Time to Send Out 1099s: What to Know
The 1099 tax form can seem mysterious. Business owners guess at its rules and requirements, and tracking changes to the procedures can be so exasperating that some entrepreneurs just give up and file nothing at all. (This can be dangerous financially, as penalties can add up quickly.)
But the 1099 doesn't have to be complicated. To help simplify things, here's a rundown of the basics.
To whom are you required to send a 1099?
What are the penalities?
What are the exceptions?
The list of exceptions is fairly lengthy, but the most common is that you don't need to send a 1099 to corporations or for rent payments 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 here. 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 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 and Tax ID number, and it'll also require that the vendor indicate whether they are 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?
If you hire a non-U.S. citizen who performs any work inside the United States, you'll need to file a 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 Form W-8BEN.
Even if you miss the first 1099 deadline of January 31, contact your CPA and make sure to finish up the process as soon as possible. If you can show reasonable cause for your delay, it could save you major penalties that could arise from not filing the forms on time. Moving forward, make sure to get a Form W-9 from all your vendors before sending out payments. This will save you a lot of headaches next January so you don't have to track down their mailing addresses or EINs.
The 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.