It’s January and that means 1099’s must be sent to your subcontractors and vendors by the end of the month. If you operate a business, chances are you owe at least a few people a 1099. If you’re a sole-proprietor, partnership, or LLC you will probably receive a few 1099’s from your customers as well. Read on to learn more about 1099’s.
What is a 1099
1099’s are informational returns required by the IRS. There are several different types of 1099’s that are used to report a variety of payments – interest, dividends, trade or business payments, credit card merchant reporting, etc. Today we are focusing on the 1099-MISC, which is used to report payments made in the course of your trade or business.
Who Prepares 1099’s
If you own a business, you will be responsible for sending a 1099-MISC to anyone you paid $600 or more in the course of your trade or business. Some examples include rent, services, payments to subcontractors, parts, materials, prizes and awards, medical and health care payments, service contracts, etc. These payments must have been made to an individual, a partnership, an estate, or to an LLC. In general, corporations are exempt (at least for payments made during 2010 – the 1099 laws are changing in 2011 & 2012).
If your business paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest; any fishing boat proceeds; and gross proceeds to an attorney are a few other times when your business is required to send a 1099-MISC.
Who Receives a 1099
In general, if you or your business provided $600 or more in goods or services to another company, you should receive a 1099-MISC from your customer. If you do not receive a 1099-MISC, no need to worry. You are still responsible and required to report that income on your tax return.
When to File Your 1099-MISC
Form 1099-MISC must be sent to the recipient(s) of the income (i.e. your subcontractors and vendors) by January 31st. For example, if your business paid $2,000 in rent during 2010, you owe your landlord a 1099-MISC by January 31, 2011.
You are also required to submit a copy of the 1099-MISC’s you generated to the IRS by February 28th. When submitting to the IRS, you need to include Form 1096, where you provide the total number of 1099’s you are submitting and the total amount being reported. If you are filing electronically through the FIRE System (Filing Information Returns Electronically System), the due date is March 31st.
Where to File Your 1099-MISC
Mail a copy of the 1099-misc to anyone you paid $600 or more in the course of your trade or business to the address they provided on the W-9 you collected earlier in the year. The W-9 is a form you send to any vendor requesting their TIN (taxpayer identification number), address, and legal name of their business. It’s a good idea to collect a W-9 from all new vendors and wait to send their first check until you receive the completed W-9. W-9’s are available at IRS.gov.
You are also required to file a copies of all the 1099’s you sent to vendors and subcontractors to the IRS. When filing with the IRS, you will need to include Form 1096. The IRS’ mailing address is included in the Form 1099-MISC Instructions provided by the IRS. Please visit IRS.gov for information about filing electronically using the FIRE System.
Why Do We have to File 1099’s
Since there are millions of sole proprietors and small businesses in the US, 1099’s help the IRS keep track of how much these individuals, subcontractors, and small businesses are actually making. The process helps keep individuals and businesses honest on their income tax filings.
How to Complete a 1099
1099-MISC forms are available for purchase at most office supply stores (i.e. Staples & Office Max). They can also be ordered for free from the IRS. Once you have the forms, you can print the information directly on the form using your accounting software (QuickBooks, Peachtree, etc). If you only have a few 1099’s or you do not use accounting software, you can fill them in by hand.
Important to Note
1099’s are for reporting payments made to your subcontractors and are not for reporting wages paid to your employees. Employees wages and tax withholdings are reported on a W-2.
Instructions for Form 1099-MISC (2010).
Form 1099-MISC (2010)
Instructions and Form 1096 (2010)
A Guide to Information Returns
Information about the FIRE System (electronic filing)
Who Can Help You File 1099’s
If you get stuck or have questions, contact the IRS, your lawyer, or your CPA.
Written by Michelle Edwards, CPA
Certified QuickBooks ProAdvisor
Michelle is the owner of Trailhead Accounting Solutions CPA, LLC, an Erie, CO based CPA firm focused on providing small and mid-sized businesses with day-to-day accounting, bookkeeping, and business solutions. Michelle is a CFO turned consultant who loves working with small businesses and entrepreneurs. When she’s not crunching numbers, she can be found hiking, remote camping, gardening, quilting, and hanging out with her family.