Timely 1099 tax reporting is an important part of completing year-end taxes. Otherwise, your business can be subject to IRS penalties ranging from a few hundred to thousands of dollars. To avoid these penalties, it helps to understand the requirements for 1099 tax reporting.
IRS 1099 instructions state that you must send a 1099-MISC form to each person you have paid $600 or more for rents, services, prizes, awards, or other types of income payments. Other 1099 MISC reporting requirements include filing a form for:
- Fees paid to law firms
- Forgiving an outstanding debt during the fiscal year
- Paying dividends to investors
According to IRS form 1099 reporting requirements, you don’t need to issue 1099s for payments made for personal purposes; only for those made in the course of your trade or business. A complete list of IRS form 1099 reporting requirements can be found on the IRS website.
Filing a 1099 form is a two-part process. Businesses must send a copy to each independent contractor no later than January 31, and a copy to the IRS no later than February 28. If you file electronically, the IRS deadline is extended to March 31. Keep in mind that, depending on state law, you may also have to file a 1099 with your state. To determine whether this rule applies to your business, check with your state’s tax board website.
Gather W-9 Information Before Filing Deadlines
To meet 1099 tax reporting deadlines, it helps to have each vendor’s information on file before the end of the year. If you expect to pay a vendor more than $600 through the course of the fiscal year, have them complete a W-9 form and return it to you before you pay them. That way, you will have the vendor’s mailing information and tax ID number on hand at filing time.
Avoiding 1099 Penalties
Filing 1099 forms after IRS deadlines can result in fines ranging from $30 to $100 per form, with a maximum penalty of $1.5 million for each business. The severity of the fine depends on how long after the deadline you file, so don’t delay this important year-end procedure.
That’s where a trusted outsourced accounting firm like BOSS can help. As part of our comprehensive tax preparation services, we can work with your existing tax team to ensure all schedules and information are provided in a format they can understand and utilize to accurately prepare and file your applicable tax returns in a timely manner.