The Internal Revenue Service (IRS) requires you to report certain payments you make as part of your business (including rental properties) to both the payee and IRS. There are new tax law changes regarding 1099-MISC forms that we felt you needed to be made aware of.
If you paid anyone $600 or more during 2016, you and/or your business may need to issue Form 1099-MISC to the individuals or businesses that you paid. This memo will explain your requirements and the penalties for not following the new regulations. We will also explain the costs to engage Northeast Financial Strategies Inc. to prepare these forms for you.
When is a 1099-MISC Required?
You are required to report on Form 1099-MISC when payments are made in the course of your trade or business. This business can be from general business, farming, rentals or any trade or business in which you own with intent to operate for gain or profit.
You must file a Form 1099-MISC, Miscellaneous Income, for each person or entity to who you have paid during the year that is not a Corporation.
- At least $10 in Royalties
- At least $600 in
- Services (the dollar amount includes parts and materials)
- Prizes and Awards
- Other Income Payments
- Barter Income
- Medical and Health Care Payments
- Crop Insurance Proceeds
- Cash payments for fish you purchase from anyone engaged in the trade or business of catching fish
- Any fishing boat proceeds
- Gross proceeds of $600 or more paid to an attorney (no exception for corporation)
Generally you do not have to issue a Form 1099-MISC for non-employee compensation paid to a corporation. Payments to corporations are reported only if they are for medical, veterinary, health care, legal or fishing activities.
If the following four conditions are met, you must generally report a payment as non-employee compensation.
*You made the payment to someone who is not your employee (in other words, you didn’t issue them a W-2);
*You made the payment for services or for rent in the course of your trade or business. This also includes payments made by nonprofit organizations;
*You made the payment to an individual, partnership, LLC, estate and in some cases, a corporation; and
*You made total payments to the payee of at least $600 during the calendar year.
Example: If a meat shop business paid a self-employed plumber, Jones Plumbing, $750 for labor and materials to repair and replace floor drains, it would have to issue a Form 1099-MISC to Jones Plumbing. If Jones Plumbing is listed as Jones Plumbing LLC, then a 1099-MISC is still required. However, if the plumber is Jones Plumbing Inc., no 1099 is required. If you are not sure, then it is always better for you to issue the 1099.
What should be included on a Form 1099?
The following information is required by IRS for the processing of the 1099.
- The payee’s full name.
- The social security number or Employer Identification Number.
- The legal address of the individual or business.
- The dollar amount, including labor and material, paid to the payee.
All of this information is obtained from a completed form W-9. We have enclosed one for you that can be photocopied and used. Original W-9’s are not required; photo copies will not be accepted. Our office recommends that you ALWAYS obtain a completed Form W-9 from any new contractor or business BEFORE you issue them a check.
Why should I mess with filing these forms, after all, I am just a very small business? This is a huge hassle!
With the passing of what is termed the PATH Act by Congress, there have been significant changes made to the issue of 1099’s. These are the law changes.
- All 1099’s must be completed and mailed to both the payee and the Internal Revenue Service no later than January 31, 2017.
- The penalty for NOT filing a required 1099 is $100 per form. This means if you have four subcontractors that you paid and you fail to issue 1099’s, your penalty is $400.
- The penalty for Intentional Disregard is $250 per payee. In other words, you received this letter and you decided it was too much of a hassle; you will be fined $1,000 for the same four subcontractors.
- Any expenses on your tax return that required a 1099 to be issued, such as rents and subcontractors, will be disallowed if you fail to file the proper 1099’s.
- There is a check box on all business schedules that ask if you are required to file any 1099’s and if you are, did you do so. If our office prepares your taxes, we will answer this question honestly. Failures on anyone’s part to not answer this question honestly is considered Fraud under the Internal Revenue Code.
Can Northeast Financial Strategies Inc. prepare and file these forms for me?
We are able to prepare all Form 1099’s for you and this year!
In order to complete these forms:
1. Please provide us with a complete list of anyone needing a 1099 form. The following information is required:
a. Name as it appears on the payments you made
b. Address of the payee
c. Social Security number or Employer Identification Number of the payee
d. Total amount you paid to them during 2016
e. Type of payments made, such as payment for services, rents, etc.
2. We will complete 1099 projects in the order they are received at our office.
3. If the package of data you send to us is not complete, we reserve the right to not begin work until the full package is received.
If you have any questions or concerns, please call us at 800-560-4637. Anyone on the NFS team can answer your questions about 1099-MISC filing requirements.