As a business owner, you probably know that you are required to send Form 1099s to your vendors and that your customers may be required to send them to you. For any Form 1099s that you are required to send, they are due by January 31.
LET’S START WITH A REFRESHER ON THE FORM 1099?
- The IRS for years has been trying to make sure all income is captured. The IRS estimates that the tax gap is over one trillion dollars.
- This would be cash and other income that people receive but do not report on their returns.
- You probably even heard that the IRS was reminding people that income from illegal activities was also taxable.
- So the IRS started requiring businesses to report any time they paid a customer a certain amount.
- Then the IRS would compare the amounts reported on 1099s to what the company reported on the tax return to make sure all income is reported.
WHO DOES A BUSINESS OWNER NEED TO SEND FORM 1099s TO?
- You paid at least $600
- Rents, services, prizes
- Director fees
- Wages paid after death
DO ALL BUSINESS OWNERS NEED TO SEND 1099s?
- Trade or business only – regardless of size
- Corporations, partnerships, sole proprietorships
- Rental property owners
ARE THERE ANY EXCEPTIONS?
- Payments for inventory, merchandise
- Fixed assets
How do you know if company is a corporation?
- Form W-9 – Request for Taxpayer Identification Number and Certification
- This form will show the vendors name, address, EIN and what type of entity they are.
- When in doubt – send one. It does not hurt you to send one.
What to include?
- Fees charged
- Expenses reimbursed
- Basically all payments made to them.
What if you do not do them?
- Fines- $50 – $260 depending on timing – $1,000,000 max
- Disallowance of deductions
Be sure to talk to a tax professional if you have any questions about Form 1099s.