Tax Resources

1099 Information

We all know that running a business is a lot of work with endless deadlines and reporting requirements to various agencies and vendors. 1099 reporting is one of these requirements that is coming up so we wanted to make sure it was on your radar. The IRS is getting more strict about this in an effort to collect more tax revenue. Although it’s not fun, it needs to be done! Below is some information to help you through the 1099 reporting season.

Form 1099 Reporting Requirements

Businesses, rental property owners and non-profit organizations are required to file Form 1099 information returns for payments made in the normal course of business of $600 or more in a year to businesses or individuals for rent and services performed for your business. Examples are payments to independent contractors, attorneys, graphics designers, web developers, cleaning services, consultants, etc.

Identify the Form 1099 recipients.

Identify the Form 1099 recipients. A 1099 must be prepared for payments made for any service performed on your behalf in the course of your trade or business in the amount of $600 or more during the calendar year. You do not need to provide a 1099 to a non-profit entity or a corporation, with the exception of attorneys who are incorporated. Form 1099s must also be prepared for rents and interest you paid in the amount of $600 or more. This does not include interest you paid to financial institutions.

Obtain Form W-9

In order to obtain accurate information, the IRS developed Form W-9. This form is to be completed by the vendor and returned to you before you make any payments to that vendor. You will need to obtain a Form W-9 from all new vendors and from repeat vendors that have moved or changed their business entity type or Taxpayer Identification Number (TIN). If a vendor fails to return a completed Form W-9, you are required to withhold 28% of your payment(s). This “backup withholding” is required to be remitted to the IRS. Form W-9 can be obtained from the IRS (http://www.irs.gov/pub/irs-pdf/fw9.pdf)

Obtain W-9s from all vendors

Form W-9s should be obtained from all vendors, whether incorporated or not, as reporting requirements are scheduled to change in the future. The Form W-9s received should be retained on file for at least three years after you cease doing business with that vendor.

Check recipient information

If the recipient of the 1099 is a sole proprietor (owner), the identification number they provide must match their name. In most cases, they will be providing their social security number. If the business operates using a “doing business as” name (DBA), the first line of the 1099 must be the owners name and the second line may reflect their DBA name. It is important the name matches the social security number or federal Employer Identification Number (EIN). If they do not match, the IRS will send you a letter identifying the inaccurate 1099 and may assess penalties.

Provide EIN or SSN

If you are a sole proprietor and need to complete a Form W-9 for any of your customers or file a Form 1099 for any of your vendors, you will ordinarily be required to supply your social security number. To ensure the security of this sensitive identification information, you may wish to obtain a federal Employer Identification Number (EIN). An EIN can be obtained free of charge directly from the Internal Revenue Service on the Service’s website (www.irs.gov) or by using Form SS-4.

Calculate the total year-end dollar amount to be reported to the Internal Revenue Service.

Failure to file the forms and failure to provide accurate account numbers will result in a penalty for each unfiled or inaccurate return.

DEADLINE

You must send recipients 1099s by January 31 and file copies with the IRS by January 31 regardless if you are paper filing or electronically filing.