You’ve probably heard of form 1099 but maybe you have no clue what it’s for or who should get one. As a small business owner, it’s important for you to understand who you should issue 1099’s to and why, so I decided to give you the 411 on 1099’s.
What is a 1099?
Form 1099-MISC is a common tax form used to submit information to the IRS for payments made to independent contractors (there are other types of 1099’s also, but I’ll just be talking about MISC). Failing to submit this form can result in fines and penalties from the IRS. Sometimes it can be hard to determine who to give a 1099 form to, though. Read on.
Who should get a 1099?
Typically, independent contractors that are not on your regular company payroll. This would include contract labor and consultants. But this isn’t definitive. If the company you paid is a Corporation, S Corporation, or an LLC that is taxed as a C or S Corporation, you do NOT need to issue a 1099 to them. However, sole proprietors, partnerships, or LLCs not taxed as a C or S corp SHOULD receive a 1099. Attorneys should receive 1099’s also. If you paid more than $600 for the entire year to any one person or business covered in the list above, they should receive a 1099.
How do I determine the amount to report on the 1099?
If you use accounting software like QuickBooks Online or Xero, you can run a report by vendor for the entire year and this will show you the dollar amount you should report to the IRS. If you’ve not been using accounting software, you’ll need to do some research. You can use the canceled check images from your bank statement to determine who you’ve paid and how much, then you can use a spreadsheet program such as Microsoft Excel or Google Sheets to compile the data and total it.
What if I’m still not sure about a few payments I’ve made?
If you’re not sure, file a 1099 anyway. If you file one and didn’t need to, it’s not a big deal. But if you don’t file one and you should have, you could risk facing significant penalties from the IRS. Better safe than sorry!
I know who to give 1099’s to… now what?
Now you need to make sure you have obtained W9’s from all of these vendors and contractors. The W9 will show the company name, address, and EIN – Employer Identification Number (or SSN – Social Security Number – for individuals). You can find a blank W9 form on the IRS website (here) and email/mail/fax it to the companies and individuals you need to file 1099’s for. After receiving the completed W9’s back, you’ll then fill out 1099-MISC forms for each one (you can find PDF copies online here and the instructions for filling it out here).
Then you’ll need to provide copy B of the completed form 1099-MISC to the contractor or individual by January 31 and also file copy A with the IRS, along with a form 1096 (found here). The 1096 is like a summary page of all the 1099’s you are submitting.
One thing to note: if you plan to file your 1099’s with the IRS by mailing physical copies to them, you can NOT use the downloadable PDF 1099 and 1096 forms on the IRS website. You’ll need to obtain physical copies of the forms, fill them out, and mail them to the IRS. You can generally get these forms at office supply stores. Alternatively, you can file electronically and more information about that can be found here. If you file electronically, you can use the downloadable PDF files from the IRS that I’ve linked to above.
Remember, the IRS imposes heavy penalties and fines for not filing timely and accurately.
This sounds like a lot of work. How can I save time?
1099’s can definitely be a lot of work! What I’ve described above sounds exhausting and it’s not even a comprehensive guide to 1099’s. Also, this information is subject to change at any time by the IRS. If you don’t have the time or the inclination to learn about 1099’s or get them done yourself you can always hire a bookkeeper, like LedgerWorks LLC, to take care of it for you. Contact Shauna at firstname.lastname@example.org or 615-433-5402 and let us take care of it for you!
Disclaimer: This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. LedgerWorks LLC assumes no liability for actions taken in reliance upon the information contained herein.