As the IRS ramps up enforcement of compliance by small businesses in filing various 1099 forms, it’s never been more important to meet the requirements. In fact, the IRS now pointedly asks you to answer these two questions on all federal income tax returns:
- Did the corporation/partnership/business make any payments in 2018 that would require it to file Forms(s) 1099?
- If “yes,” did or will the entity file required Forms 1099?
By responding to these questions, you are indicating (under penalty of perjury) that your tax return is accurate and complete – including your 1099 filing. We will not prepare a return unless these questions are accurately answered.
Keep in mind that late filing of mandatory 1099 forms, or failing to provide all the required information, carries penalties ranging from $50 to $270 per 1099, with a maximum penalty of $1,094,000 for small businesses. Intentionally disregarding 1099 filings will cost you even more — $540 per 1099, with no maximum penalty.
For 2018, of importance, is the need for individuals reporting rental income to determine if they need to issue 1099s to the entities or individuals which provided a service to them throughout the year. The same requirements for any individual or company will apply when determining if a 1099 is required. See below for information and examples concerning who might be required to receive a 1099 form.
Over the last few years we have been finding it extremely frustrating and difficult getting from our clients the information necessary to timely prepare and file 1099 forms. Most of our clients simply ignore their obligation with respect to filing these forms expecting us to identify and prepare the appropriate forms when preparing their tax returns. The problem with this is that, even if all information was available to prepare the 1099’s, which is very rare, by the time we get the year end work the 1099’s are already late.
These forms are due to the recipients by January 31st each year. They are due to be mailed to the IRS by January 31st as well. In light of this due date and the number of forms to be prepared, we must have all required information provided to us by January 10th each year. As always, we can provide two levels of service with respect to 1099’s:
Preparation: With this service, you are entirely responsible for providing us with the correct Name, Address, Social Security Number/Employer Identification Number and amount paid each 1099 recipient. Our responsibility will be to timely prepare the 1099’s provided to us by January 10th. We will not be responsible for verifying the information supplied by you. See below for information concerning who might be required to receive a 1099 form.
Quickbooks Review & Preparation: You must explicitly request that we review your general ledger for 1099 recipients. For this service, we require that your vendors are set-up correctly in QuickBooks and are updated with the correct Names, Address and Social Security Number/EIN. During our review, we will inform you of any missing or incorrect information that we cannot correct. From there, you are responsible for providing the requested and corrected information. Naturally we will need your Quickbooks file by January 10th each year to do this timely.
Irrespective of what we may have done for you in the past, it is your responsibility to provide us with the information noted above in a timely manner. Due to the sheer volume of 1099 forms we prepare annually if information is supplied or a request is made after January 10th each year, we cannot guarantee that the forms will be prepared and returned to you by the due date.
If we find some 1099’s that should have been prepared during our income tax work we will notify you and encourage you to have them prepared. However, keep in mind, they will be late at that point, but, as the saying goes, better late than never.
To ensure that you have the most updated and accurate information recorded on your vendor lists, any new vendor should be required to submit a Form W-9 (Request for Taxpayer Identification Number and Certification).
Who or What Should Get a 1099 Form:
- Generally, the total amount paid, during the course of the year, over $599 to a person or company for services performed who is not your employee and is not incorporated. This includes, but is not limited to: repairs, maintenance, cleaning/janitorial, advertising services, consultants, computer services, professional fees, etc.
Examples that would receive:
a) Tom Smith for $601 for landscaping services in 2018
b) Tom Smith, LLC for $601 for landscaping services in 2018
Examples that would NOT receive:
a.) Tom Smith for $599 for landscaping services in 2018
b.) Tom Smith, Inc. for $601 for landscaping services in 2018
c.) Tom Smith, P.A. for $601 for accounting services in 2018
2. Lawyers, attorneys or companies in which you paid any amount in legal fees during the course of the year.
3. An individual, LLC or unincorporated company to whom/which you paid rent in excess of $599. Examples include: Real estate rentals paid for office space, storage, or machine rentals.
4. A Professional Association, also known as a P.A., is an incorporated entity and, therefore, is not required to receive a 1099 form unless it is for legal fees.
For a more detailed description, read the IRS’ post on these rules by clicking here
As always, if you are unsure if a 1099 is required, please ask us and we can help you out!