Did you know that you can lose certain expense deductions for your business if you don’t process 1099’s as required by law?

1099 Forms Preparing for 1099 Reporting

The year 2007 is over. Are you ready to file 1099’s? Has your business previously reported 1099 Payees? (If you are my regular client the answer is yes). 

You’ll want to continue reading to find out if you are in compliance and the possible consequences if you are not. You may also want to print this e-mail for future reference.

Many businesses do not report payments made to 1099 Vendors. Perhaps they are not aware of their obligation or they do not realize the possible consequences of non-reporting. In either case, it is important that Business Owners are aware of the requirements and the consequences for non-compliance.

Important Information About 1099 Vendors

  • What is a 1099 Vendor?

A 1099 Vendor is anyone you have made a payment to (a Payee) in the course of your trade or business who is not a “Corporation”. Corporations do not require 1099 reporting with the exception of Attorneys. Attorneys receive a 1099-MISC whether they are incorporated or not.

The threshold for reporting is accumulated payments made to a particular vendor (Payee) totaling $600.00 or more in a calendar year.

  • Who is required to report 1099 Vendors

Anyone engaged in trade or business for gain or profit. Non-profit Organizations who are considered to be engaged in business are also subject to these reporting requirements.

  • Why do I want to report 1099 Vendors?

First, it is required by law. Second, if you don’t report 1099 Vendors, you risk losing the tax deduction for the amounts paid to 1099 Vendors, and you are subject to penalties of up to $50.00 per information return (each Payee per year is one information return) to a maximum of $250,000.00. In some cases, the penalties can be $100.00 per information return with no maximum.

Penalties are assessed for “Failure to File Correct Information Returns by the Due Date”. This means you are assessed penalties for not filing, for filing late, and for filing incorrect information.

  • How do I file 1099’s?

Your Bookkeeper or Accountant can file your 1099’s. Or, for detailed Instructions on how to file 1099’s please refer to IRS “Instructions for Form 1099-MISC” and “General Instructions for Forms 1099, 1098, 5498 and W-2G. (see below for download instructions)

  • What information will I need to provide to my Bookkeeper or Accountant in order to file 1099’s

You will need to provide the Payee’s legal name, address and Tax ID number. This information is obtained by providing your Payee’s with a W-9 form to complete and sign. You can download the current form at: http://www.irs.gov/pub/irs-pdf/fw9.pdf

You will want to have the completed and signed Form W-9 on file to protect yourself from penalties in case the Tax ID number or Payee address submitted on the 1099-MISC form is incorrect or invalid.

You will also need to provide the total payments made to the Payee for the calendar year. A summary per Payee, as well as a detailed breakdown of check numbers, dates and amounts, is important.

If you use QuickBooks, and QuickBooks is set up properly, you can automatically generate the information and print 1099s’ from QuickBooks.

  • What happens if the Payee does not return the W-9 form?

You are required by law to withhold 28% from payment if the Payee fails to provide you with the completed and signed W-9 form, including their Tax ID No. The money withheld is considered “backup withholding” and is reported to the IRS.

I suggest you provide your Payee/Vendor with a W-9 form immediately upon engagement and before submitting payment to avoid scrambling to gather this information at year-end.  If the vendor is not in compliance it will be too late to withhold the amounts required by law.

  • When are 1099’s Due?

The copies sent to Payees are to be submitted and postmarked by January 31st of each year.

The original 1099-MISC forms and Form 1096 need to be submitted to the IRS by February 28th.
In conclusion, it is important that you are in compliance with the 1099 reporting requirements so you don’t lose expense deductions and do not subject yourself to costly penalties. Of course, you also don’t want to be flagged by the IRS as a potential problem requiring scrutiny. Start collecting W-9 forms today! And feel free to forward this e-mail to anyone who could benefit from this information.

This e-mail is to provide you with general information. Please refer to IRS “Instructions for Form 1099-MISC” and “General Instructions for Forms 1099, 1098, 5498 and W-2G” for detailed and more specific information. You can download these forms at: http://www.irs.gov/pub/irs-pdf/i1099msc.pdf and http://www.irs.gov/pub/irs-pdf/i1099gi.pdf.

Note: You will need Adobe Acrobat Reader in order to view these documents. You can download Adobe Acrobat Reader, free, from the following site: http://www.adobe.com/products/acrobat/readstep.html

Please do not hesitate to contact me if you have any questions, or if I can be of assistance to you.

 

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(This complete package includes 1099 forms, 1096 forms, and envelopes, in various quantities)

I hope you enjoyed this article. Please do not hesitate to contact me Click Here! if you have any questions, or if I can be of assistance to you.

Warmest Regards,

Victoria L. Lenhardt
Bottom Line Enterprises