Your trade or business may be required to issue a Form 1099-MISC, Miscellaneous Income, for certain types of income paid to others. The general rule is if your business pays an unincorporated entity $600 or more annually for services, rents, etc., the total amount paid should be reported on Form 1099-MISC.
What payments are required to be reported?
Several types of miscellaneous income are reported on a 1099-MISC, including:
- $10 or more in royalties or broker payments;
- $600 or more in rents, services, prizes and awards, medical and health care payments, etc.;
- Any fishing boat proceeds;
- Gross proceeds paid to an attorney (such as an insurance settlement paid to an attorney);
- Backup withholding of Federal income taxes, and/or
- Various other income items.
We will focus on the most common types of payments reported on a 1099-MISC.
Rents
If your trade or business pays $600 or more annually for the rental of real estate, machinery, or farm grazing land, the amount paid to each entity should be reported in Box 1 of the 1099. Rent for real estate that is paid to a real estate agent is not required to be reported on a 1099.
Nonemployee Compensation
Nonemployee compensation is reported in Box 7. If the following four conditions are met, you generally must issue a 1099 for nonemployee compensation:
- The payment was made to someone who is not your employee;
- The payment was made for services in the course of your trade or business;
- The payment was made to an individual, partnership, estate, or in some cases a corporation, and/or
- You made payments of at least $600 during the year.
Please note that if you are audited by the IRS and you did not issue 1099s, the expense will be disallowed even if you have receipts for the expense.
Some examples of non-employee compensation are:
- Professional service fees, such as attorneys’ fees (including those paid to corporations), accountants, and architects;
- Payments for services such as office cleaning, auto maintenance and repair, computer repairs, etc.;
- Fees or commissions paid to nonemployees, including independent contractors, or travel reimbursements for which the nonemployee did not account to the payer;
- Fees paid by one professional to another, such as fee splitting or referral fees, and/or
- Some other less common types of payments reported in Box 7 include taxable fringe benefits for nonemployees, certain fish purchases for cash, exchanges of services between individuals in the course of their trade or business, and various other payments.
Deadlines for Issuance of Form 1099-MISC
Copy B of the 1099 statement is required to be mailed to recipients (the payee) with a postmark no later than January 31st. Form 1096, Annual Summary and Transmittal of U.S. Information Returns and Copy A of the 1099s should be sent to the IRS and postmarked no later than February 28th.
Penalties
Failure to file correct 1099s by the due date may result in penalties ranging between $30 and $100 per return; $1,500,000 maximum fine ($500,000 for small businesses). If you intentionally disregard the requirements to furnish a correct 1099 to the payee, the penalty is at least $250 per payee statement with no maximum penalty.
Electronic Filing of Forms 1099
You can file Forms 1099 electronically through the Filing Information Returns Electronically (FIRE) system. For information concerning the FIRE system, go to www.irs.gov. In addition, you now can file most of these forms online through the approved IRS e-file for Business Providers. Go to www.irs.gov to choose a vendor that offers online filing.
If you would like more information or assistance in Form 1099 preparation, please call your tax adviser or Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
