January 17, 2014
If your business spends $600 or more for services from another business or an individual contractor during the tax year, you may have to report the amount on a Form 1099. The requirement to file 1099s applies to all types of businesses, C-Corporations, S-Corporations, LLCs, all partnerships, and sole proprietorships. Forms 1099 are normally issued to unincorporated businesses, however, if your business made payments of $600 or more to a Corporation (C or S) for medical, health care, or fishing activities, or to any law firm, then a Form 1099 is required to be issued.
A 1099 form is typically given to independent contractors as a record of the income that he or she received from your business. There are many different types of 1099 forms, including those used to report income from interest, dividends, real estate and debt cancellation.
Some of the most common types of transactions that you must issue a 1099 for include:
If you own your own business, you are required to send 1099s to eligible vendors. Failing to do so, or missing the 1099 IRS filing deadline (Feb. 28 for paper filing or Mar. 31 for e-filing), can result in some stiff penalties. For example, filing your 1099s past the due date can result in fines that range from $30 to $100 per 1099 to an annual maximum of $500,000. Failure to issue and file any 1099s subjects you to a minimum penalty of $250 per 1099 with no annual maximum limit on the penalty.
In an effort to reduce the number of businesses avoiding 1099 filing, in 2011 the IRS added two new questions to all federal business tax returns to determine whether any payments were made during the year that would require Form 1099 to be filed and whether or not the business actually filed them. When you sign your tax return, you are stating that, under penalties of perjury, to the best of your knowledge your tax return is accurate and complete. Given how seriously the IRS takes 1099 filing—all business owners should too!
Filing 1099s can be a tedious and time consuming process. With only two weeks to go until the deadline to get 1099s to any eligible recipients you have worked with in the past year, please don’t hesitate to contact our office if you need assistance with your Form 1099 preparation.
Spend it? Save it? Invest it? Share it? Here are a few ideas for putting your tax refund to work for you:
The American Rescue Plan Act (ARPA), signed into law in early March, aims at offering widespread financial relief to individuals and employers adversely affected by the COVID-19 pandemic. The law specifically targets small businesses in many of its provisions.
Most professions have their own lingo, and accounting is no different. What is different is that you have a vested interest in understanding what your accountant tells you about your financial situation. So, here’s a quick primer on common accounting terms—some business-related, some general—to keep you in the know: