Tips for 1099 Filing

Are you a business owner, CFO or bookkeeper?  January is the time to file end of year reports including 1099s.   Here are a few tips to ensure that the 1099s are filed timely and correctly.

Taxpayer Identification Numbers:

The IRS has clarified how to report the recipient’s information on the 1099. If the recipient is a sole proprietor, use their individual name and their social security number.  For single member LLCs, use the owner’s name and their social security number as well.  Sole proprietors and LLCs may have Employer Identification Numbers (EIN), but using the EIN causes confusion for the IRS.  By using social security numbers, the IRS is able to match 1099s to individual tax returns where the income is reported.

For all other entities including LLCs that file as a partnership, use their employer identification number.

You may truncate the recipient’s social security number on their copy of the 1099.  Use “X’s” for the first five numbers and then print the last four of their social security number.  You cannot truncate the numbers on the copy that is filed with the IRS.

Should you file 1099s?

For a business, the most common 1099 filed is the 1099-MISC.  If you pay $600 or more to an individual or business for services (not goods) during the year, you must file a 1099.   Payments to corporations do not need to be reported.  Failing to file a required 1099 can cause you to incur significant penalties and may cause the IRS to disallow a deductible expense, thereby increasing your taxable income.

Items that require a 1099 include payments for services (such as professional, accounting, legal, repair and maintenance, web and graphic design, and computer services), rent, prizes and awards, or attorney fees.  Please contact DBM for a comprehensive list of the expenses that may trigger a required 1099.

You may also need to file a 1099-INT if your business is paying interest of $10 or more to an individual or another business that is not a corporation.

Individuals who receive a 1099 for income that belongs to someone else must file a 1099 to let the IRS know that the income belongs to another recipient.  For instance, if you receive a 1099-MISC for rental income that is reported by your sister, you must file another 1099 to indicate that your sister is the recipient (you would be the filer).  The IRS will then look at your sister’s tax return to ensure that the income is reported.

Deadlines:

  • If you are reporting non-employee compensation, the 1099-MISC is due to the recipient and the IRS by January 31, 2018. They can be paper-filed (if you are filing under 250 forms) or electronically filed.
  • All other 1099s are due February 28, 2018 if paper filed and March 31, 2018 if filed electronically.
  • The IRS suggests that if you file 1099-MISC for non-employee compensation, you submit the 1099s and the Summary Form 1096 as one package. This advice applies to all 1099s filed for non-employee compensation, even if they are filed late.
  • Submit all other 1099s in a separate package with a separate Form 1096.

Filing 1099s can be confusing.  Consequences for missing deadlines or for not reporting can be painful and expensive.  Should you have any questions, please contact DBM.

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