Filing a 1099 is a serious pain. There is so much confusion about who gets them, when they are due and how to send them in. While this topic is rather mundane, it is important to take seriously since the penalties can add up rather quickly. For safety sake, this week, let’s do a walk through on this topic.
Who Receives a 1099
Generally speaking each person or entity you pay over $600 in rents, services or other payments needs to receive a 1099. Keep in mind that 1099’s are for business purposes only. This also includes nonprofit organizations as they are considered to be “in business” for purposes of this form. Payments made for personal purposes do not fall under the 1099 requirements. The entities you are required to send 1099’s to are individuals, partnerships, LLC’s, LLP’s and estates.
Be Aware of the Penalties
Penalties can range from $30 to $100 per form depending how past the deadline you are. This may seem minimal but can add up very quickly. If you choose not to file 1099’s intentionally, the minimum penalty is $250 per statement with no maximum. Clearly this is not a path you want to head down.
There Are Always Exceptions
Of course there are exceptions — we are dealing with the IRS after all! Payments made to Corporations or payments of reimbursed business expenses do not require 1099’s. Also, payments to sellers of merchandise, freight or storage are not under the 1099 requirements. There is one profession, however, that gets special treatment: attorneys. No matter what type of entity their firm may be, every attorney you pay over $600 must receive a 1099. It appears the IRS doesn’t have too much faith in attorneys reporting all their income (just kidding attorney friends).
The W-9 is Your Best Friend
This form is a lifesaver (if you are lucky enough to receive a filled out form). The best practice is to have anyone that will need a 1099 to fill out a W-9 before they start their work. That way you have all the information you need (EIN, address, etc.) to fill out the 1099 come year end. Implement this practice and save yourself major headaches at the end of the year.
How to Get 1099’s Filed
First you need to make sure each person receives a copy of their 1099. You can send them in the mail or email them. It is recommended that you send all mail certified and require a read receipt on all emails. Second, you need to send a copy of all the 1099’s to the IRS and to the state. You will also need to fill out a form 1096 to accompany the 1099’s. Pretty straight forward but make sure you complete both steps.
Know Your Deadlines
All 1099’s must be mailed out by January 31. Following that, the 1096 needs to be sent to the government by February 28. Also, make sure to check the rules in your state as some states require their own 1099’s.
If you miss the January 31st deadline, don’t panic, talk with your accountant to get these filed immediately. You still may be able to avoid penalties if you have a valid reason for your late filing.
As you can see, the 1099 process isn’t very hard. I understand it can be daunting and tedious but if you are proactive and take the proper steps during the year, the process should be a breeze. With that being said, if you haven’t filed your 1099’s for 2015, you better get moving! As always, if you have questions about this, feel free to reach out to me anytime. I am always here to help.