As the end of the year approaches, you may be planning to send out Form 1099s to your small business’s vendors, contractors, and other service providers. But before you can send out those forms, you’ll need to gather a few key pieces of information. If you’ve never issued 1099s before, this guide will walk you through the process.
Who Receives a 1099 Form?
Form 1099 is a tax form used to report income, such as interest payments and non-employee compensation.
The IRS issues the following types of Form 1099s:
- Form 1099-MISC for independent contractors, freelancers, and non-employees who receive at least $600 in certain types of payments during the year. If you have paid out more than $5,000 to a person or business (like an independent contractor) in any one year, you’re required by law to issue them a Form 1099-MISC showing what they’ve earned from your business. You’ll be responsible for paying taxes on this money if they don’t submit it themselves through their tax return.
- Form 1099-INT for interest payments made over certain thresholds during the calendar year;
- Form 1099-DIV for dividends received during the calendar year; and
- For foreign investors who own U.S.-based mutual funds or other investments that pay UIT dividends.
When to Send Them?
Your contractor will give you the 1099 form the day you hire them. You have until January 31st to mail the 1099 forms to your recipients. Then you have February 28th to send them to the IRS by mail. And if you’re doing E-filing, you have until March 31st to complete the process.
What Happens If You Miss Deadlines?
If for some reason, you miss the deadline to file 1099 forms, you might be subject to a penalty of up to $100 per form. However, if there’s proof you intentionally disregarded the requirements to issue 1099 forms for your contractors, you might be subject to a minimum penalty of $250. These penalties have no maximum and can easily exceed $1M in some cases.
Find Help From a CPA or Bookkeeper
As a small business owner, you probably already have a lot on your plate. Consider working with an accountant or bookkeeper to organize and file your 1099s. They can help you send the correct files and avoid penalties. Contact a reliable CPA or bookkeeper to discuss your tax filings.
Written by Gerladine Orentas in partnership with Faxage online faxing service and Linda Rost’s Better Bookkeepers.