronically file 1099s with the IRS by March 31.

This entry was posted on Tuesday, February 14th, 2012 at 10:14 pm and is filed under Blog, News. Both comments and pings are currently closed.

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