What is a 1099?
A 1099 form is used to report non-employee compensation to the Internal Revenue Service (IRS) and is required for any individual or entity that is paid $600 or more in a calendar year for services. Failure to file 1099s on time can result in significant fines and penalties for business owners personally, regardless of entity structure.
How do I file?
When it comes to filing, business owners have a few options. Some payroll providers will complete 1099s as part of their service. Business owners can also file the forms with the IRS and send vendor and contractor copies out themselves. If a business owner doesn’t have the time to prepare these forms themselves, they can hire a CPA to help.
Compliance with Tax Laws and Regulations
The IRS requires that 1099s be filed by the end of January for the previous calendar year. Failing to file on time can result in penalties, which can range from $50 to $280 per form, depending on the timing of the filing and the number of forms that are late. In addition, some states have their own laws regarding 1099s, and failure to file on time can result in penalties at the state level as well.
Maintaining Accurate Records and Financial Statements
The information reported on 1099 forms is used to verify income reported on personal tax returns. If a business owner fails to file a 1099 form, the individual or entity may still report the income on their tax return, leading to discrepancies and confusion. This can result in additional fines and penalties for the business owner, as well as an increased risk of an audit by the IRS.
Managing Vendor and Contractor Relationships
Many individuals and entities rely on the information reported on 1099 forms to prepare their own tax returns. Failing to file on time can cause delays and inconvenience, which can be damaging to the relationship between the business and the vendor or contractor.
