Certain types of income are reported through Form 1099-MISC. It is similar to the W2 form for the person who is not an employee. You need to know about this form when you are self-employed or in business and also if you make any payments to individuals, businesses, independent contractors, subcontractors, or vendors for their service. Submit the 1099-MISC form to the IRS also to the entity or person who got payment from you.
When you require Form 1099-MISC?
You require a 1099-MISC form when you pay $600 to a person who is not your regular employee during the tax year. When you are paying $ 300 by June, you do not require Form 1099-MISC. But when you make another payment of $300 a month later, you need Form 1099-MISC as the total payment is reached $ 600. Types of income, which requires this form are:
- Crop insurance proceeds
- Prizes and awards
- Cash payments to professional fishermen
- Medical and health care payments
- Proceeds paid to a partnership or estate
- Services provided by a person who is not your employee.
- Paid to the attorneys.
- Other payments that are not covered by other information.
You need to submit the form 1099-MISC when you paid $ 10 or more in royalties or payments to the broker and not including the tax-exempt interest or dividends.
When you sold $ 5000 or more of the consumer products to anybody for resale purposes, you need to submit a Form 1099-MISC while the resale is not done under a permanent retail store.
When you pay your divorce attorney for ending your marriage, you no need to issue a 1099-MISC for the service as it comes under personal payment. When you made payments that do not come under these rules or need some other information, do not dash the 1099-MISC, instead check with a tax professional.
How to Prepare 1099-MISC Forms?
As a first step, you need a Form W9 from all the contractors, vendors, and other payment recipients. Ask them to complete the form before starting the business with them. The W9 form will contain the person’s legal name, contact address, and taxpayer identification number. This information is required when you need to prepare that concerned person’s 1099-MISC form.
Note the payments in the bookkeeping system so that you can decide whether the payments come under any of the categories, which require reporting.
1099-MISC Forms Deadline
When you are reporting the 1099-MISC under the Nonemployee Compensation, then the deadline to issue the 1099-MISC form to the recipients is 31st January. Most of the 1099-MISC forms come under this category.
Form 1099-MISC Late Filing Penalties
Do not worry if you missed the 1099 deadline. Anyway, you need to pay the penalty for late filing but you can mitigate the repair when you act quickly. Check the breakdown to report, based on how late you are. You are eligible for reduced penalties when your company had gross receipts of $ 5 million or less for the tax year.
- $ 50 penalty for filing up to 30 days late.
- $ 100 penalty for filing 1099 more than a month late before 1st
Penalties will increase more after 1staug, hence when you foresee that you cannot file on time before the date, you can contact a tax professional for assistance.
Businesses can request a 30-day extension to file Form 1099-MISC using Form 8809 with the IRS, but this extension will not give additional time to submit 1099 to the payment recipient. So when you foresee that you cannot file on time, make sure to use this form and reduce the criticality and stay away from the IRS penalties.