IRS Form 1099-misc Due Date Approaching – Facts and Misconceptions

As many of us who hang our own shingle are painfully aware, IRS Form 1099-misc is due NEXT WEEK. YIKES! I'm still shaking off the holidays.

The failure to timely file this 'informational return' has gone up this year. So you really do NOT want to miss this deadline, particularly if you are a contractor that needs to get 50 or so of these out.

The IRS requires that you issue 1099-misc to any independent contractor who provided at least $600 worth of services to your business. This discloses money or other benefits paid to an independent contractor, subcontractor, or other business or individual who did stuff for your company under contract or otherwise.

It is deemed to be an “information return” by the IRS.  You issue a 1099 to prove costs and/or expenses to the IRS and the payee uses the 1099 to report gross receipts.

The problem with this 'informational return' reporting obligations is most of us DIY-ers and small business owners are confused about who specifically needs to get one. Everyone has an opinion.

IMHO anyone who is paid $600 or more in the tax year for services to your business should get this form REGARDLESS OF THE RECIPIENT'S BUSINESS STRUCTURE, as it provides additional basis for expense claims made on your income tax return.

If you paid for services provided by a limited liability company you may be required to issue a Form 1099-misc statement to the LLC. The instructions for issuing 1099-misc to LLCs are not THAT complicated it merely requires determining what kind of an LLC you are dealing with for income tax reporting purposes.

If you are unsure, contact me.

The answer depends on how the LLC is treated by the IRS. For federal tax purposes, a limited liability company (LLC) may elect to be taxed as a sole proprietorship, a disregarded entity; a partnership; or a corporation.

It breaks down like this, if the payee is as LLC that is taxed as a:

  • sole proprietorship, you must issue the 1099 with certain information needed by the IRS including the name of the sole proprietor, the name of the LLC and the Social Security number of the sole proprietor, which serves as the tax identification number.
  • partnership, you must issue the 1099 in the name of the business and list the employer identification number (EIN).
  • corporation, you do not necessarily need to file IRS Form 1099-misc. Corporations have strict IRS guidelines and different forms for reporting income that replace the use of a 1099.

Contrary to popular misconception:

  1. You may issue the 1099 to a corporation if you wish to simplify your own record keeping and create substantiation for expenses.
  2. You do not need to issue a 1099 to any LLC when you pay transaction costs for merchandise including the item cost, postage charges, delivery costs and storage.
  3. You should collect IRS Form W-9 from any person or organization you anticipate paying for services and you should do it before making your first payment to any new contractor.

John R. Dundon, EA [720-234-1177,]
Enrolled with the United States Department of Treasury to Practice before the IRS (Enrolled Agent # 85353). Under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent. A Federally Authorized Tax Practitioner (USC 31 Section 330 + IRC 7525a.3.A) regulated under US Treasury Cir. 230.

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Posted in 1099, Informational Return, IRS Enforcement

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