Question of the Week
Help! Do I need to send a 1099-Misc?
Hey all! Happy Five-Minute Friday. I hope you’ve had a good week!
Tax season is officially here. The IRS started accepting returns on January 27th, and my business owner clients have been asking about whether they need to send 1099-Miscs. They’re due today, but don’t worry if you haven’t gotten them out yet. You still have a couple of hours. To help, this week I’ll cover the what, how and why behind your filing requirement.
What is a 1099-Misc and am I required to send it out?
First, the what. As a business owner you’re required to file a 1099-Misc for each person in the course of your business paid during the year:
● $10 in royalties and/or
● At least $600 in
o Rents (box 1)
o Services performed by someone who is not your employee (including parts and materials), (box 7)
o Prizes and awards (see instructions for box 3 and 7)
o Other income payments (box 3)
o Medical and health care payments (box 6)
o Crop Insurance proceeds (box 10)
o Cash payments for fish you purchase from anyone engaged in the trade or business of catching fish)
o Cash paid from a notional principal contract to an individual
o Payments to an attorney
o Any fishing boat proceeds
For most of us, box 7 is the one that applies. These can be services for anything including sub-contractors you pay for a job, your accountant or attorney, and yes, even your financial advisor.
Remember this is only required for business owners or rental real estate owners that are deducting these payments as business expenses. If you don’t claim these deductions on your tax return, there’s no reason to send them out.
Okay, so I have to. How do I do it?
First you’ll need to get a Form W-9 from the person you need to pay. Most service providers have copies of these on file. They provide the name, address, tax classification, SSN or EIN of the person you need to pay. Once you have that information, you can generate 1099 forms using your accounting software like Quickbooks or Wave. Programs like Yearli generate the form, email and mail it to your payee and send copies to the IRS and the state, if required
Can I just not, and say that I did?
No, but don’t panic. If for some reason you can’t get your 1099s out today, that’s okay. Just get them out as soon as possible.
- $50 per 1099, if you file within 30 days of the due date; maximum penalty of $194,00
- $100 per 1099, if you file more than 30 days after the due date but by August 1; maximum penalty of $556,500
- $270 per 1009, if you file after August 1; maximum penalty of $1,113,000
Also remember that you are required to certify on your tax return whether you made any payments that would require that you send a 1099. And if so, whether you filed them. It’s another way that the IRS can catch and penalize you. So, make sure to get them out when you can.
If you’re still uncertain whether you need to file, get to a tax professional quickly.
Quote of the Week
“Without deadlines and restrictions, I just tend to be preoccupied with other things.” – Val Kilmer
Task of the week
The task this week is to verify that all of your 1099s are sent out. You can ask your accountant or bookkeeper to help you identify service providers you’ve paid more than $600. If you don’t have an accountant or bookkeeper, you have a few hours to go through your information.