What's all the fuss about 1099s this year?
You may have heard about 1099s a lot more this year than in prior years. The IRS has changed the filing deadline to January 31, 2017 for 1099-MISC forms reporting nonemployee compensation in box 7. In prior years, 1099s could be electronically filed with the IRS until March 31st without penalty. If you are a business or self-employed, these new regulations impact you.
Businesses and self-employed individuals who paid nonincorporated vendors $600 or more in 2016 for services rendered must issue 1099s. Only payments for services qualify for 1099s. If you are paying a vendor for goods, you do not need to report the payment on a 1099. Payments by credit card also do not need to be reported on 1099s.
Who is a nonincorporated vendor? Any individual, sole proprietor, member of a partnership or LLC is nonincorporated. If your vendor’s name does not include Inc, Incorporated, or Corporation, they may not be incorporated. It is your responsibility to determine if you must file a 1099 for them. How do you do that? Issue your vendor a Form W-9 to complete and return to you, ideally before you pay them. A W-9 requests your vendor’s name, address, EIN/SSN and entity type.
One of the biggest mistake I see with clients is assuming LLCs do not need to be issued 1099s. This is incorrect. Most LLCs must be issued 1099s. Only LLCs that have elected to be treated by the IRS as an S-corporation are exempt from receiving 1099s and the only way you would know if the LLC has made this election is to receive a completed Form W-9.
Another mistake I see is clients forgetting that rent payments qualify for 1099 reporting. Remember to issue 1099s for office rent, storage rent, parking space rent, etc.
For small businesses with gross receipts of $5 million or less and self-employed individuals, the following penalties will be imposed for each late 1099:
Filed not more than 30 days late - $50 penalty per return
Filed 31 days late – August 1st - $100 penalty per return
Filed after August 1st or not at all - $260 penalty per return
Intentional disregard to file - $520 penalty per return
What does this mean for you? Be sure to review your list of vendors paid via cash or check in 2016. Note any vendors paid $600 or more for services and determine if they are incorporated. Issue 1099s to all nonincorporated vendors prior to January 31, 2017.
Not sure if you have vendors who qualify or need assistance in preparing your 1099s? Please contact us!
