06 Jan Rules You Need to Know for 1099 Filings
If you are a business owner, this is an extremely important briefing.
The general rule is that business owners MUST issue a Form 1099-MISC to each person, partnership, Limited Liability Company (LLC), or Limited Partnership (LP) to whom you have paid $600 in services, rents, or other income payments, including parts & materials. The 1099-MISC is not necessary for payments made for personal matters.
If a business intentionally disregards the above requirement to provide a correct payee statement, the minimum penalty is $250 per statement, with NO MAXIMUM.
The exceptions to filing the 1099-MISC is payments to Corporations, for payments to real estate agents, and to sellers of merchandise, freight, or similar items.
Attorneys MUST receive 1099-MISC, EVEN IF THEY ARE INCORPORATED. Obviously, the IRS does not trust attorneys.
I have found that the best practice for small business owners is to request a W-9 Form PRIOR to paying any vendor they expect to pay more than $600 in the course of the year. Utilization of the W-9 will provide you with the vendor’s mailing address, Tax ID number, and also require them to indicate if they are incorporated. This eliminates the procedure of tracking a vendor down at this time of the year to obtain that information from them. And, they may now be reluctant to provide that information; or, you may not be able to contact them at all.
Business owners are required to prepare and mail out the 1099-MISC forms by January 31st to the above referenced vendors. These forms + Form 1096 must be submitted to the IRS and State by February 28th.
Adherence to the above rules is critical for all business owners.