What are 1099s?
This tax form reports the movement of money from one entity or person to another entity or person. In addition to Form 1099-MISC that reports subcontractor payments, there are additional 1099 tax forms that serve different purposes as follows:
- 1099-INT – Interest income
- 1099-DIV – Dividend income
- 1099-R – Retirement income
- 1099-B – Sale of stocks or bonds
Who needs form 1099-MISC?
If you are a business owner who pays any unincorporated subcontractors or vendors $600 or more during the calendar year, you must issue a 1099-MISC to them!
When is it due?
The due date for filing 2018 forms 1099-MISC with the IRS is January 31, 2020.
What do I need before I can file this tax form?
You will need to collect the subcontractor’s identifying information, so it is beneficial to collect that information from your independent contractors BEFORE paying them. The IRS provides form W-9, which you can find HERE, to help you get that information upfront with ease. Additionally, should the independent contractor provide you with fraudulent information, a completed form W-9 assures the IRS that you complied with the law.
Why should I file it?
First and foremost, it’s the law! If your income tax return is audited and the IRS discovers that you failed to issue and file any forms 1099-MISC, they will remove the deduction for those payments and those expenses will be disallowed. You will end up owing more taxes (including interest!) on that income.
You may also have to pay a substantial amount of money in penalties if you fail to file a correct form 1099-MISC by the due date (1/31/20) if you cannot show reasonable cause for not filing.
Generally, for 2019 forms 1099-MISC due in 2020, the penalty is $50 per form for filing less than 30 days late. The penalty increases to $110 if the form is not filed within 30 days of the due date and $270 after August 1, 2020. The maximum penalty for businesses is $3,339,000, if filed after August 1st, 2020 or not filed at all, so be sure to issue and file all tax forms correctly and on time!
How do I file it?
You can file form 1099-MISC through the mail or electronically. If you would like expert help with filing this form or if you have any other tax questions or concerns, contact us today!