Attention all business clients, nonprofit organizations, and rental property owners! If you are filing a Schedule C/C-EZ, E, or entity tax return (1065, 1120, 1120S) then this article is for you. The following information will help you avoid steep penalties from the IRS due to misfiling your 1099 forms. ***Note that the filing dead line for 2017 nW-2s and 1099s is January 31, 2018.***
• 1099 forms are not optional, sending them is required BY LAW.
• These forms are used to report specific income types from sources of non-employment that may not be reported anywhere else.
• Employees do NOT need a 1099, that is what a W-2 is for.
• Determine whether or not you have a trade or business.
• If you are working to make a gain or profit, even if you are an independent contractor, you have a trade or business.
• If you run a non-profit, government agency, or a trust (of a qualified person or profit sharing employer plan) you have a trade or business.
• 1099-MISC are NOT for people you make personal payments to.
• If the payment is not related to your trade or business, there is no need for a 1099-MISC.
• Credit card payments do NOT require a 1099. These payments are reported in Form 1099K, which is provided by a merchant services provider.
• Review all disbursements made from January 1, 2017 through December 31, 2017. Summarize all payments to non-employee individuals and businesses that accumulate to $600 or more.
• Nonprofit organizations are required to do this as well.
• LLCs that elected to be treated as an S or C Corporation do NOT need to be given 1099s.
• If you are unsure about the status of a particular establishment (corporation or not), it is suggested to issue a 1099 as a precaution to avoid steep penalties.
• If you fail to file the correct information the deadline, do not include all necessary information, or file inaccurate information, there WILL BE PENALTIES.
• If you do not provide you taxpayer identification number (TIN), you may face backup withholding at a 28% rate.
• If you do not collect and pay back up withholding from the affected payees, you may become responsible for the uncollected amount.
• Employee business expense reimbursements are reported under a non-accountable plan as wages on Form w-2, not on Form 1099-MISC.
• A recommended policy is to require all vendors to complete and provided a W-9 before payment is administered.
• This way you can easily determine if they need a 1099 and how it should be issues if necessary.
• Directors’ Fees and other remuneration (including payments made after retirement) are reported in Box 7 of Form 1099-MISC for the year the payment was made.
• Firms maintaining trust or escrow accounts must review these types of payments.
• 1099s should be issues for payments out of these trust accounts, disbursements for interest, rentals, contracted services (that are not for employees), part-time employees that do not receive a W-2, commissions, maintenance/cleaning service individuals, etc.
• Forms 1099 are required for individuals, partnership, LLCs, etc.
• Just because the payment is made to a “company”, do not assume that it is a corporation
• The IRS has a special manual specifically for auditing lawyers! It focuses on lawyers not issuing 1099s to independent contractors out of an attorney’s trust account.
• The argument that the funds belong to the contractor does not exempt the lawyer from reporting the payments in a 1099.
• 1099s are rewired to be filed for payments to recipients of lawsuits unless specifically exempt from taxation.
• Payments to attorneys for legal fees that amount to $600 or more should be reported in Box 7 of Form 1099-MISC, regardless of whether or not the attorney is incorporated. Box 14 is where you report payments or gross proceeds paid to an attorney (i.e. Settlement agreements) ***unless the attorney’s fees are reportable in Box 7.
• It is suggested to have 1099s prepared by your staff or payroll service, however it is also recommended to have an outside source review all tax year expenditures to ensure no mistakes are made.
• Amounts reported in Box 7 are subject to self-employment tax. If payments made to individuals are not subject to self-employment tax and are not reported elsewhere on Form 1099-MISC, report them in Box 3.
If you or your business fails to file 1099s correctly by the due date and cannot provide reasonable cause, you may be subject to penalties such as those outlined above. These penalties apply if you miss the filing deadline or if you fail to provide complete and correct information on the 1099. They could also apply if you file on paper when you were required to file electronically or if your paper documents are not machine readable. You could also be penalized for not reporting your correct TIN.
BE AWARE! Time is of the essence when discussing 1099 filing because the deadline (January 31, 2018) is fast approaching!!
Mazur and Associates has the expertise to keep you out of trouble with the IRS! We are available by telephone and email, so please call (732) 936-1230 or email firstname.lastname@example.org to schedule an appointment today!