SCRIPT:

As a business owner, did you know that you might be required to send Form 1099s to your vendors and that your customers may be required to send them to you? So, 1099s; a lot of big businesses know about these, but a smaller businesses may not.

You have to send 1099s if you are in a trade business and if:

• You paid at least $600 for rents, services, prizes, Director fees, wages paid after death, things like that for different vendors. Generally those have to be done by January 31.

What about trade or business only?

• Any kind of business has to do it. So whether you’re a small business or whether you’re a large business.

• You can be a corporation, partnership, sole proprietorship. Those entities have to file 1099s, and now even this year we are even recommending that some of our rental property owners send out 1099s also.

Are there any exceptions to the rule?

• There is. If you do business with a corporation. Corporations have been exempt from receiving 1099s for a number of years. So if your vendor is actually a Corporation, you don’t have to send them a 1099. Or if you’re doing things like buying inventory, or you’re buying merchandise or fixed assets, you don’t have to send 1099s to those vendors either. So it’s really for services provided by your company.

What if you don’t know if your company is a corporation? What do you have to do?

• Form W-9 – Request for Taxpayer Identification Number and Certification

• You know, that’s a good point. What we’ve been advising our clients to do is every time that they get a new vendor, they have that vendor fill out a form that’s called a W-9. It essentially lets them know what’s the company name, address, and everything else that you need to know. More importantly, it lets them know whether they’re a corporation, partnership, or something like that. So if a company checks the corporation box, you probably don’t need to send them a 1099.

So what do you have to include?

• Everything. So let’s say you have a vendor, and they charge you a fee of $1000 to do a project and you have to pay for traveling or meals or something like that. Every dollar that you paid to that person should be included in that 1099.

• Fees charged, expenses reimbursed

What if you do not do them?

That’s very interesting, Terry, because really what the IRS is trying to solve here is that underground economy where there’s cash going back and forth, but not really being recorded to the IRS. That’s really what they’re trying to fix here with the 1099s.

So, what they’ve done is they have made the fines quite heavy.

• They can be anywhere from $50 – $260 depending on timing of how late these are. Up to $1,000,000 maximum, even for small businesses.

• And then of course the IRS can come in and can say, “Ok, you didn’t send out 1099s, so we’re not going to allow you to take the deductions.” They can even go that far, so they’re really trying to put the hammer down.

Well that doesn’t sound fun.

– It’s not in some cases.

So I imagine this is something why you need to surround yourself with good accountants.

• That’s right. So, if you’re a small business or a small rental property and you don’t do 1099s right now, you’re going to want to talk to your CPA and make sure that those get done for this year.

• The other thing to remember is just because a vendor or a customer does not send you a 1099 for a service you did for them, doesn’t mean that’s not income. That’s still income to you as a business owner.

So you still have to report that then.
– That’s correct. If you do services and you do not receive a Form 1099, it is still income.

 

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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