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

hour glass over 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?

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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2 comments on “How to File Your Form 1099’s and Avoid IRS Penalties
  1. What exactly does one do if a contractor refuses to fill out the W4?

    • Tom Scanlon says:

      Hi Belinda,

      Great question. I’m sorry I don’t have a great answer.
      The payor is required to obtain the information from the contractor to be able to prepare the 1099.
      If the contractor refuses to fill out the W-4, you will need to make a business decision. Do you want to go forward with this contractor knowing you will not have the information be in compliance with the 1099 rules.



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