What You Need to Know About Filing a 1099
All taxpayers are required to file annual informational returns on Forms 1099 for each person or business (excluding corporations) in the course of your business to whom you have paid the following during the 2019 calendar year:
1. At least $10 in royalty payments.
2. At least $600 of payments made to a person in:
b. Services performed by someone who is not your employee
c. Prizes and awards
d. Other income payments
e. Payments to an attorney
Self-Preparation of Forms 1099
In the event you are preparing and filing your own Forms 1099, or you are preparing and filing these Forms on behalf of your company or your client, let your accountant know that the firm will not be responsible for the filing of these returns.
If an Accountant is Preparing and Filing Your Forms 1099
If your accountant is preparing and electronically filing your Forms 1099, you must provide the information listed in the following section by the requested due date in order for to get the forms prepared and filed on time.
In addition to preparing and filing your Forms 1099, your accountant will typically mail a copy to each listed recipient on your behalf, as required by the IRS.
What Your Accountant Needs
In order for your accountant to prepare and electronically file with the IRS the required 2019 Forms 1099-MISC on your behalf, you will need to furnish the following information for all recipients who met the aforementioned conditions:
1. Each recipients’ name and address.
2. Each recipients’ employer identification number or social security number.
3. Total payments made to each recipient during 2019.
This information is also needed to prepare forms 1099-INT, 1099-DIV, and 1099-R, if required, for your payments of interest, dividends and retirement distributions.
In order to ensure timely filing of your Forms 1099, we recommend providing the required information to your accountant by January 17, 2020 or as soon as possible.
Frequently Asked Questions
Our clients often ask us if they have to report certain payments they make under specific circumstances. This year, the two most frequently asked questions are:
I made payments to a Limited Liability Company (LLC). Do I have to report payments I make to LLC’s?
Generally, yes you must report on Form 1099-MISC payments you make in the course of your trade or business to an LLC. Some payments do not have to be reported on Form 1099-MISC even though they are taxable to the recipient.
You are required to report all payments you make in the course of your trade or business that exceed $600 unless there is a specific exception in the IRS regulations.
Payments for which a Form 1099-MISC is not required include all of the following:
1. Payments to a corporation.
2. Payments to a limited liability company (LLC) if the LLC is treated as a C corporation or S corporation by
its owner for tax purposes.
3. Payments for merchandise, telegrams, telephone, freight, and storage.
4. Payments for wages paid to employees (reportable on Form W-2).
5. Costs of life insurance or business travel allowances (reportable on Form W-2).
6. Payments to tax-exempt organizations.
7. Other unique payments specifically defined in the IRS regulations.
I made payments to a non-profit organization. Do I have to report payments I make to non-profit organizations?
You may have to report these payments. The IRS considers non-profit organizations to be engaged in a trade or business and are subject to Form 1099-MISC reporting requirements.
However, if the non-profit organization is a 501(c)(3) Federally tax-exempt organization (such as a public charity or private foundation) you do not have to report the payments.
Filing Due Dates to the IRS
File Form 1099-MISC on or before January 31, 2020 if you are reporting non employee compensation payments in Box 7, using either paper or electronic filing methods.
Other Forms 1099 have various due dates.
For your reference, click here to see the chart from the Internal Revenue Service’s “Guide to Information Returns,” detailing the Form 1099 filing requirements and due dates (including Form 1099-MISC).
Potential Penalties for Not Filing
Please note the potential penalties associated with non-filing or late filing of information returns below.
Failure To File Correct Information Returns by the Due Date
If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The amount of the penalty is based on when you file the correct information return. The penalty is as follows:
• $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28).
• $110 per information return if you correctly file more than 30 days after the due date but by August 1.
• $270 per information return if you file after August 1 or you do not file required information returns.
Failure To Furnish Payee Statements
If you fail to provide correct payee statements to the recipient and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to provide the payee statement by the due date (January 31 for most returns), you fail to include all information required to be shown on the statement, or you include incorrect information on the statement. The amount of the penalty is based on when you furnish the correct payee statement, as listed above.
Know Your Customer
It is considered best practices to establish sound “Know Your Customer” policies by incorporating policies around four key elements:
1. Customer Acceptance / Client On-boarding
2. Customer Identification Procedures
3. Monitoring of Transactions
4. Risk Management.
Establishing Know Your Customer policies are implemented by companies of all sizes for the purpose of ensuring proper reporting and reducing your overall business risk.
The collection of basic personally identifiable information is one key element of formalized Know Your Customer policies.
Businesses use IRS Form W-9 “Request for Taxpayer Identification Number and Certification” to gather information from vendors they hire as independent contractors.
Form W-9 is completed by each vendor detailing personally identifiable information about their business – including its name, address and employer identification number or social security number.
Much of the vendor information you need to complete Form 1099 concerning the payments you make can be obtained from the completed Form W-9 you receive from the contractor.
Generally, you are not required to withhold income tax or pay employment taxes for the vendors you hire in the United States. The domestic independent contractors you hire are responsible for their income tax and employment tax obligations.
However, payments made to foreign persons or foreign vendors in the course of your business are subject to separate reporting and tax withholding requirements.
Further, if these reporting and withholding requirements are not satisfied in accordance with the IRS regulations, the IRS can approach you to satisfy any outstanding liabilities including penalties and interest.
Contact your accountant if you made payments to foreign persons or foreign vendors so they can help you navigate through these specialized reporting and withholding requirements.
Please contact us at firstname.lastname@example.org if you have any questions or concerns about any aspects of the Forms 1099 process.
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