The Truth about 1099-MISC for Employers

Income taxes for business: The IRS is paying close attention to if, how, and when businesses are reporting 1099-MISC payee expenses. Get up to speed for 2014 taxes.

It’s that time of year again when your accountant is pressing you for all of the details, from company profits to business expenses, all in the name of helping you and your tax preparer submit a complete income tax return for your business to the Internal Revenue Service (IRS).

If you have vendors, this time of year is even more eventful, as you’ll likely need to provide them with completed 1099-MISC forms no later than February 2, 2015. The IRS should receive Copy A of this form by March 2, 2015.

Before you can send out any of the required paperwork, however, you first need to know which circumstances warrant a 1099-MISC. The IRS is heavily regulating employers’ proper classification of workers (employee vs. independent contractor), and this year’s tax forms specifically inquire about whether or not businesses filed 1099s if warranted. (If you have any doubts about proper worker classification, the IRS website can clarify the two, as well as clue you in on whether or not 1099s are warranted.)

The following circumstances require employers to submit 1099-MISC forms, according to the IRS:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
• At least $600 in rents, services (including parts and machines), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
• Any fishing boat proceeds,
• Gross proceeds of $500 or more paid to an attorney during the year, or
• Withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

If you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment, then you will also need to use the 1099-MISC form to report income taxes for your business.

As with any tax filing it’s important to do so correctly to avoid the risk of mistakes and penalties. If you have questions about whether or not you need to send 1099s this year, then please contact us regarding our accounting services.