Is your business too small to worry about 1099’s?
It’s a common misconception, especially for small businesses just starting out, to think their business is too small for 1099s. But here’s the truth, all businesses, no matter the size, are required to review their vendor payments and file the correct form when it applies. We suggest using an accounting tool to record your activity throughout the year to make the review process simple and easy. Need help choosing an accounting tool? We can help! Give us a call!
How do you know if your vendors qualify for a 1099?
Vendors are companies or individuals you pay who provide services or products used for your business. If you pay your vendors over $600 in the calendar year, then they could qualify for a 1099. In addition, you will only file forms for vendors that are not corporations. Having your vendors fill out a W9 and keeping them on file, will help with the 1099 process. The W9 form allows each vendor to let you know their legal name, address, social security or federal ID number and what type of tax entity they are. Again, only those vendors that mark the corporation box on the W9, will not be given a 1099 form.
What if your vendor doesn’t want you to issue a 1099?
When this issue arises, it typically means that the vendor is not treating their financial activity as a business, which most likely means that they aren’t reporting that activity on their tax return. Which is a no-no. If the vendor is recording all their income as being received through their business, as they should, they will not have any problems getting a 1099. When it comes down to it, this is not your problem to deal with. If you choose NOT to issue a 1099 to this vendor because they don’t want you to, and you happen to be audited, you will be penalized and be required to pay a fine – not your vendor. So the choice is yours, but we suggest always issuing a 1099 to cover your butt.
What is the purpose of a 1099?
The Form 1099 is one of the IRS's main weapons in fighting under-reporting by the self-employed.
A 1099 is an informational return sent to the IRS that says you paid a vendor X amount of money in the last calendar year. The IRS uses the 1099 to see if the vendor you paid has reported at least the amount you stated in gross business income. In the event of an audit, one item the IRS would look for, is if you filed 1099’s or not. It is actually required now by the IRS that you indicate if you have filed 1099’s on your tax returns. Filing 1099’s is something you can do yourself with the right tools. If you need help, just give us a call!
Is an LLC a Corporation?
An LLC stands for Limited Liability Corporation. An LLC, when properly filed, can provide the vendor corporate protections just like with an S-Corporation or C-Corporation. Note that there are, however, three different types of an LLC, which is why we suggest that you require a W9 from the vendor to keep on file. It’s best to let the vendor determine which type of LLC they are and be responsible for documenting that information. You don’t need that weight on your shoulders. With that said, an LLC must elect to be treated as a corporation, and if they do that, then they do not have to receive a 1099.
How and When to File Form 1099:
Form 1099 is a multi-part form. Here are the parts of this form and where to send each:
- Copy B and Copy 2 are for the independent contractor and must be provided no later than January 31
- Copy A must be filed with the IRS no later than February 28, or March 31 if you file electronically,
- Copy 1 is for your state taxing authority if your state has a state income tax; the filing deadline for most states is February 28, but some states require earlier filings--check with your state tax department, and
- Copy C is for you to retain in your files.
You can obtain a 30-day extension on the time to file 1099s by filing IRS Form 8809, Extension of Time to File Information Returns. The form must be filed with the IRS by February 28. The extension is not granted automatically. You must explain the reason you need it. The IRS will send you a letter of explanation approving or denying your request.
Today, a majority of businesses file their 1099s with the IRS electronically instead of on paper. If you are required to file 250 or more information returns, you must file electronically with the IRS. Electronic filing can be easily accomplished with accounting software such as Quicken and QuickBooks. There are also several websites that provide 1099 filing services. Payroll tax services can also file these forms for you. Independent contractors must be provided with a paper copy of the 1099 unless they agree to accept an electronic version.
If you want to file a paper 1099, you cannot simply photocopy the form from the IRS website. Because it is a multi-part form, you need an original copy, which you can obtain from the IRS or stationery or office supply stores.
Remember, if you need help through the 1099 process, we are just a phone call away!
Some of this information was taken from the following website: