If your business pays someone more than $600 in a year, you may be required to send them a form 1099-MISC before January 31st. If you have a rental property, this applies to you too.
What does a 1099-MISC do?
It reports to the IRS and to the person the total amount your business paid them during the year.
How do you know if you need to send a 1099-MISC?
In general, if you paid someone more than $600 during the year through your business for services, then you need to send them a 1099. There are 10 general categories of payments that would require a 1099 to be sent but the two most common categories are those for:
- Rent paid
- Services performed by someone who isn’t your employee
There is a complete list at the end of this post if you want to see each of the categories.
Common expenses that you might have in your business that could fall into the services category are: consulting services, advertising, marketing services, coaching, copywriting, web design, accounting, photography, legal fees, janitorial services, lawn care, and outside maintenance, just to name a few.
Like most things, there are a few rules and exceptions to this:
- If the payment was to a corporation or an s corporation (or an LLC taxed as either of those entities), then you don’t need to send a 1099.
- UNLESS, it was for legal services, then it does not matter if they are incorporated or not, you still need to send them a 1099.
- You don’t have to send a 1099 if your payments were for merchandise, telephone, supplies or other similar items.
What information do you need from the vendor in order to give them a 1099-MISC?
You will need their name, address, and either their social security number (if they are a sole proprietor) or their business name and employer identification number. You can collect this data using a form W-9. You may even be familiar with this form yourself, because someone may be sending you a 1099!
Now that you have the 1099-MISC information, what do you do with it?
After you complete the 1099’s for the vendors, make sure you give them each a copy by January 31st.
You also need to send a copy of the 1099’s with a form 1096 (which summarizes all of the 1099’s that you filed) to the IRS. These returns are due by January 31st as well. Unfortunately, the IRS doesn’t have a fill-in form you can fill out and them submit to them but here are some sites that allow you to fill in the data and file electronically.
If you want to mail the forms in, you will have to look at the IRS instructions to see where you need to send them because it is based on the state where you live.
You also may be required to send a copy of the 1099’s to your state, you will have to check on your state rules to see if you’re required to do so.
This is a summarized version of the 1099 process. For complete instructions on the who, what, where of the 1099’s, click here.
Here is a complete list of who would require a 1099
File Form 1099-MISC, Miscellaneous Income, for each person in the course of your business to whom you have paid during the year :
At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8);
At least $600 in:
- Rents (box 1);
- Services performed by someone who is not your employee (including parts and materials), box 7;
- Prizes and awards (see instructions for boxes 3 and 7);
- Other income payments (box 3);
- Medical and health care payments (box 6);
- Crop insurance proceeds (box 10);
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 7);
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
- Payments to an attorney. (See Payments to attorneys), later; or
- Any fishing boat proceeds (box 5).
In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (box 9).
You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.