Self-employed folks tend to focus on the April 15 tax deadline. But there’s another deadline that is just a few days away.
Are you ready for the Feb. 1 deadline for filing 4th quarter payroll tax returns, year-end payroll forms like W-2’s, and perhaps the most common self-employed tax form of all, the beloved 1099-MISC?
(NOTE: normally this deadline is January 31, but whenever a federal tax deadline falls on a Saturday, Sunday or legal holiday, the deadline is moved to the next business day.)
Let’s spend some time today answering the question:
Who Should Receive A Form 1099-MISC?
Addressing this question will enable you to know if you are required to send out 1099’s. And this post should give you a good idea as to whether you can expect to receive any 1099’s.
Virtually every tax rule has a potentially long list of exceptions, limitations and otherwise mind-boggling list of finer points. Such is the case with the Form 1099-MISC reporting requirements. Ask a simple question: To whom am I required to send a Form 1099-MISC? Get a simple answer: Read the 8-page document entitled “Instructions for Form 1099-MISC” and watch your head spin.
What’s a small business owner to do? The purpose of this post is to give you an introduction to the wild and wacky world of Form 1099-MISC do’s and don’ts. Even then, this article will focus only on who gets a 1099-MISC for “non-employee compensation” that gets reported in Box 7.
Let’s start with the basics. Fortunately, there are two basic rules that are somewhat easy to understand:
1. Only report payments to a given individual when the annual total is $600 or greater.
2. Only report payments made for services rendered to you in the course of your trade or business. Personal payments are not to be reported. Example: you can forget about payments to your lawn care man or other independent contractor who works on your home (electrician, plumber, appliance repairman, handyman, etc). But if you hire an accountant or attorney to do work for your business, and annual total is $600 or more, then you’ve got to issue a 1099-MISC to that service provider.
Now comes the fun part. There are many exceptions to the above general rules. For example, there’s a long list of payments for which a 1099-MISC is not required, such as:
1. Payments to a corporation. Sole Proprietors, independent contractors, and self-employed people are the folks the IRS is trying to keep an eye on here.
2. Payments for merchandise. The main concern is services rendered not products sold.
3. Payments of rent to real estate agents.
4. Payments of wages to employees. Those go on Form W-2.
And then there are exceptions to the exceptions. For example, generally speaking, payments to corporations are excluded. But there are certain payments to corporations that should be reported on 1099-MISC, such as:
1. Medical and health care payments (these go in Box 6, not Box 7)
2. Fish purchases for cash. (See the next paragraph for more amazing facts about this one).
3. Attorney’s fees. (Doesn’t that one make you smile?)
And then there are aspects to 1099-MISC that are just plain fishy! Note that even though the main concern of Form 1099-MISC is payments for services rather than products, if you are in the fish business and purchase fish for resale, you are required to report annual cash payments of $600 or more to anyone who is in the business of catching fish. Cash payments include the following: coin, currency, cashier’s check, bank draft, traveler’s check, or money order. A cash payment does not include a check written against your personal or business account.