With changes and updates happening to the tax law continually, it can be hard to stay up-to-date. For business owners and 1099s, though, it’s critical to get it right.
Penalties can go into the five-digit territory – not something you need… ever!
Most business owners I know work hard every day to take care of their businesses.
As you may already know, business owners must file Form-1099-MISC to each vendor or subcontractor to whom they have paid $600 or more in services, rents, prizes or other income.
Who is a Vendor or Subcontractor?
A vendor or subcontractor is any person or entity that you paid that isn’t an employee – for any services at all. There are some exceptions to this, as outlined below:
- The vendor/subcontractor has an S- or C-Corporation.
This includes LLCs or partnerships that are taxed as an S or C-Corporation. (You’ll be able to tell from the W-9). One exception to this rule is attorneys. All payments to attorneys must be reported by 1099, no matter what type of corporation they are housed under.
- Merchandise, freight, storage or similar items.
- Payments of rent to or through real estate agents and/or property managers.
You will need to issue a 1099 if you are paying rent directly to a landlord, however.
If you use Paypal or credit cards to pay your vendors and subcontractors, you don’t need to submit a 1099.
Why?
Because these payments are already being reported to the IRS by credit card companies and Paypal (and any other third party payment network, by the way).
What are the Rules?
- You must issue and mail all Form 1099s by January 31st. The penalties for not mailing those forms to vendors and subcontractors ranges from $30 to $100 per form.
Now, if you intentionally fail to provide payees with this statement, the minimum penalty jumps to $250 per form (with no maximum fine).
Intentionally fail to file just 20 of those 1099s? No problem! That will be $5,000… minimum.
- January 31 is also the deadline for sending these 1099s to the IRS, along with 1096. If your state has an income tax, you will also have to submit them to the state.
Not only are there rules for about to whom and when you must file 1099s, there are rules on how to file them as well:
- If you have 250 of those 1099s to file, you must file an original. You cannot download them from the Internet… they come in triplicate. You can order these forms form the IRS or find them at an IRS Service Center.
- On the other hand, you must file electronically if you have over 250 forms to file. Here’s where it gets sticky: If you do not file electronically, have a waiver for not doing so approved by the IRS, or establish reasonable cause why you haven’t done so, it will cost you up to $100… per form.
Doing the math, that can be up to $25,100 for failing to file 251 returns electronically.
Make Life Easier for Yourself
Get a W-9 from all vendors or subcontractors, even if you expect to pay them less than $600. Why? Because you never know what will happen. You may go over an initial estimate, or you may need their services again before the end of the tax year.
You can also enlist the help of an accounting service to assist you with maintaining good records as well as preparing and submitting 1099s to the IRS.
At SFS, we do this for many business owners, just like you. They tell us how nice it is to be able to focus more on their business… without worrying about triggering IRS penalties. This peace of mind can be yours as well. Call us at (772) 337-1040 or book an appointment online now.
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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting Services as well as the Enrolled Agent and Certified Tax Resolution Specialist for SFS Tax Problem Solutions.
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Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.
The book is available in paperback and ebook on https://Amazon.com
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For more on SFS Tax & Accounting Services, visit https://sfstaxacct.com/
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738 Colorado Avenue Stuart, FL 34994
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Phone: 772-337-1040
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https://twitter.com/SFSTax/
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