Every Year as tax time rolls around inevitably I get the frantic phone calls from potential clients because there behind in getting their 1099-Misc filed. Their vendors and contract employees are screaming bloody murder. If this sounds a little bit like you it may be time to up your game.
Just remember that as a small business owner you may both send a 1099 and receive a 1099. We’ll look at both.
To be clear there are MANY different 1099 forms we are only going to look at the 1099-MISC. If you have questions about the other ones send us an email and we’ll try to answer the questions for you.
Free 1099-misc tracking sheet: Get our ” 1099-Misc Spreadsheet” that lets you keep track of your vendors and contractors all year long. Make tax season a breeze.
What the Heck is a 1099-MISC Form Anyway?
The first thing to understand is what is the 1099-MISC and why do we need it.
The form is used by companies to tell the IRS that you paid an individual, non-employee money for services over $600.00. You know I love examples so ….
Let’s say you hired a web design company to redo your website and paid that company $1000.00. At the end of the year (January 31st) of the following year, you will need to send three entities 1099.
- The IRS
- The state government
- The company or individual that you paid.
Now how do you know if the person you hired needs you to issue 1099. Well not to be uncomfortable but you’re going to have to ask. If the Company is a Sole Proprietor, an LLC or a partnership you will need to issue 1099 if you paid more than 600.00 for the service over the course of the year.
If the company, you paid is an S or C Corporation or a nonprofit you are good to go no need for a 1099 form.
Going back to the Web developer that you paid $1000.00 to redesign your website. Before they get started on the project you need to ask them a couple of questions
Is your business a corporation?
- If Yes we are done (YAY!)
If they say it’s an individual or a sole proprietorship then you need to gather some information
- Have them fill out a W9 (You can get one here)
Andrea's Tip
If they don’t fill out the W-9 do NOT start the contract try and make sure you gather this information before it becomes an issue and before the contract starts.
Now if you have someone work for you as an Independent Contractor you can request a Taxpayer Identification Number and Certification. This can be used to verify the TIN or the Social Security Number or an Employer Identification Number (EIN). Though, to be honest you probably won’t need this. But if you do You can find the information here.
Andrea's Tip
You’ll need to keep the W9 on file for 4 years just in case there are any questions.
What Information Do I Need to Create the 1099-Misc
Form 1099-MISC (PDF) is most commonly used by payers to report payments made in the course of a trade or business to others for services.
If you paid someone who is not your employee, such as a subcontractor, attorney or accountant $600 or more for services provided during the year, a Form 1099-MISC (PDF) needs to be completed, and a copy of 1099-MISC (PDF) must be provided to the independent contractor by January 31 of the year following payment. Starting with 2016, you must also send a copy of this form to the IRS by January 31.
Andrea's Tip
You will incur penalties if you try and use the 1099-Misc form downloaded from the website so when you order you may want to keep plenty on hand.
You will have to order the form from the IRS. Which you can do Here
How to Electronically File the 1099-Misc Forms
1099-Misc are really easy to file online. You can use an online service and file them electronically, Usually for less than 5 dollars for each form.
The Services will do the following automatically
- E-File your forms with the Federal and State Government
- Mail a copy of 1099 to your contractors
- Give you a PDF copy for your records
Andrea's Tip
They will also email a copy of the 1099 to your contractors….Please, Please, Please do NOT DO this…not only does it send your personal EIN, or SSN unsecurely but it also shares the contractors’ information and this is an easy way for TAX Identity Theft to occur.
What Happens if My Client Doesn’t Send Me a 1099-Misc Form?
Let’ say you are supposed to receive 1099 from a client and January 31st rolls around and nothing shows up. You call your client and they play hide and seek with you. Well, you could go pound on their door but hey these things happen. First off, hopefully, you got their information EIN, SSN or Tin but if not you will need to report the income anyway (as long as you earned over 600.00). While it’s nice for the IRS to have something to cross check against your income, it’s not mandatory for you to have it to report the income.
Andrea's Tip
In case of an audit, you want to have a back up invoice or a receipt of payment so that you can verify your income for that client.
What Happens if My Vendor or Contractor Doesn’t Send Me a W-9?
I try not to worry about why someone might refuse to fill out their W-9 or send me information. But it happens far more than I would like.
Just follow these simple steps during the year.
1. Make sure you’ve requested the W-9 Form. You should ask for this information at 3 different intervals throughout the year.
a. At the Beginingin of the business relationship
b. Before December 31st.
c. Prior to January 31st of the following year.
Make sure you keep the documentation that you’ve requested. It doesn’t matter if they respond.
Andrea's Tip
You must request in writing at least three times. Each time must be documented separately. You can read more about the IRS Solicitations Here.
2. If you’ve sent the requests and you still have invoices due to the Vendor you’re going to have to begin backup withholding of 24% immediately. The money that you withhold will be reported on the Form 945 and sent.
3. You will still file a form 1099-MISC EVEN if they Refuse to send you their TIN, EIN or SSN.
Andrea's Tip
You will not be able to fill out this form electronically because you can’t have blank spaces . You will need to complete the Paper Form Write the Word REFUSED where the TIN, EIN or SSN is supposed to go and put all the information you do have on the document.
How Do I Correct a 1099 Form?
Hey, mistakes happen you type in a wrong number or maybe you were trying to get ahead of the game and you filled out the form wrong. No worries it’s actually pretty easy to correct.
File out a new 1099-MISC form and Place an X in the “VOID” box at the top of the form and then issue a new 1099 with an X in the “Corrected” box. The enter in zeros for all the money amounts. Send the corrected form to the IRS and make sure you send a copy to your Vendor/Supplier or contractor.
Free 1099-misc tracking sheet: Get our ” 1099-Misc Spreadsheet” that lets you keep track of your vendors and contractors all year long. Make tax season a breeze.
What Happens if I file My 1099-Misc Forms Late?
I know that filing a 1099 form may be rushed and you may not be able to get the form in on time. You should, however, take the penalties very seriously as they can be quick to rack up.
The amount of the penalty is based on when you file the correct information and goes as follows:
- $50 per 1099, if you file within 30 days, with a maximum penalty of $191,000
- $100 per 1099, if you file more than 30 days late but before August 1st with a maximum penalty of $547,000
- %270 per 1099, if you file after August 1st; with a maximum penalty of $1,091,500
Putting it All Together
Hopefully, you’ve read through this article and now have a quick and painless way of keeping track of your 1099s whether you receive them or whether you have to issue them. Make sure that you keep great records of the W9s whenever you have a new supplier/vendor or contractor come on board so you don’t have to make the last minute, hectic run around to get your 1099s together. You can go ahead and download our cheat sheet. And of course one more hot tip.
If you have questions or need a consultation you can always talk to us.
Cheers!
Andrea