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.
Happy investing,
Ned
This was originally posted in 2009 and has been updated with 2010 information.
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15 responses so far ↓
1 Buenos Aires Neighborhoods (1 comments.) // Feb 4, 2009 at 3:40 pm
Very important information, thanks Ned! Good links.
2 Mitch (12 comments.) // Mar 7, 2009 at 9:38 am
One guy sent me an invalid 1099, because he put on it money paid to me in 2008 and 2009, which would have inflated my 2008 income. I mentioned it to my accountant and she said we’d just ignore it.
Mitch´s last blog post..Keys To Leadership
3 Ned // Mar 7, 2009 at 5:20 pm
Welcome back Mitch. I usually ignore 1099s if they are incorrect and pay tax on the correct amount. I always pay tax on more than my 1099s add up to anyway.
By the way to other readers here, Mitch has an inexpensive E-book with an intriguing title “Using Your Website as a Marketing Tool”
4 Mitch (12 comments.) // Mar 7, 2009 at 11:11 pm
Thanks for the plug, Ned. As for what you do, that’s what my accountant said to do also.
Mitch´s last blog post..Visa Black Card
5 Sire (53 comments.) // Mar 13, 2009 at 7:02 pm
I suppose the whole idea of the 1099’s is so the IRS can keep track of people who do not claim all their income. Too bad that it doesn’t catch those who decide to pay for things under the table so to speak.
Sire´s last blog post..Big Brother Google Opts For Interest-Based Advertising
6 Ned // Mar 14, 2009 at 1:48 am
@ Sire
>whole idea of the 1099’s is so the IRS can keep track of people who do not claim all their income
Exactly!
7 Tweets that mention 1099s Are Due! Have You Sent Yours Out? -- Topsy.com // Jan 7, 2010 at 8:44 pm
[…] This post was mentioned on Twitter by Keith , Ned Carey. Ned Carey said: 1099s are due – have you sent yours out yet? http://baltimorerealestateinvestingblog.com/2010/01/what-is-1099/ […]
8 Jim Hardin (4 comments.) // Jan 7, 2010 at 8:59 pm
Yup tax season is upon us. I typically do my taxes myself as they are not too complicated. For some though with their own buisness I am sure that it is. Great information! I will be watching for my 1099s to come in.
.-= Jim Hardin´s last blog ..Nutrional Value of Baked Stuffed Post =-.
9 Ned // Jan 8, 2010 at 1:04 am
Welcome back Jim, I used to do my own but now I have 4 different companies to deal with. I love my accountant.
10 Jim Hardin (4 comments.) // Jan 13, 2010 at 8:58 pm
Wow 4 companies. Yes a accountant comes in handy. Now I am ready to get some money back this year.
You know everytime I come to your site I feel like having a crab cake 🙂
.-= Jim Hardin´s last blog ..Grilled 5 Spice Chicken Blog =-.
11 Ned // Jan 14, 2010 at 5:17 pm
Hey Jim, Maybe I need to do a crab cake recipe post.
12 humidifier (4 comments.) // Jan 17, 2010 at 1:14 am
I am completely clueless about tax stuff. This is why I let my accountant do all the work! 1099, W-2, all just numbers to me.
-Kai
13 Craig Fuhr // Feb 17, 2010 at 8:08 pm
Ugh!! Thanks for reminding me. I was just going through all my tax crap today.
.-= Craig Fuhr´s last blog ..House Flip Story: Alvarado Sq – Update 2 =-.
14 steve // Feb 15, 2011 at 2:26 pm
I never got my 1099? Can I call & ask for it?
15 Ned // Mar 26, 2011 at 12:27 am
Yes you can ask for it. You can also report the payer to the IRS for not supplying one. But it is really for the benefit of the IRS to check up on you. As long as you are reporting all your income you do not need it.