Are you a small business? Did you pay a sub-contractor, a landlord, an attorney during the past year? If you did you may be required to send those that you pay a 1099. The IRS has strict guidelines concerning these payments and has placed the burden on the payor to comply with IRS regulations. These IRS regulations attempt to close the tax gap - between taxes owed and actually paid. The statistics the IRS keeps shows when information is reported on a W-2 there is 99% compliance. Without reporting 56% do not report. To ensure an increase in compliance the IRS has increased penalties to ensure there is more compliance. Depending on how late you file the 1099 the penalty can be as high as $270 per form. Here is a summary of the requirements:
Pursuant to the Internal Revenue Service, a payer to a service provider must give that service provider a 1099 MISC if
- at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
- at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
- any fishing boat proceeds,
- gross proceeds of $600, or more paid to an attorney during the year, or
- withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
If you believe that this may apply to you and you need assistance in generating the necessary documents, give my office a call as we can assist you in being in compliance. The deadline to send these out is January 31 – to both the service provider and the IRS.