It’s time to think about 1099s

1099 forms taxesWe get them from our banks, our retirement plans, and our brokers but are we ever required to issue a 1099? The 1099 series are information returns that report to the IRS various types of payments. This is then matched with the recipients’ reported income.

In an earlier newsletter we gave you advice on how to use Quickbooks to keep track of your 1099 vendors, but how do you know who to put in your 1099 database?

The 1099-MISC is the most common 1099 issued by a business.  The requirement to issue a 1099 fortunately applies only to payments made in the course of a trade or business. However, nonprofit organizations are also subject to these requirements. Individuals who make payments that are not connected with a trade or business should not issue a 1099-MISC.

Generally payments made to a corporation do not have to be reported. The most significant exception to this exclusion are fees and proceeds paid to an attorney, which are reported even if paid to a corporation.

A 1099-MISC is issued if your business pays at least $10 in royalties (Box 2) or at least $600 for, among other reasons:

  • Rent (except for payments to real estate brokers or property managers who will report the rentals received to the property owner). This includes machine rental.
  • Non-employee compensation (including parts and materials)
  • Prizes and awards
  • Other income payments
  • Cash payments for fish purchased from an entity engaged in the business of catching fish
  • Payments to attorneys
  • Direct sales of $5,000 or more of consumer products to a buyer for resale in other than a permanent retail establishment.

This form is also used to report the required federal income tax withheld from payment to vendors who don’t provide a correct taxpayer identification number.

Each category of payments and withholding are reported separately on the form, link below.

https://www.irs.gov/pub/irs-pdf/f1099msc.pdf

Before payments are issued for any of the categories above, the recipient should complete a form W-9, Request for Taxpayer Identification Number and Certification. This will have all the information needed to complete the 1099 at year end except for the amount paid.

When nonemployee compensation is reported, the filing date for the 1099 is January 31. Paper filing for form 1099-MISC when no nonemployee compensation is reported is due February 28. Electronic filing can be done on or before April 2. Copy A of the Forms 1099 should be attached to a Form 1096 (which reports the summary of each type of 1099 submitted).

The same filing requirements apply to other categories of income that might need to issue a 1099:

1099-INT               For interest paid   (1098 for home mortgage interest received)

1099-DIV               For dividends paid

1099-C                    Cancellation of debt

If you have any questions about your obligation to file a 1099 or any other information return, please contact us.