With your 1099 filing for 2013 already behind you, you’ve most likely shifted your attention to other business matters. Not so fast! Now is the perfect time to review the fundamentals of 1099 filing – and consider some minor tweaks to streamline the process for 2014.
Take 1099 filing as seriously as the IRS does — As the IRS ramps up enforcement of 1099 compliance by small businesses, it’s never been more important to meet the requirements. In fact, the IRS now asks you to answer these two questions on all federal income tax returns:
By responding to these questions, you are indicating (under penalty of perjury) that your tax return is accurate and complete – including your 1099 filing.
Keep in mind that late filing of mandatory 1099s — or failing to provide all the required information — carries penalties ranging from $30 to $100 per 1099, with a maximum penalty of $500,000 for small businesses. Intentionally disregarding 1099 filings will cost you even more — $250 per 1099, with no maximum penalty.
Understand the requirements – Whereas Form W-2 is used to report wages paid to employees, Form 1099 captures other types of non-employee income for the IRS. It is largely informational, letting the IRS know how much income to expect on the tax returns of the 1099 recipients.
There are a handful of different 1099 forms, but the most common is Form 1099-MISC, used to report payments of $600 or more to non-corporate entities, such as vendors, independent contractors, freelancers and consultants. In addition to miscellaneous income to non-employees, 1099-MISC allows you to report fees, commissions, rents, prizes and awards.
As a general rule, any payee that doesn’t have “Inc.” or “Corp.” at the end of its business name should be issued a 1099.
Cross corporations off your recipient list – You’re not required to report business payments to corporations. Be careful, however, don't consider all limited liability companies (LLCs) as corporations. An LLC can be a single-member LLC, multi-member LLC or LLC corporation. Only LLC corporations are exempt from the 1099 requirements.
Two additional exceptions to the corporate exemption apply: attorney’s fees and medical/healthcare payments, which still must be reported. (Be sure to check with your tax professional if you’re uncertain how these 1099 guidelines affect your filings.)
Stay up to date with W-9s – Throughout the tax year and before they provide any services, have every non-corporate entity fill out a Form W-9. Request for Taxpayer Identification Number and Certification. The W-9 will capture the recipient’s legal name, address and Taxpayer Identification Number (TIN). This simple, proactive step will prevent the rush — and possible backtracking — to pull together the information you need to prepare your 1099s in early 2015.
Mark your calendars – You must furnish 1099s to covered recipients by February 2, 2015. (Extended to Feb. 17, 2015, if you are reporting payments in boxes 8 or 14.) The deadline for electronic filing with the IRS is March 31, 2015. (Nearly a month later than paper filing, which is March 2, 2015.)
Bonus: If you’re e-filing, you can skip Form 1096, or W-3. Unlike with paper filing, e-filing automatically calculates the totals and transmits the information.