’tis the Season for 1099’s

Now that the holidays have passed and the Ravens’ post-season playoff chances are over, it’s time to turn our attention to 1099s, the annual reporting requirement for payments by businesses to their landlord, janitor, accountants and attorneys, and web site designer, among others.

Businesses are required to issue IRS Form 1099-MISC “Miscellaneous Income” no later than January 31st of the following year to any person (including limited liability companies and partnerships) paid at least $600 in cash or by check for rents, royalties, services provided by an independent contractor who is not an employee, director’s fees, prizes and awards, medical and health care payments, substitute payments in lieu of dividends or interest, payments to attorneys, etc. Keep in mind that all payments to attorneys and medical and health care payments should be reported on Form 1099-MISC even if the payee recipient is a corporation.

Please note that payments made by credit card should not be included on IRS Form 1099-MISC. Credit card payments are reported on IRS Form 1099-K “Payment Card and Third Party Network Transactions” issued by the credit card settlement entity. Therefore it is important to identify credit card transactions in your accounting software so that these transactions can be excluded from your 1099 detail reports, otherwise these payments are reported twice to the payee recipient, causing their income to be overstated.

An important step in preparing to issue 1099s is to request IRS Form W-9 “Request for Taxpayer Identification Number and Certification” from the payee recipient. This requires the payee recipient to provide their business name, address, taxpayer identification number and entity type (i.e., corporation, partnership, sole proprietorship, etc.) This information should be recorded in the vendor profile in your accounting software. Additionally most accounting software will provide a checkbox to select vendors for 1099 tracking and reporting.

If the recipient payee refuses to provide this information, you are required to backup withhold on the reportable payments. For this reason it is generally easier to obtain the completed W-9 before the first payment is issued to the recipient.

Blank 1099 forms are available in office supply stores in January. Additionally there are several software programs on the market for the preparation of 1099s. Our firm uses 1099-Etc. by Advanced Micro Solutions which allows us to print forms on plain white paper and to electronically file the 1099s directly with the IRS using our firm’s IRS-designated transmitter code. Submit IRS Form 4419 “Application for Filing Information Returns Electronically (FIRE)” to obtain a transmitter code for electronic filing of IRS Forms 1099-MISC and other forms (i.e., 1099-INT, 1099-DIV, 1098, 5498, W-2G, 1042-S, etc.).

Copy B of the form must be mailed to the recipient payee no later than January 31, 2016. Late filing penalties up to $100 per form may be assessed if these deadlines are not met.

Keep in mind that the deadline for filing Copy A of Form 1099-MISC with the IRS is February 29, 2016, if you file on paper, or March 31, 2016, if you file electronically. IRS Form 1096 “Annual Summary and Transmittal of U.S. Information Returns” is also required.

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