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The rules for properly sending out 1099's related to payments you have made to vendors continues to increase in complexity. These FAQ's are intended to assist you in the 1099 process. In all cases, feel free to call us to discuss preparation of your 1099's and how we can help.
You are required to send Form 1099 to vendors or sub-contractors during the normal course of business you paid more than $600, and that includes any individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP), attorney, or estate.
Essentially, this is a person or company (not your employee) you have paid for services.
There are more exceptions than listed here, but the most common exceptions for sending a 1099 to a vendor or sub-contractor are the following:
LLCs or partnerships (ONLY if they are taxed as an S or C-Corp);
Sellers of merchandise, freight, storage, or similar items; and
Payments of rent to or through real estate agents (typically property managers). Keep in mind you need to issue a 1099 to a landlord you are paying rent, unless they meet another exception.
The IRS allows taxpayers to exclude from Form 1099-MISC any payments you made by credit card, debit card, gift card, or third-party payment network such as PayPal. (These payments are being reported by the card issuers and third-party payment networks on Form 1099-K.)
You might not have the information you NEED to issue the 1099. A best practice is to require a completed W-9 from any vendor you expect to pay more than $600 before you pay the vendor or subcontractor.
While the Form W-9 is not required, it will give you:
Regrettably, you CANNOT simply go to www.irs.gov and download the Form 1099 PDF and send them out to your vendors before the deadline. The form is pre-printed in triplicate by the IRS using different colors and they require originally printed forms.
Thus, you have to order the forms from the IRS, pick them up at an IRS service center, or procure them while supplies last from some other office supply store. So, if you know that you will need to prepare 1099's and want to do this yourself, figure out how many you will need and order them in November or early December.
The deadline used to be later, but the tax laws pulled the date back so that individuals could file their personal returns without having to wait for 1099's. So, all Form 1099's are due to be filed with the vendors or sub-contractors and with the IRS by January 31 of each year. You will need to also know state filing requirements for some 1099-MISC.
If you have more than 250 forms to file, you MUST file electronically. If you fail to do so, and you do not have an approved waiver, you may be subject to a penalty of up to $100 per return to file electronically unless you establish reasonable cause. However, you can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically.
If you hire a non-U.S. Citizen who performs any work inside the United States, you will need to file the 1099. It is your responsibility to verify that the worker is indeed a non-US citizen and performed all the work inside or outside the United States. For that purpose, have those vendors fill out, sign and return to you Form 8BEN (instead of the W9).
You are required to send 1099's for dividend payments, interest paid to individuals, owners, members or shareholders, and potentially others. For the full requirements and instructions, see the Internal Revenue Service website for instructions on informational returns.