Time to Send Out 1099s: What to Know
The 1099 can be mysterious. Business owners guess at its rules and requirements. Tracking changes to the procedures (some as recent as last February) can be so exasperating, some entrepreneurs just give up and file nothing at all. This can be dangerous as penalties can add up quickly. But the 1099 doesn't need to be complicated. To help simplify things, here are the basics.
To whom are you required to send a Form 1099?
What are the penalities?
What are the exceptions?
The list is fairly lengthy, but the most common is that you don't need to send a 1099 to corporations or for payments of rent to real estate agents (typically property managers -- yet they are required to send them to the property owners). Additionally, you don't need to send 1099s to sellers of merchandise, freight, storage or similar items.
Lawyers get the short end of the stick. Ironically, the government doesn't trust that lawyers will report all of their income, so even if your lawyer is 'incorporated,' you are still required to send them a Form 1099 if you paid them more than $600.
The W-9 is your "best friend."
One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor's mailing information, Tax ID number, and also require the vendor indicate if it is a corporation or not (saving you the headache of sending them a 1099 next year). You can download a W-9 here.
What about foreign workers?
Also, if you hire a non-U.S. citizen who performs any work inside the United States, you would need to file the 1099. It is your responsibility to verify that the worker is indeed a non-U.S. citizen, and performed all work outside the United States. For that purpose, in the future you might want to have that foreign worker fill out, sign and return to you Form W-8BEN.
Don't ignore the 1099 or the process and even if you miss the first deadline of January 31, get with your CPA and make sure to finish up the process before the end of March. This could save you major penalties if you get caught not filing the Forms and you can show reasonable cause for your delays.
Moving forward in 2014, make sure to get a Form W-9 from all your vendors before they can get paid. This will save you a lot of headaches next January so you don't have to track down their mailing addresses or EINs.
If there is any good news, most accountants will provide this service affordably and efficiently for you during the month of January so you can stay focused on your New Year's Resolutions and making money rather than filling out paperwork.