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.