It’s 1099 Time! Don’t bury your head in the sand…

It’s that time of year again and there’s less than 2 weeks left to get your business 1099s complete and submitted. January 31 is the deadline and there’s some hefty penalties for not getting there in time – for the 2017 Tax Year, missing that deadline could cost anywhere from $50 perform up to $260 per form.

So, what the heck is the 1099 and why is it so important?

The IRS considers these documents as information returns and they love them because it gives them an easy and automated way of matching the Form 1099 data to the tax returns submitted later – which is why businesses have the earlier deadline for getting them to the IRS. There is a raft of 1099 forms that report different types of income you may receive throughout the year over and beyond any salary you receive.

Typically, as a small business owner, you will only need to worry about the 1099-MISC form which is required for anyone you paid more than $600 during the tax (other than a corporation with the exception of Lawyers who receive this regardless of their business entity). That’s just the basic threshold and there are exemptions but, if you err on the side of caution and complete them all, assuming no mistakes are made on the form, you should be fine.

So, what should you be doing right now?

Work through all your suppliers that you have paid during 2017, identify how you paid them noting that payments made through credit cards, PayPal and the like do not qualify for 1099-MISC, so you’re looking to breakout all the details where your supplier was paid via ACH, cash, check, or direct deposit

Now filter your report by amount paid and you’ll have a streamlined list of what payees you need to complete and submit the 1099-MISC forms

Check that you have already received the supplier’s W-9 form. The W-9 gives the business name and address of the supplier, as well as the tax identification number, which can be either a Social Security number (for individuals) or an employer identification number (for businesses). Best practice says you should request a W-9 before you start doing business with a new supplier but, if you haven’t had that process in place during 2017 just reach out to the payees on your list and they should be pretty good at getting you a copy over in time. If you haven’t received the data in time, you should still submit the details without the tax information but do expect the IRS to follow back up with the supplier and they could also risk a $50.00 fine if they fail to give you their tax Id.

If your supplier who you’ve paid more than $600.00 is based overseas, you do need to check with them whether they are a US Citizen and, if yes, get a W-9 from them also or, if not, ask then to complete a W-8BEN form. That form doesn’t need to be submitted to the IRS but file it somewhere safely in case of any future audits.

In summary, the questions you need to answer to confirm if the 1099-MISC is needed are

Is my supplier a C Corp or S Corp and not a Lawyer?
•Answer Yes then no need to file a 1099-MISC

Did I pay them by PayPal or credit card?
•Answer Yes then no need to file a 1099-MISC

Do they live outside US and not a US citizen?
•Answer Yes then no need to file a 1099-MISC

Did I pay then more than $600 by ACH (Bank to Bank Transfer), cash, check or direct deposit?
•Answer Yes then your business MUST file a 1099-MISC for you remaining suppliers!

There is a range of software options out there to help you file your 1099-MISC reports, e.g. Track1099 or if you’re way over your head, call us and we can help you out!