The 1099 process can be confusing with business owners guessing about its requirements. Because tracking changes to the procedures can be overwhelming, many business owners file nothing at all. And risk costly penalties. The 1099 doesn’t need to be complicated. To help simplify things, here are the four basic things business owners need to know about 1099s.
Who: As a general rule, you must issue a Form 1099-MISC to form to any individual, partnership, Limited Liability Company, Limited Partnership or Estate to whom you have paid at least $600 in rents, services, prizes and awards, or other income payments made in the course of your trade or business. All law firms without regard to their entity structure need to get one.
There are exceptions and while the list is somewhat long, but the most common is that you don’t need to send a 1099 to corporations or for payments of rent property managers and sellers of merchandise, freight, storage or similar items.
Before paying any qualifying vendor you are best off getting a completed W-9. You can download a W-9 here.
When: You are required to mail out all of your Form 1099s to your vendors by January 31. Then you have to send in the transmittal Form 1096 to the IRS before February 28. Accounting firms with the proper system have until March 31 if they are doing it electronically for the client. Depending on state law, you may also have to file the 1099-MISC with the state.
What: The form is preprinted and you can’t download it at www.irs.gov . You have to order the Forms from the IRS, pick them up at an IRS service center, or hopefully grab them while supplies last from the post office or some other supplier. Usually it’s better to get an accountant or bookkeeper to do it for you since they have the supplies and experience.
Why: The penalties for not doing so can vary from $30 to $100 per form and if it is decided that a business intentionally disregarded the requirement, it is subject to a minimum penalty of $250 per statement, with no maximum.
Don’t ignore the 1099 or the process and even if you miss the first deadline of January 31, get with your CPA and make sure to finish up the process before the end of March.
The Shared Finance Center provides outsourced accounting, bookkeeping and fractional CFO support to small business owners and in doing so we heavily focus on maximizing cash flow. We are headquartered in Roswell, Georgia and work with clients across the United States. If you think that this post would be helpful to anyone you know, please pass it along. Also please follow our blog for regular tips to grow your business.