The IRS requires all businesses to file Form 1099-MISC for each non-incorporated payee to whom they paid $600 or more for non-employee compensation or rent, or to whom they paid $10 or more of royalties. There are other 1099 thresholds which you will probably not have to use, for example for fishing boat proceeds and Indian gaming winnings.
Please note the payments are for SERVICES, like consulting or commissions, not for the purchase of goods. The payments must have been for BUSINESS, not for personal things. The amount reported is the total of PAYMENTS, not the total of purchases (so amounts owed to a vendor at year end are NOT included and amounts that WERE owed at the start of the year that got paid during the year ARE included – you add up the checks written to that vendor).
Rents can be of space or of stuff.
How Did You Pay?
Payments made via cash, check or non cash trades are reportable. Payments made to payees via credit card or a third party network (such as PayPal) do NOT get reported on Form 1099-MISC.
Where the value of trade given a contractor for services is $600 or more, you are still supposed to give them a 1099-MISC for the value of the compensation – even though it was not in cash.
Fees & Expenses
Where a client paid a subcontractor for FEES and EXPENSES, generally the payer reports the TOTAL paid on Form 1099-MISC. The subcontractor herself will deduct the part that was reimbursement of costs on her own tax return. If the vendor provided goods and services, for example, sold the client furniture and also refinished other furniture, Form 1099-MISC should include just the service portion.
Partnerships and LLCs or LLPs taxed as partnerships DO get 1099s; so do trusts and estates. Only corporations do not. (LLCs can choose to be taxed as corporations; such LLCs would thus NOT get 1099s unless they were lawyers or health care providers – see below.)
Payments to partners of a partnership or to employees of a business are NOT reported on Form 1099 unless the payments are outside the normal duties of the payee. For example, if I am a clerk for a business, I get a W2. But if I ALSO have a late-night cleaning service and clean the office as such, I would get a 1099 for the cleaning payments.
Payments to LAWYERS are reported on Form 1099-MISC whether or not the lawyer is incorporated. There are TWO boxes which might be used to report payments to attorneys: Box 7, for regular legal services, and Box 14, for gross proceeds of a legal settlement.
Payments for MEDICAL AND HEALTH CARE are also reported on Form 1099-MISC even if the doctor or other health care practitioner is incorporated. There is a special box on Form 1099-MISC for medical payments.
It is important that the names used for payees on Form 1099 match the tax ID#s. If a vendor uses his SS#, then his personal name should be used for the 1099 and not some trade name.
When to File
The payees get their forms postmarked by Jan 31. If the 31st is on a weekend, the postmark date is the first business day after the 31st. The IRS and Commonwealth of MA DOR get their copies of the 1099s with a cover Form 1096 postmarked by Feb 28 (Feb 29 in leap years). The IRS gets the original 1096; the DOR gets a copy.
QuickBooks can print 1099 data. Prior software versions might not align with current tax forms. On QuickBooks, you flag Vendors as eligible for 1099s by checking a box on the Other Info tab of the Edit Vendor screen. Also on QuickBooks, you set up which G/L accounts report on which box of the 1099 in the Preferences:1099 section.
QuickBooks has a report called 1099 Report that can show payments to vendors that may be eligible. Pay attention to the filters you set on the report; you can set it to include all vendors or just 1099 vendors; or to include all accounts or just 1099 accounts.
MYOB software has a similar report called either Vendor Payments or 1099 Report depending on the version of the software that you use. You tell MYOB about the 1099 eligibility of a vendor on the Terms button of the Vendor’s card in the Card File or, in the latest versions, on the Buying Details tab of the Vendor Card. MYOB can also print on 1099 forms from the Purchases Command Center.
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