By Mike Nurse, CPA, CFE, CGMA
For many people, the end of the year is a time filled with lights, magic, family and friends. However, it is also time to start thinking about yearly tax compliance reporting, and being prepared is critical for a smooth reporting process.
One of the most common yearly tax requirements is the reporting of the Form 1099. The IRS uses this form to distinguish between different types of non-employee income received by a taxpayer. There are over 20 different versions of 1099s, and navigating through the different reporting requirements can be daunting. Luckily, the most commonly filed 1099 (1099-MISC) is quite easy to complete, as long as the following tips are kept in mind.
- Know what you need: The first step is to identify people or businesses you have paid who are eligible to receive 1099-MISC forms. Generally, these are professional service providers (e.g. consultants, independent contractors and lawyers) whom you have paid more than $600 in aggregate over the course of the reporting year. For the most part, C-Corps and S-Corps are excluded from the requirement to receive 1099-MISC forms (some exceptions exist). Once you have identified the payees, you will need to collect a W9 from each of them. This is a simple informational form used to substantiate taxpayer ID and entity type. Finally, you will need a total amount that you have paid the recipient during the reporting year.
- Reporting requirements and due dates: 1099s have three copies: Copy A, Copy B and Copy C. Copy B is the form that should be sent to the recipient of the funds. This form is due to your payees on January 31st of each year. Copy C is the copy for your records. Copy A (“the red one”) gets submitted to the IRS (along with a 1096 summary form) no later than the last day of February.
- State reporting: 1099-MISC reporting is required by some states as well. On the West Coast of the United States, both California and Oregon have specific state 1099-MISC reporting requirements, while Washington does not. Be sure to research your own state’s requirements as late fees and penalties for missed filings can add up quickly.
- Other types of 1099s: Some of the most common other types of 1099’s include the 1099-INT (used for reporting interest on shareholder notes, interest payments from investments, savings accounts, and other interest bearing instruments ), 1099-DIV (used for reporting dividend and distributions payments from a stock portfolio) and the 1099-C (used for reporting cancellation of debt). It is important to understand the different types of forms and income types to be able to determine which 1099 should be filed.
- When in doubt, file: The Form 1099-MISC is an informational return only. If you are unable to determine whether a recipient should be issued a 1099-MISC, it is always safer to complete and file a 1099-MISC rather than to assume it should not be filed at all. Failing to do so could result in penalties and interest if you assume incorrectly.
Detailed reporting requirements, filing instructions and copies of the 1099-MISC and W9 forms are available on the IRS website.
This article is intended to present general information only, and does not provide exhaustive information on 1099 reporting. You should consult your personal tax advisor with questions about your specific situation. If you would like assistance preparing your annual 1099 returns, please contact Cindy Doyle.
© Clark Nuber PS, 2014. All Rights Reserved