Form 1099-MISC Help

Form 1099-MISC Requirements and Best Practices

On all current federal business income tax returns are found these “yes, or no” questions:

       Did you make any payments in 2019 that would require to file file Forms(s) 1099?

       If "Yes," did you or will you file required Forms 1099?

Tax law requires a Form 1099-MISC be issued by taxpayers prior to January 31 of the succeeding year for all vendors/payees paid $600, or more, during the prior year. Form 1099-MISC must be sent to both the IRS and the vendor/payee using the appropriate forms. Business taxpayers which must comply with this requirement include:

1. Sole proprietors (Form 1040, Schedule C, Trade or Business)
2. Rental property operators (Form 1040, Schedule E, Rental Income)
3. Farm businesses (Form 1040, Schedule F, Farming)
4. Limited liability companies (LLCs) of all kinds
5. Partnerships, associations and non-profit organizations of all kinds (Form 1065 or Form 990)
6. S-Corporations (Form 1120-S)
7. C-Corporations (Form 1120)
8. Trusts and estates (Form 1041)

The following are exceptions to the general rule, that is, do NOT need to be issued Form 1099-MISC:

1. Material only vendors (must not include any labor content to qualify for exception)

2. Corporations (LLCs & partnerships are not corporations and do not qualify for exception)
3. Utility, telephone companies, and the like
4. Payments made by credit card (debit card payments do not qualify for the exception)

The law does NOT except the following:

1, Attorneys/lawyers of all organizational types must be issued a Form 1099-MISC, no exceptions
2. Foreign vendors/service providers doing business in the U.S. must be issued a Form 1099-MISC because the income is U.S. source income.

Failure to comply with this requirement subjects the taxpayer and/or return preparer to these consequences:

1. Filing a fraudulent tax return – knowingly answering a tax return question incorrectly
2. Tax return deduction disallowance for payee/vendor payments
3. Penalty assessment for failure to file, or late filing, $50 up to $500 for each form
4. Backup withholding from payee/vendor payments for non-compliance
5. Expose the tax return preparer to IRS practice sanctions

Best Practices

1. Require a completed and signed Form “W-9 – Request for Taxpayer ID Number” before the first payment to vendor/payee
2. Validate taxpayer number and name match at IRS.gov website for accuracy
3. When in doubt, require a Form W-9 and issue a Form 1099-MISC