1) Payments made to independent contractors. Payments to independent contractors over $600 need to be issued a Form 1099-Miscellaneous. This form needs to be issued to all unincorporated vendors. An unincorporated business is one that is a sole proprietorship, partnership or limited liability company (“LLC”).
2) Rent paid to an unincorporated entity. Receipients of rent payments must also be issued a 1099.
3) Any payments to an attorney for legal services. Any payments made to an attorney for legal services need to issued a 1099. It does not matter if the attorney is incorporated or not. All payments for legal services must be issued a 1099.
4) You don’t like paying penalties. The federal government has finally gotten serious about the “Tax – Gap.” This is the difference between what the government is collecting in tax receipts and what they have projected they should be collecting. The last estimate of this was about $400 billion. This “underground economy” where no income tax has been paid is huge. Failure to report income on Form-1099 could result in large penalties to the payor.
To properly complete Form 1099, you will need to obtain Form W-9, Request for Taxpayer Identification Number and Certification. This form will indicate the vendor’s name, address, legal entity and whether they are subject to backup withholding. Form W-9 is not sent to the IRS. This form is merely maintained on file. This form should be obtained from the vendor prior to them beginning to work for you.
The 1099’s are sent with a summary transmittal, Form 1096, Annual Summary and Transmittal of U.S. Information Returns. They are due to the recipient by January 31. Form 1099 is due at the IRS buy February 28. As with other correspondence with the tax authorities, we recommend these be mailed Certified Mail, Return Receipt Requested. States may also have filing requirements. In Connecticut, Form CT-1096 must be filed along with the state copy of the 1099’s
ACTION ITEM: Taxpayers need to be familiar with the filing requirements of Form 1099.