When And Why You Need to Issue 1099 Forms...

1099 forms blog

The IRS matches 1099s with your tax return, so if you fail to report one, it will pursue you for taxes owed. The deadline to mail 1099s to taxpayers is January 31. As an employer, the two things that IRS will be the most upset about are failing to pay your taxes and failing to file the appropriate returns. Your reporting obligations go beyond W-2's to employees. Many other outgoing payments should be reported on form 1099. 

Purpose of Payment

File Form 1099-NEC for each person to whom you have paid during the year: At least $10 in royalties or broker payments instead of dividends or tax-exempt interest. At least $600 in: Rents The “general rule” is that business owners must issue a Form 1099 to each person to whom they have paid rents, services (including parts and materials), prizes and awards, Royalties, Legal fees, Broker payment or other income payments. You don't need to issue 1099s for payment made for personal purposes.

Whom You are Paying

Form 1099-NEC is issued to everyone but corporations.s this includes individuals, partnerships, and most professional business entities. An LLC is only considered to be a corporation it has elected to be taxed as a corporation. If not the LLC should get a 1099-MISC.

Method of Payment

Electronic payments made to businesses using a credit card, debit card, or a payment processor like Paypal or Stripe are reported to the IRS separately using Form 1099–NECK. These are informational returns used to report income to the IRS. You should only include payments made by cash, check ACH transfer, or other direct means on Form 1099-Nec.

Other Types of 1099 Forms

There are 32 types of information returns outlined in the General instruction for Form 1099. Many cover extremely specific transaction types. We will list five that may affect a broader range of businesses...

  • Form 1099-C according to the IRS, if a debt is canceled, forgiven, or discharged, you must include the canceled amount in your gross income and pay taxes on that income unless you qualify for an exclusion or exception. Creditors who forgive $600 or more of debt for you are required to file Form 1099-C with the IRS

  • Form 1099-CAP is used when a corporation is acquired or has a substantial change in capital structure. If shareholders receive cash, stock, or other property during such a transaction, you should issue a Form 1099-CAP

  • Form 1099-DIV is used by banks and other financial institutions to report dividends and other distributions to taxpayers and to the IRS

  • Form 1099-K Recipients of a 1099-K are mostly vendors who have received payment using a TPSO or third-party payment network. ... Whether the payee (vendor or contractor) receives a 1099-K or not, they are still required to report that income to the IRS and pay taxes accordingly.

  • Form 1099-S is used to report the proceeds from the sale or exchange of real estate and certain royalty payments. This includes transactions that consist of sale or exchange for money, indebtedness, property, or services of any present or future ownership interest in: Improved or unimproved land, including air space.

Backup Withholding

Backup withholding is a federal taxation method used by the Internal Revenue Service (IRS). The backup withholding method is used to collect taxes on income payments that are not subject to tax withholding. It is applied to income where the person or business making the payment does not withhold taxes from the person receiving the payment. If you backup withhold, you must issue the appropriate Form 1099 regardless of the payment amount. For example, you must issue a Form 1099-NEC on a $400 payment to an independent contractor subject to backup holding even through the usual threshold or independent contractor payment is $600..

As a small or medium-sized business owner, your time is valuable, and you need to be choosing carefully where to focus your energies. With a good outsouced accouting firm handling your books, you can focus on the core tasks of your business.

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James E. Wilson, CPA is a team of professionals provide innovative financial solutions designed for today’s business owner. Our advisors treat each client relationship with the loyalty and care required to properly advise you now and well into the future.

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