Donna Reade

QuickBooks Online Consulting & Bookkeeping

The 411 on the 1099

411-on-1099As a small business owner, it’s easy to get lost in the hodgepodge of annual taxes and their procedures, but it’s necessary to know the basics in order to protect yourself and your business.

Let’s get down to the five W’s:

Who do I need to send a 1099 to?
The most common form that small businesses typically send out is the 1099-MISC. As a general rule, a 1099-MISC Form must be issued to anyone you’ve paid at least $600 to in professional services, rents, awards, or other income-related payments. However, unlike W-2’s, 1099’s are issued to contract workers, not full-time salaried employees.

What are the penalties for not issuing 1099 Forms?
As of 2016, small businesses that fail to issue 1099 Forms can result in penalties that range from $50 to $100 per form ($500,000 maximum per year), depending on how long past due the form is issued and how quickly the failure is corrected. If the issuing requirements are intentionally disregarded, the minimum penalty is $250 per form, with no maximum.

When do I need to issue 1099 Forms by?
Businesses need to send 1099’s to all independent contractors by January 31. For filing information returns, all businesses need to also meet the January 31st deadline.

Where can I get 1099 Forms?
You are required to use certified 1099 Forms that can be read by the IRS scanner. You can order the forms from office supply stores that provide authorized 1099’s, or financial software can be used to create, send, and file 1099’s. Be sure that you’re not downloading 1099-MISC Forms or sample forms from the IRS, as they are not permitted for use.

Why do I need to issue 1099’s?
In order to avoid penalties and adhere to compliance laws, all small businesses need to properly issue and file 1099’s. Be timely and be accurate. No one’s exempt from having to pay taxes, so it’s good practice to stay informed and follow federal requirements.
Prepare early for year-end tasks, and don’t scramble to meet deadlines. Set your business up for success by verifying that all employee and independent contractor information is accurate and that your financials are up-to-date.

What else you need to know as a small business owner
If you’re using independent contractors for your small business, here’s what to ask for:

  • Before starting anything, fill out a W-9 Form for each contractor, which includes their name, address, and Social Security number (SSN) or an employer identification number.
  • Clearly define the relationship between you and the independent contractor. Make sure you have a contract that outlines exactly what the service agreement is, and allow them to perform the work with little to no supervision or interference.
  • Request invoices for all services. Ensure that the invoices clearly depict the contractor’s name, business name, and bank details.

Although preparing and filing 1099’s can be time-consuming, it is a necessary effort. Make sure to ask your bookkeeper or CPA about important deadlines for filing, and to confirm that you’re properly filing for your small business. Working with a bookkeeper can also ensure that all of your financials are accurately tracked throughout the year, which can significantly reduce headaches come tax time.