1099s - Do I Really Need To Do These?

The simple answer to that question is yes.  But there is more you really should know.  There has been a lot of back and forth in the news in the past couple of years about 1099s.  There are some new requirements for 1099s that we should all be aware of but, more importantly, you should know Congress did remove the requirement for sending everyone and anyone a 1099-MISC, including the requirement for rental real estate on Schedule E.

1099-K: new for 2011, all payments made on a credit card are going to be reported on a 1099-K.  Your merchant service provider will provide you with a 1099-K for all payments you accepted, if applicable.  You will only receive a 1099-K if your gross payments exceed $20,000 and there are more than 200 transactions during the year.

Also new for 2011, is a new question on tax returns (individuals, partnerships and corporations) asking if you made any payments in 2011 that would require you to file a 1099 and, if yes, did you or will you file all required forms 1099.  This question applies to all 1099s, just not to 1099-MISC.

1099-MISC: the old rules still apply, if you’ve paid someone at least $600 in rents or services (including parts and materials) or you’ve paid an attorney $600 or more, you need to issue a 1099-MISC to them.  This is only for trade or business payments (including LLCs), not personal, and payments to corporations are still excluded except for law offices.

Most of the information you need for a 1099 can be obtained by requesting a Form W-9 be filled out by your vendor or contractor.  The W-9 will give you their legal name, address and taxpayer identification number.  Our suggestion is to request the W-9 from all entities you’re questioning, including LLCs, to remove the guesswork on your side as to what type of entity they are.

The penalties for late filing or not filing a 1099 have also been increased.  The following penalties apply:

-       $30 penalty for filing a 1099 no more than 30 days late;

-       $60 penalty for filing a 1099 more than 30 days late and before August 1;

-       $100 penalty for filing a 1099 on or after August 1

-       $250 penalty for intentional failure to file.

Form 1099-MISC should be provided to the recipient by January 31 and the IRS copy should be mailed by February 28.  You can request a 30 day extension to file but that does not extend the January 31 deadline to recipients.

The IRS knows there is unreported income floating around and they are trying their hardest to capture it. Increased 1099 reporting rules and penalties is one way they are looking for this income.

If you believe you have 1099s that should be prepared or if you have any questions, please contact us.