Whew - we all made it through 1099 season, so let's talk a bit about best practices for your business. This way, next January will be a breeze (fingers crossed).
Incase you you want to cut to the chase:
BEST PRACTICE: Collect a W-9 from any person or business that you pay for a service over $600.
Keep reading if you'd like some details...
What is a Form 1099?
A 1099 is an "information return" sent to the IRS to document earnings outside of payroll. A 1099 is similar to a W-2 for employees, but for interest income, rents, nonemployee compensation, etc. There are a few different versions of 1099s:
1099-INT: interest from a bank or other entity
1099-DIV: interest from a stock or mutual fund
1099-B: stock or securities sold
1099-MISC: a catchall of any other types of non-employee income
1099-R: distributions from retirement accounts
You may receive a 1099 for sources of income such as interest or stocks but it's important to know the best practices for your business to send out 1099s for the income you provide to another person. We're talking about the 1099-MISC.
Who gets a 1099-MISC?
Any person or company paid for a service (not product) over $600. Some exemptions and things to note:
· If the company is registered as a C-corp or S-corp, no 1099 needs to be filed. This means that if the company is a single member LLC (sole-proprietorship) or a LLC Partnership, they need a 1099 for services performed.
· If service was paid by credit card, you do not need to file a 1099. The credit card companies send out 1099s for all purchases made via credit card.
When are they due?
1099-Misc forms are due January 31st for the previous year.
How are 1099s filed?
1099s can be sent in by mail or filed electronically. A copy & form 1096 must be mailed to the IRS and a copy must be sent to each recipient.
What happens if 1099s are not filed?
If a company intentionally decides to not file 1099s, a fee of $250 can be assessed per form with no maximum.
What happens if 1099s are filed late?
Penalties start at .5 percent but vary from $30-$100 per form not filed ($500,000 maximum per year) depending on how far past the deadline the form is filed.
Best practice for any company is to require and collect a W-9 from any vendor paid to do a service before payment is sent.
· Even if it's under $600 (what if you use the vendor again and then it's over $600?)
· Even if you pay with a credit card (it's better to build the habit of collecting the W-9 and what if you decide to pay them next time with check?)
· Even if you think they might be a S-corp or C-corp. It's better to ask for the W-9 and omit them from there.
If you have any questions regarding the 1099 process, consult your accountant. They are there to help you. Don't have an accountant? Email info@ppllcaccounting and we can help!