5 Easy Steps to File Your 1099’s….Guaranteed

It’s time for business owners to file their 1099’s.

Here are 5 Easy Steps to do this:

1) Determine who you will be Required to File a 1099 For

Form 1099 is due to any independent contractor who is unincorporated and you pay $600 or more to in a year.  Additionally all payments for legal services must be issued a 1099 regardless of whether the provider is incorporated or not. An unincorporated business includes sole proprietorships, general partnerships and limited liability companies (LLC).


2) Don’t Miscateragorize an Employee as an Independent Contractor

The IRS has a Twenty Factor Test for helping employers determine if someone is an independent contractor or an employee.  Generally, a business would prefer to categorize workers as independent contractors. When they do this, they don’t have to pay any social security taxes and unemployment taxes.  Additionally, if someone is classified as an independent contractor the employer does not have to cover them with workers compensation.

Employers need to have a clear understanding of this Twenty Factor Test as this is a hot issue with the IRS.


3) Have all of Your Contractors Complete Form W-9

This form will have the contractor attest to their correct name, address and tax identification number.  Additionally they will attest as to whether they are subject to back-up withholding or not. This should be obtained prior to them starting work.


4) Secure all of the Other Necessary Paperwork

In addition to having a signed Form W-9 before a contractor starts working a signed contract should be in place. It’s also prudent to get a copy of the contractor’s insurance policy for your file.


5) Issue Form 1099

The most common form that is issued is Form 1099-MISC.  The most common box used on this form is Box 7 for nonemployee compensation. Another common category on this form is for rent. Many landlords hold their real estate in an LLC and therefore a 1099 would be required. 1099’s that are paper filed (not electronically) only need to have the last 4 digits of the social security number or taxpayer identification number listed to help reduce the risk of identity fraud.

The Form 1099 is due to the recipient by January 31.  The copy to the IRS is due by February 28. The sum of the 1099’s are accumulated and transmitted on IRS Form 1096. Failure to file the Form 1099 may result in penalty.  The penalty can go up to $100 per return not filed. Business issuing a large volume of 1099’s must file them electronically.  States may have their own reporting requirements for 1099’s.

Will you use these 5 easy steps to file your 1099’s?

Photo from Creative Commons

Tom Scanlon has over thirty years experience in public accounting with an extensive background in the areas of financial, tax, and estate planning. He prides himself on providing in-depth and customized solutions to privately held businesses and their owners. He is a Certified Public Accountant and Certified Financial Planner®. Tom is a frequent speaker for area organizations and has  recently been quoted on CNBC, Fox 61 News and AARP's blog. Tom also has been a guest columnist for numerous publications including The Wall Street Journal, Barron's, Money Magazine, The Hartford Courant, The Hartford Business Journal, and The New Haven Register. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants, and the Financial Planning Association. Active in the community, Tom supports a variety of not-for-profit organizations.

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