The IRS knows where to look to find easy money. The first things the auditor normally asks to see are your 1099 forms. You are required to send a 1099 MISC form to any noncorporate client that you pay over $600 for business services and/or services and materials. The penalty can be up to $100 for every 1099 form you fail to file.
These forms are required to go to the recipient by January 31, with copies going to the IRS by the end of February. The 1099 requirements have been around for a while. 1099’s are the way, in effect, we audit ourselves. You are telling the IRS you paid someone money for services. They can then match the 1099 forms to the individual’s tax return to see if they are properly reporting their income.
For example, the auditor comes into your salon or spa and determines you are not filing 1099’s. Suppose you should have done ten 1099’s. VIOLA! Ten forms times $100 equals $1,000 penalty times three years, that the audit would be, and you now have a $3,000 penalty before the auditor even gets his briefcase open.
Lesson learned: make sure you have 1099 forms filed. For more information on this, please contact me, or you can get more information from www.irs.gov.
In my last posting, I informed you about the 1099 forms. I have had the following follow up questions:
Q - I was rather interested in your posting on 1099 forms. What if I pay someone $400 at the beginning of the year for services, and then later in the year I pay the same person $300. Both of those amounts are under $600, am I still required to do a 1099?
A - Yes, the total amount for the year is over $600. Therefore, you are required to do a 1099 form.
Q - I am a C corporation and have a June 30th year end. When should I do my 1099’s?
A - Even though you are on a June year end for your corporation, the 1099’s are to be submitted on a calendar year end. Therefore, they are required to be from January 1st through December 31st.
Q - I paid an individual to do some plumbing repairs in my salon. The amount of services was $500 and the materials were $1,100. Since the services were under $600, do I have to do a 1099?
A - Since the bill is for services and materials combined on the same bill, you would be required to do a 1099 form for the full amount of $1,600.
Q - I paid someone $1,100 to paint my salon. Later in the year the same person did some painting at my house and charged me $1,200. How do I do a 1099 on this person?
A - You are only required to file a 1099 for business expenses. Therefore, you would only have to file a 1099 on the $1,100 painting the person did to your business. Nothing has to be done for the personal portion this person did.
Q - I looked at the 1099 form and I see I am supposed to put the ID number or social security number of the recipient. I did not get the number, what do I do now?
A - In actuality, for people you give 1099 MISC forms to, you should have a form I-9. I am addressing that along with this blog posting. If you cannot get a 1099, I would go ahead and write the person’s name, address, and write that you could not get the individual's ID number. In the future, you should do the I-9 forms to make sure this problem does not occur.
Q - You mentioned in your article that 1099’s are only required for non corporate individuals. I do not understand.
A - For some reason, the IRS feels that corporations must have procedures in place to make sure they report all of their income. Therefore, if the business you are paying is a corporation, you do not have to give them a 1099. For example, if your garbage service that you pay over $600 to is a corporation, you do not have to do a 1099. On the other hand, if it is an LLC, partnership, or a sole proprietorship, a 1099 is required.
Q - I don’t know if the business is a corporation or not. I do have their ID number. What do you suggest?
A - If you can’t get the information on whether or not the business is a corporation, I would go ahead and file the 1099 form. There is no penalty for filing a 1099 form you don’t need to file, so I would play it safe and file the form.
Larry Kopsa CPA
