The due date for furnishing 1099-MISC statements to recipients and to the IRS for the 2018 tax year is January 31, 2019. Form 1099-MISC, Miscellaneous Income, is an informational return used by the Internal Revenue Service (IRS) to report payments made to non-employee individuals or unincorporated businesses during the calendar year. As the filing of Form 1099 remains a hot topic with the IRS, it is more important than ever to consider whether you are required to file Form 1099 in the course of your trade or business.
In general, you must file Form 1099-MISC for each person to whom you have paid at least $600 in rents, services, prizes and awards, or other income payments made in the course of your trade or business during a calendar year.
Examples of services performed by independent contractors or others (non-employees of your business) include:
- Professional Services
- Custodial Services
- IT (Information Technology)
Generally, you do not need to report payments to another business that is incorporated, however, gross proceeds of $600 or more paid to an attorney requires a Form 1099-MISC regardless of whether the payments are made to an incorporated entity.
Failure to file correct information returns by the due date can be costly. If you fail to file a correct information return by the due date, and you cannot show reasonable cause, you may be subject to penalties. Penalties apply if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return. Penalties also apply if you file on paper when you were required to file electronically, you report an incorrect TIN or fail to report a TIN, or you fail to file paper forms that are machine readable. The amount of the penalty for 2018 is based on when you file the correct information return and is as follows:
- $50 per information return if you correctly file within 30 days; maximum penalty $547,000 per year ($191,000 for small businesses as defined by the IRS).
- $100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,641,000 per year ($547,000 for small businesses as defined by the IRS).
- $270 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,282,500 per year ($1,094,000 for small businesses as defined by the IRS).
How can you tell if you need to file a Form 1099-MISC?
You are not required to file Form 1099-MISC if any of the following apply:
- You are not engaged in a trade or business.
- You are engaged in a trade or business and:
- Payments are made to a corporation, but were not for legal services
- The sum of all payments made to the person or unincorporated business are less than $600 in one calendar year.
If you’re not sure, ask questions! Never assume that because a business name includes the word “Company” or “Co.” that it is a corporation. Businesses that are Limited Liability Companies (LLCs) can be treated as sole proprietors, partnerships, or corporations. The best way to ensure you have the information you need is to get a payee to complete IRS Form W-9 before you write a check.
As always, our CPAs at Mason + Rich are ready to answer any additional questions. Feel free to call us at 603-224-2000.