How to File Your Form 1099’s and Avoid IRS Penalties

moneyDetermine Who Needs to Be Issued a 1099

A Form 1099 needs to be issued to any unincorporated business that you paid $600 or more.  An unincorporated business includes Limited Liability Companies (LLC’S), Partnerships and Sole Proprietors.   Additionally, a 1099 needs to be issued for all legal services rendered irrespective of whether the law firm is incorporated or not.

 

 Obtain Form W-9

Form W-9 should be obtained before any independent contractor starts working for you.  This form will provide the name, address and tax identification number of the contractor.  This information will be used to prepare the 1099.  Form W-9 is not mailed to the Internal Revenue Service (“IRS”).  It is merely kept on file as your supporting evidence used to prepare the 1099.

 

Issue Form 1099

The 1099 is due to the recipient by January 31.  The 1099 is due to the IRS by February 28.  The extra month to file with the IRS is presumably to allow time for the recipient to review the  1099 and question the party that issued it if there is any potential discrepancies.

Please note that 1099’s are machine read or scanned documents. When preparing 1099’s use Courier print type, a 12 font size and black ink. Form 1096 is the summary transmittal form for Form 1099.   Connecticut taxpayers are required to file Form CT-1096 along with the state copy of the 1099’s. If you are required to file more than 250 Form 1099’s you must file electronically.

 

Avoid Penalties

The IRS added two questions to all of the business tax returns including forms Corporate Returns Forms 1120 and 1120S and Individual Return Form 1040 Schedule C and Schedule E.

The questions are:

“Did you make any payments in 2013 that would require you to file Form(s) 1099?”

“If, “Yes,” did you or will you file all required Forms 1099?”

These questions may seem innocent enough.  This is however the IRS’s way of obtaining better compliance with the filing of Form 1099. The IRS is concerned about the “underground economy” and the taxes they are not collecting.   The penalty for failure to file a 1099 within 30 days starts at $30 per form.  This increases to $100 per form after August 1.

Be prepared to possibly have to Respond to an IRS Notice with a 1099 Mismatch. These two questions listed above have increased the filing of Form 1099. Some of these may not have been filed correctly.

 

Will you take these steps to file your 1099’s?

About the author:

Tom Scanlon, CPA, CFP®

Tom Scanlon has over twenty-five years experience in public accounting with an extensive background in the areas of financial, tax and estate planning. Find Tom on Google+

3 Comments on "How to File Your Form 1099’s and Avoid IRS Penalties"

  1. IRS FORM 1120 TAX YEAR 2014
    Dec 25th, 2013

    […] How to File Your Form 1099′s and Avoid IRS Penalties | Borgida … […]

  2. Belinda Mills
    Jan 2nd, 2014

    What exactly does one do if a contractor refuses to fill out the W4?

Comments closed.

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