Small Business Taxes & ManagementTM--Copyright 2017, A/N Group, Inc.
Forms 1099 and W-2 must be mailed to recipients no later than January 31. While the due date to the IRS is generally February 28, if you're filing paper copies. Beginning this year (2016 forms) the filing deadline to the IRS for W-2s and Form 1099-MISC with nonemployee compensation is January 31. The discussion below is intended to highlight some points for Forms 1099-MISC. Business owners may also be required to file a Form 1099-INT for any interest payments on debt and, in some cases a 1099-DIV for dividends. You should check the general instructions for the 1099 forms and the specific instructions for Form 1099-MISC.
There is a $50 penalty per information return filed after the due date, but within 30 days. That penalty increases to $100 per information return if you correctly file more than 30 days after the due date but by August 1. Finally, if you don't file, file after August 1, or file an incorrect return that is not corrected, the penalty is $260 per information return. If the failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $530 per information return. There is a dollar cap on the total penalties, but it's high enough that you want to avoid it at all costs.
Form 1099-MISC Requirements
You need to file a 1099-MISC if your trade or business paid at least $10 in royalties or at least $600 in:
You must also file if you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
Filing is also required if you withheld federal income tax under the backup withholding rules regardless of the amount of the payment.
You don't have to file a 1099-MISC for payments for goods. Some large companies often send out 1099-MISC forms for goods to be on the safe side should that supplier also sometimes provide services. You don't have to send a 1099-MISC to a corporation, regardless of whether it's a C or S corporation. (Some LLCs are treated as C or S corporations, if they elect so, and they come under the exception.) Every other type of entity, LLC, partnership, estate, etc. gets one. There's an exception to the exception. You must send 1099-MISCs to corporations as well as other entities if the payment is for medical or health care or legal services or fish purchases for cash. Thus, payments to doctors, clinics, attorneys always require a 1099-MISC if they total $600 or more.
Payments for merchandise, goods, telephone service, freight, storage and similar items need not be reported.
CAUTION It's easy to miss payments for some services. For example, you take a company truck to the local shop for work. The bill is $550--$90 for labor and $460 for parts. That job, along with any others must be added together and reported if the total is $600 or more.
While it's probably too late now for 2016, you should be careful to code payments as requiring a 1099 in your accounting software. It will save you time when accumulating data for filing 1099s and increase your reporting accuracy.
Don't use a 1099-MISC to report payments to employees. Wages, taxable fringe benefits such as personal use of a company car, expense allowances not accounted for, etc. belong on the W-2. So do employee business expense reimbursements. There may be the rare case where the employee is also a true independent contractor, for example, one of your shop workers is also a licensed plumber and occasionally does work on the company's building. Of course there's an exception to the general rule. If you make a payment for accrued wages, vacation, etc. to a deceased employee after the year of death, report it on a 1099-MISC rather than a W-2.
A discussion of who is an employee or independent contractor is outside the scope of this article. Talk to your tax advisor. However, if you do file a Form 1099-MISC for the worker and he is later classified by the IRS as an employee you may avoid the stiffer penalties associated with not filing at all.
If your business rents real property you must report amounts of $600 or more. However, no 1099 is needed if you make the payment to a real estate agent. It's then the agent's responsibility to report them to the property owner. Farmers who rent pasture land (e.g. for grazing cattle) must also report the rental payments.
Personal property rentals, such as machine rentals, are also reportable on a 1099-MISC. If the payments are for both the machine and the operator, prorate the payments and report the machine rental in box 1 and any reportable amount of nonemployee compensation in box 7.
Coin operated amusements can be reported in any of two ways, depending on the circumstances. If an arrangement between an owner of a coin-operated amusement and an owner of a business establishment where the amusements are located is a lease of the amusements or the amusement space, the owner of the amusements or the owner of the space, whoever makes the payments, must report the payments as rent. If the arrangement is a joint venture, the joint venture must file a partnership return (Form 1065).
Not sure if it's reportable? You can send a 1099 anyway.
Some states require filing a copy with the state department of revenue or taxation. Check the rules for your state.
Copyright 2017 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 01/26/17