Who gets a 1099?
Form 1099-MISC is used to report certain types of
payments made in the course of a trade or business. If you're in business or
self-employed, you may need to submit this report to both the Internal Revenue
Service and the person or business that you paid. The form is filed between January 1st and
February 28th. So who gets a 1099?
Every year this is a question that plagues many business owners.
Payments
types are divided into categories (or boxes) on a 1099-Misc that are detailed
below. Reporting is required if the
recipient is an individual, a partnership, an LLC or a sole proprietorship. You are only required to report if the amount
paid is $600 or more. But remember that
$600 is cumulative throughout the year and not per invoice!
You
are not required to report payments made to tax-exempt organizations and for
the most part, corporations; however, there are a few exceptions! 1099s must be
issued to corporations providing the following services:
*
Legal
(any lawyer/attorney fees)
*
Medical
(doctors and other health institutions)
*
Health
Care (long term care or hospitals)
*
Fishing
Boat Proceeds
Rents
One
of the most reported items on the 1099-Misc is the reporting of rents of $600
or more for any of the following:
*
Real estate rentals paid for office
space. (Except if paid to a real estate agent and not directly to the property
owner)
*
Machine rentals (for example,
renting a bulldozer). If the machine
rental is part of a contract including both the use of the machine and the
operator, the payment for the machine is reported as rent and the operator's
charge is reported as non-employee compensation.
*
Pasture rentals (paying for the use
of grazing land)
Royalties
Royalties
do not follow the $600+ rule. Any royalties of $10 or more must be reported. You should report royalties from oil,
gas, or other mineral properties before reduction for severance and other taxes
that may have been withheld and paid. Surface royalties are categorized as
rent. Likewise, oil and gas payment for
a working interest are categorized as non-employee compensation.
Other Income
This
is used to report $600 or more in payments that are not reportable in one of
the other boxes on the form. Prizes, awards and personal injuries are the
most common.
Medical and Health Care Payments
Enter
payments of $600 or more made in the course of your trade or business to each
physician or other supplier of medical health care services. Corporations providing medical services must be issued a 1099, but it is not required for tax-exempt facilities.
You are not required to report payments to pharmacies for prescription
drugs.
Non-employee Compensation (NEC) or Independent
Contractor
By
far the most reported area used by small businesses is for services performed
by non-employees for repairs or maintenance and for fees and commissions that you have paid in amounts of $600 or more. This includes work for plumbing, electrical,
carpentry, equipment maintenance, accounting, gardening, horseshoeing, brand
inspection and any other service you paid for during the year that was
not to an employee. However, a 1099 is not required for payments for
merchandise, telephone, freight, storage or similar items. Therefore, anyone you paid for trucking does
not need a 1099.
The
IRS provides the following examples of 1099-Misc NEC recipients:
* Professional service fees, such as
fees to attorneys (including corporations), accountants, architects,
contractors, engineers, etc.
*
Fees paid by one professional to
another, such as fee-splitting or referral fees.
*
Payment for services and labor (including
payment for parts or materials used to perform that service if supplying the
parts or materials was incidental to providing the service). For example, report
the total payment to an auto repair shop on an invoice showing a breakdown for
labor and for parts, if furnishing parts was incidental to repairing the auto.
*
Payments to non-employee entertainers
for services.
* Crop Share - amounts paid out of
crop/livestock proceeds to another individual or business for their share
Gross Proceeds Paid to an Attorney
Another
common item to report will be any gross proceeds totaling $600 or more paid to
an attorney in connection with legal services in the course of your trade or
business. The term attorney includes a
law firm or other provider of legal services.
And remember, corporations are NOT exempt in the case of payments made
for legal services.
Crop Insurance Proceeds
Enter
crop insurance proceeds of $600 or more paid to farmers by insurance companies
unless the farmer has informed the insurance company that expenses have been
capitalized under section 278, 263A or 447.
The 1099 process can be a bit
overwhelming, but it is much easier if you collect the proper information as
you pay for services throughout the year.
You will need the name, address, tax identification number, the
cumulative amount paid over the year and the type of payment (rent, NEC,
royalty, etc). Use IRS form W-9
(obtained by following this link form
W-9) to collect the information required
for each 1099-Misc. It’s easy to hand a subcontractor a W-9 before
handing them the signed check for payment.
Remember, if ever in doubt, issue the 1099.
There is nothing wrong with issuing when you didn’t need to, but you will face
penalties if you don’t issue a 1099 when it is required.
At
Gardner & Billing CPAs, 1099 filing is one of the services we are pleased
to offer our clients. It’s still helpful
if you are able to provide the necessary information for your 1099 recipients,
but if you prefer to let us make the call on who should receive one, just bring
in your farm book or bank statements for us to go over.
