by Thomas F. Scanlon, CPA, CFP
The 1099-MISC form is used to report more than two dozen types of payments that must be claimed as income by the recipient. This category includes payments made by businesses as fees to attorneys, service providers and freelancers. Other types of payments covered by the 1099-MISC include reimbursement for auto expenses, awards and bonuses, commissions, prizes and vacation allowances for non-employees.
A payer of rents and royalties must also file this tax document.
1099s are issued to individuals, partnerships, single member LLCs:
Corporations are generally not issued 1099-Misc unless the payments are for attorney fess. The IRS can charge significant penalties for failure to file accurate 1099s. 1099 reporting is a hot issue for the IRS in an attempt to close the tax gap.
The most common 1099s that need to be completed by business owners are for the payment of rent and nonemployee compensation. Enter in Box 1 amounts of $600 or more for all types of rents paid. Enter in box 7 nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for services performed for your business by an individual who is not an employee but an independent contractor.
An Independent Contractor is an individual, a business owner or a company that you contracted with to do a specific project or consulting. The contractor provided a specialized type of expertise to you either intermittently or maybe just once during the year. This was a person who required no training from you, was not under your control and may have used their own equipment.
You didn’t issue them a regular paycheck, withhold or pay any taxes, or provide any benefits.
A few examples of some likely independent contractors:
Computer Maintenance and Repair Services
Consultants of various types: marketing, human resource, management, etc.
The IRS and your State Department of Labor have very specific rules regarding Independent Contractors vs. Employees. If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus penalties and interest.
To accurately complete the 1099, you will need the recipient name, address and tax identification number or social security number. All independent contractors should be given form W-9(Request for Taxpayer Identification and Certification) to complete prior to engaging their services and payment. Having this form filled out up front will eliminate any year end tracking down of subcontractors.
All 1099s need to be mailed to the IRS with Form 1096 by February 28th. The 1096 is the necessary “cover sheet” summary you have to send to the IRS along with the 1099 copies. Reporting by state can vary, so check your state requirements. Connecticut requires Form CT-1096 be filed with the state copy of the 1099s attached.
Action Plan: File all required 1099s by the due date.
Thomas F. Scanlon, CPA, CFP is with Borgida & Company, P.C., Certified Public Accountants in Manchester, Connecticut, celebrating 44 years of tax, advisory and accounting services. Call 860.646.2465 for more.
With AAOA, landlords have resources at their fingertips. Check out our Landlord Forms page.
American Apartment Owners Association offers discounts on products and services for landlords related to your rental housing investment, including rental forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.