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The 411 On 1099s

One of the consequences of the IRS’s recent attempts to crack down on refund fraud is that it expects business owners to get their Forms 1099 in by January 31 – or face hefty fines. In the past, while most forms were filed by the end of January, you had until as late as March 31 to get the government its copies.

Unfortunately, the fines on the self-employed and small business owners for missing the January 31 deadline can be steep. Forms W-2 and 1099 filed up to 30 days late are fined $50 each, $100 each for more than 30 days late and $260 each for those filed after August 1 or not filed at all.

Here are some important points to remember:

Form 1099-MISC is the most common

This type of Form 1099 is used to report payments of $600 or more to vendors who provide services to your business. Examples include payment for repairs, accounting services, consulting fees and legal advice. Normally, if the vendor is incorporated you do not need to send them a 1099-MISC. There is one important exception: all payments to attorneys must be reported, whether they are incorporated or not.

Filing deadlines are strict

Timely filing of the Form 1099-MISC is critical. Under the new rules, most of these forms must be filed with both the vendor and the IRS by January 31 – and that includes electronic filings.

Do not forget the caveats

If you pay a vendor for parts and services, you must include the total of both of these on your form as long as the parts or materials were incidental. If materials were the predominate nature of the payment, they can be left out. Reporting is also required if you provide non-employees taxable fringe benefits or pay fees to your board of directors.

You may need to file other 1099s

There are other types of Form 1099. A Form 1099-INT is used to report interest payments of $10 or more to an individual in the course of a trade or business. Form 1099-R is used by investment companies to report distributions from retirement accounts and annuities. And businesses that make loans are required to disclose canceled debt on Form 1099-C if the amount is $600 or more.

If these reporting rules leave you uncertain of your responsibilities, give our office a call. A little attention paid now might help prevent a painful penalty later.

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