The most dreaded 4 numbers in all of accounting would have to be 1-0-9-9. Most independent contractors and self-employed individuals are privy to these notorious IRS tax forms, however, small business owners may not be aware of their responsibilities for filing a 1099.
The tax Form 1099-MISC is used by the IRS to track revenue for all individuals, companies and organizations who are required to report their income on an annual basis. These entities include self-employed individuals, LLC’s, LLP’s, some corporations, attorneys and law firms.
Any business who makes payments to these entities are legally required to file a Form 1099-MISC stating the total amount paid to the vendor for the year, if that total exceeds the threshold as determined by the IRS. For many years, this threshold has remained at $600 or above.
However, as is usually the case with the U.S. tax code, there are always exceptions. Therefore, it’s best to consult with your bookkeeper or accountant on which of your vendors and payments will need to be reported.
For businesses who neglect to file 1099’s properly, the penalties can be severe, ranging from $50 per 1099 form, up to 10% of the total amount not reported. In some cases, the IRS could deny the deduction of such un-reported expenses against your income.
So, don’t delay. The deadline for sending all required 1099’s to your vendors is February 1, 2016.