Everyone needs a little help now and then. In your business, you probably hired people to give you a hand in the various facets of your operation. You could hire a crafter to help you assemble your handmade wares, a customer service agent to get you through busy Q4 holiday sales, or just a general helper in your business.
If these people are not your employees, they are contractors and need to be given a 1099-MISC. This is a form that is used by the IRS to have you report what you pay to people who are not employed by you, but to whom you have made payment in exchange for services.
You will issue a 1099-MISC to someone in the following situations:
- You paid a contractor $600 or more during 2013;
- You pay at least $10 in royalties (reported in box 2) or broker payments in lieu of dividends or tax-exempt interest (reported in box 8);
- You pay out $600 or more in rents, services (which includes parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish you purchase from someone who is in the business of catching fish, or payments made from a notional principal contract to an individual, partnership, or estate;
- Any fishing boat proceeds; or
- Payments of $600 or more paid to an attorney.
Form 1099-MISC is also used to report any direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. Additionally, you need to file Form 1099-MISC for each person from whom you have withheld any federal income tax under the backup withholding rules, no matter how much you have paid them.
When is Form 1099-MISC Due?
You need to have the 1099-MISCs in the hands of the recipients by January 31st. However, if you paid out any substitute payments in lieu of dividends (box 8) or any proceeds to an attorney (box 14), you have until February 18th to get these forms to the recipient. Be sure to include mailing time in when you are determining when to put these in the mail.
Keep in mind that when you prepare your 1099-MISCs, you will need to prepare form 1096, which summarizes all the information from the 1099s, and send it to the IRS. This form is due to the IRS on February 28, 2013. (Don’t worry – there’s an app for that. Keep reading!)
Penalties for Filing 1099-MISC Late
If you don’t get these to the recipients in time, you will face some penalties. If you don’t get a correct 1099 to the recipients by the due date, and you cannot show reasonable cause, you may be subject to a penalty. The penalty would apply if:
- you don’t get the forms to the recipient on time,
- you don’t provide all information required to be shown on a 1099 return,
- you include incorrect information on the return,
- you file on paper when you were required to file electronically,
- you report an incorrect TIN (Tax Identification Number),
- you don’t report a TIN, or
- you file paper 1099 forms that are not readable by machines.
You may be wondering about the amount of the penalty. The 1099 deadline penalties are based on when you file the correct information return. The penalties, according to the IRS, are as follows:
- $15 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $75,000 per year ($25,000 for small businesses).
- $30 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $150,000 per year ($50,000 for small businesses).
- $50 per information return if you file after August 1 or you do not file required information returns; maximum penalty $250,000 per year ($100,000 for small businesses).
The penalties may not seem like much, but as you grow your business, they could start to add up. Additionally, as a small business, you want to hold on to every penalty, and not waste them on penalties that could so easily be avoided. If you need some help with the preparation of these forms, there are services available, reputable services such as FileTaxes.com will take care of much of this paperwork for you.
This article was originally published by Outright.com
Author: Chris Peden, CPA, CMA, CFM has over 15 years in the corporate world helping companies meet their regulatory compliance requirements. He also assists small business owners with organizing and making sense of their finance information. You can reach him at firstname.lastname@example.org, or check out his blog at www.theaccountingscribe.com. In accordance with Circular 230 Treasury Department Regulations, we are required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code. If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.
Published: January 24, 2014