What Is a 1099?
A 1099 is an informational return required by the IRS. Employees receive a W-2 to let them know how much income was rep0rted to the IRS. You may also get a 1099 INT from your bank telling you how much interest you received in the prior year. In a similar way businesses are required to report how much they pay other business and independent contractors.
Some small businesses are not even aware they are required to supply 1099s. A typical real estate investor may need to send them to their attorney, contractors, assistants, and Bird dogs they have paid. I am sure many investors never considered this requirement and were unaware they were risking IRS fines and penalties.
Who Gets a 1099?
You are required to give a 1099 to any Payee to whom you pay at least $600 or more in the year. This quote is directly from the 1099-MISC instructions
“At least $600 in rents, services (including parts and materials), prizes and awards, other income payments, . . . or Gross proceeds to an attorney.”
The key words there are “other income payments”. If the income is taxable to the payee, you should send them a 1099.
There are some exceptions to the requirement.
- Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable. This does not mean you can skip this just because you didn’t make any money, or do business in your own name. If you intend to make a profit, you need to send them out.
- Generally payments made to a Corporation are not reportable. Keep in mind the IRS instructions specifically say a Corporation, not an LLC or other business entity. Also you must report amounts paid to an attorney even if they are incorporated – I guess the IRS doesn’t trust attorneys either!
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items are not reportable. So if you buy plumbing supplies from the local hardware store you do not need to report that.
Extended Due Date for 1099 Forms
The due date for 1099 forms is Jan. 31st 2010, however since Jan 31, is a Sunday you have an extra day this year. Form 1099s are due to the recipient by Feb. 1, 2010. Reporting to the IRS is due by Feb. 28, 2010. However the due date for reporting to attorneys (box 14 10099-misc) or “Proceeds from real estate transactions” form 1099-s is Feb 16.
How do I file a 1099?
You must send a copy to both the IRS and the Payee. You can get the instructions on the IRS website, www.irs.gov. I am unable to find the 2010 instructions but Here is the link to the 2009 instructions.
You will need their taxpayer identification number. You get that by giving them a form W-9 Request for Taxpayer Identification Number and Certification. The W-9 instructions are available here.
Have Your Accountant File
Of course I just give the information to my accountant and he takes care of it. See this post, why I love my accountant Goodwich, Stoller and Associates. You can go to their site directly at Goodwich Stoller and Associates.
This was originally posted in 2009 and has been updated with 2010 information.