12/02/2022 by David Kiley, CPA 0 Comments
Demystifying 1099 Filings
The most coommon 1099 filing requirements are businesses service purchases and must be filed by January 31st following year of payment. The IRS and many states can subject you to civil penalties per missed filing.
Changes in recent years with 1099K, 1099-NEC, and 1099-MISC along with many misconceptions tend to lead to confusion most of which can easily be avoided.
In this issue, you will learn:
- 1099-Misc, 1099-NEC and 1099-K
- Common misunderstandings when issuing a 1099
- How to collecting the proper information to file 1099s
- Make things easire for the upcoming year
- Recommended methods of filing 1099s
1099-NEC vs 1099-MISC
The 1099-NEC was reintroduced in 2020 (originally in 1982). It specifically decoupled "non-employee compensation" from the 1099-MISC. So if you normally issued 1099-MISCs to subcontractors or unincorporated entities for services, you are now required to use 1099-NEC.
1099-MISC are still used for Rents, Payments to an attorney, other income payments of at least $600. For more information please see details here.
WHAT IS 1099-K?
If you accept credit cards, then likely you have received a 1099-K, which idicates gross revenues received by that merchant service. Most busineses would not issue these. New for 2022, Venmo, Zelle, Etsy and similar payment processing companies will issue 1099-Ks for payments received by businesses.
MOST COMMON MISUNDERSTANDINGS
Do I issue a 1099 to a vendor if I pay by credit or debit card?
No, these payments are reported to your recipient by the merchant service via form 1099-K
I have subcontractors that are LLCs, do I have to file 1099s for them?
In most cases, LLCs are single member proprietors or partnerships and they would require a 1099 if they receive more than $600. The best way to find out if they are eligible is by requesting a Form W9 from the vendor.
Can I file a 1099 for a temporary employee?
No, employees are required to receive a W2. You should check with your state and with the IRS and understand the differences between employees and subcontractors within your jurisdiction We see many companies lose on audit with their state unemployment offices due to increasing rigid restrictions.
Do I have to issue a 1099 for work done on my home?
No, 1099s should be issued by business entites only.
Do I have to withhold taxes on 1099s?
Generally no, however if you are working with a foreign entity or person within the United States or if you have a vendor that refuses to complete Form W9, the IRS may require you to withhold and you should contact us as soon as possbile.
I don't have subcontractors, so I don't have to file any 1099s, right?
This is a very common misunderstanding. Any unicorporated vendor you pay for services (other than by credit card) may be eligible to receive a 1099. For example, your accountant or bookeeper is likely eligible to receive one if they are not incorporated.
Can I download and print 1099s and mail them to the IRS?
No, unfortunately downloaded 1099s, even with a color printer will not scan and the IRS can penalize you for not mailing them "official" forms which need to be ordered. We strongly recommend you file online, electronically (see our recommended vendors below.)
COLLECTING THE RIGHT INFORMATION
Many companies use "doing business as," trade names, or LLCs. Some have employment IDs which are not always the same as tax id's, which can create some confusion. Also, many LLC's are actually filing as corporations, which you will not know unless you have a complete W9 returned to you by the client.
What is the best way to make sure we get the correct information? When you receie a requested W9 from a back vendor, inspect it carefully. It should have the full legal name and tax id. If it does not, then you will need to reach out for corrections. Single member LLCs, especially individuals must provide a first and last name and a social security number (not an employer id). If you report incorrectly, the IRS may require backup withholdings for these individuals.
Should I request a W9 every year? Yes, things change and sometimes we don't always know when an address or ownership might have changed. A "doing business as" vendor might now be owned by a different company or individual. An LLC might now be filing as a corporation and not require a 1099.
Can I check a corporation status on my own? Sometimes you can check the secretary of state's website to determine if your vendor is incorporated and in good standing. It is still best to issue W9 requests.
MAKING THINGS EASIER GOING FORWARD
If you waited until Janary for the prior year's 1099s, in many cases it could be a lot more work under a tight deadline, especially if you are not current with bookeeping. Here are some ideas to help you.
- Use the software tools built into your accounting system which generally can separate 1099 eligible vendors by account type and even exclude credit card payments made to these vendors. Some softare providers even will file the 1099s for you, if your information is correct.
- Send an W9 annual update request to your vendors either using mail or email every November or December to ensure that any changes are appropriately captured for your 1099s.
- Develop a procurement process for onboarding new vendors prior to issuing payment. You may want to consider other items for procurement, such as insurance binder information or updated contracts. It is much easier to ask for information before issuing payments than after.
WHAT IS THE BEST WAY TO FILE?
As meninted above, using official IRS forms requires ordering and waiting for mail. You can purchase these as well from an office supply store, but stocks are limited and it can get expensive if you make mistakes.
We strongly urge you use a service either from your accounting software provider or from a low cost bulk uploader like 1099online.com, tax1099.com, or efile4biz.com.
K2N can assist you in the filing process if needed, however we do have requirements in the way we receive this information to faciliate accurate reporting. If you are interested, we do recommend you request a quote and must fully complete and securely uplad an excel template with accurate information.
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