The IRS is on the Hunt to Ensure Compliance
The Internal Revenue Service (IRS) has increasingly been scrutinizing tax returns that should have included, payments that would require you to file Form(s) 1099. Many taxpayers, both businesses and individuals, are likely candidates to comply with 1099 filing requirements … you may be one of them … read on to find out.
Due Dates & Penalties
Both 1099 recipients and the IRS must be provided 1099s by January 31, 2018. The penalties for non-compliance – failing to file or filing late – are severe. Here’s a rundown:
- If you file late but within 30 days of the due date, the penalty is $50 for failing to file the 1099 with the recipient and an additional $50 penalty for failing to file a copy with the IRS (for a total penalty of $100 per 1099).
- If you file after 30 days but before August 2nd, the penalty is $100 for failing to file the 1099 with the recipient and an additional $100 penalty for failing to file a copy with the IRS (for a total penalty of $200 per 1099).
- If you file after August 2nd, the penalty is $260 for failing to file the 1099 with the recipient and an additional $260 penalty for failing to file a copy with the IRS (for a total penalty of $520 per 1099).
- Finally, if you intentionally fail to file a 1099, the penalty is $520 for failing to file the 1099 with the recipient and an additional $520 penalty for failing to file a copy with the IRS (for a total penalty of $1,040 per 1099).
In preparing your tax return this year, you must answer under penalty of perjury (a felony) the following two questions:
- Did you make any payments in 2017 that would require you to file Form(s) 1099?
- If “Yes”, did or will you file all required Form(s) 1099?
Assuming your answer to the first question is “Yes”, the appropriate answer to the second question is clearly “No” to avoid penalties.
Who Must File Form 1099?
Generally, any trade or business that makes payments for rents, interest, compensation, or remuneration for services aggregating $600 or more for the year to a single payee is required to report the payments to the recipient of the payments as well as the IRS by filing Form 1099.
Note: This reporting requirement generally does not apply for payments to a corporation, other than payments made to corporations for attorney fees.
How do you determine if a business is incorporated?
The safest thing is to send a 1099, unless the invoice you pay and the check you write includes the words “Inc.”, “Incorporated”, or “Corporation”. For example, paying a bill to XYZ Contractors Company should trigger you sending a 1099 as it is undetermined that the business is incorporated.
Here are some of the more common examples of 1099 requirements:
- Rent paid on your office space, even if your landlord is an LLC.
- If you are incorporated and own your building, your corporation is required to send you or your LLC a 1099.
- Paying a person or cleaning company to clean your office or maintain the lawn at your office will most likely require a 1099.
- Paying a person or company to perform building maintenance, repairs, improvements, etc. at your office could trigger filing 1099s.
- Paying someone for casual labor may require a 1099.
- Payment to a team member that was not included on their W-2 form may require a 1099.
Note: In most cases all of an employee’s compensation should be reported on their W-2.
- Paying an attorney or law firm, whether or not they are incorporated, to perform work related to your business requires you to file a 1099. Personal work such as wills and estate planning does not require filing a 1099.
- Landlords with rental property who pay for lawn service, repairs or maintenance are subject to the1099 filing requirements.
- Payments to LLCs that are not classified as an S or C Corporation.
What happens if my request to provide information to send a 1099 is refused?
Before engaging and paying an unincorporated business or individual for services, you must require completion of Form W-9. This form lists the person’s or entity’s name, address, social security number or tax identification number, and their signature.
Note: Be sure that all of the above information is fully completed on the W-9.
You are required to maintain this form on file. If your request to complete the form is refused, you may want to re-think whether they are a good “fit” for your needs. In the event they won’t complete the form and you do continue to engage their services, you are required to do “backup withholding”. This means you must withhold 28% of their billing to you and remit it to the IRS.
Summary
Clearly, the requirements are complex and the penalties for non-compliance are severe. We stand ready to bring definition and clarity to your unique circumstances and how it may affect your need to file 1099s. Just give us a call or drop an email. We promise to respond promptly.