As a business owner, you may be required to report payments made to anyone who is not an employee. The way to do this is by completing an IRS Form 1099-MISC for each recipient.
Below, we break down everything you need to know about this common tax form, including how to complete and file the form correctly.
What Is IRS Form 1099-MISC?
IRS Form 1099-MISC is a way for business owners to record certain payments they make, during the regular course of business, to anyone they don’t employ.
What types of payments should be included? Well, while there are certain exceptions we’ll cover below, the main payments you should record are:
- Royalties: You’re paying royalties if you pay to use someone else’s assets or property, such as anything protected by copyright or any oil and gas properties. Such payments should be recorded on a Form 1099-MISC.
- Rent: You may be required to report rent paid to use office space, or rent paid to other property owners in the course of business.
- Attorney Payments: Any payments made by your business for legal services.
- Medical and Healthcare Payments: Such payments include payments to nurses, doctors, and dentists, or insurance payments through healthcare programs.
- Other Income: Payments made for anything not included as a formal option on the form, such as prizes, commission, awards, or payments to guest lecturers.
Unsure whether to record a payment on an IRS Form 1099-MISC? Gordon Law attorneys are on hand, waiting to assist.
Who Should File a 1099-MISC?
You may need to file a Form 1099-MISC if you’ve made payments to other businesses, or individuals, who are not employees. Qualifying payments are as follows:
- At least $10 in royalties
- At least $600 in other payments, such as rent, awards, prizes, payments to an attorney, and medical or healthcare payments
You must complete a separate Form 1099-MISC for each individual or business to whom you made a payment.
What’s the Difference Between a 1099-MISC, 1099-NEC, and W-2?
It’s common to confuse these forms, but they are entirely different.
- Use Form 1099-MISC to record certain types of payments that are not subject to self-employment tax.
- Use Form 1099-NEC to record payments to independent contractors. These payments are subject to self-employment tax.
- Use Form W-2s to record any compensation such as tips and wages you pay to employees.
How Do I Complete Form 1099-MISC from the IRS?
The exact steps depend on the payments you’ve made to nonemployees during the course of business. The main steps, however, are as follows.
- Input your own information, including your TIN (Taxpayer Identifier Number).
- Complete the details for each payee, including their name, address, and TIN.
- Note the calendar year within which the payments were made.
- Include the amount you paid this payee in the tax year. Use the relevant boxes to record the gross numbers.
What Payments Are Exempt from Reporting?
You don’t need to report every payment on an IRS Form 1099-MISC. Types of payments which should be reported elsewhere include:
- Employee travel allowances
- Merchandise costs
- Freight and storage payments
- Current life insurance payments
- Wages paid to employees currently on active US Armed Forces service
- Most payments to corporations
Despite IRS instructions, knowing where to report payments can be complex. Gordon Law tax attorneys will help to ensure you complete the correct forms for accurate IRS tax filing.
How Do I File IRS Form 1099-MISC?
Typically, you can file completed IRS Forms 1099-MISC online through the IRS e-filing system. Submit the “B” copy, which appears in black. The “A” copy, which appears in red, should not be downloaded or filed––it’s only for IRS use.
- Apply for a Transmitter Control Code (TCC) which allows the IRS to identify you on their filing system.
- Use the Filing Information Returns Electronically (FIRE) software to complete the return.
If you only have a few forms, you can submit paper copies to the IRS; however, they strongly encourage everyone to file online. And if you have 10 or more 1099 forms to submit, then you must submit electronically.
What Forms Do I Send to Payment Recipients?
There are four copies you should distribute for each payment made.
- Copy 1: Send to the recipient’s state tax department.
- Copy 2: Send to the recipient to file for their own state tax return.
- Copy B: Send this copy to the recipient for their records.
- Copy C: Retain this copy for your records.
Are There Deadlines for Filing a Completed Form 1099-MISC?
Yes. There are two filing deadlines you should be aware of.
- You should provide each recipient with a payee statement by January 31.
- The IRS should receive your completed Form 1099-MISC by March 31 if you file electronically. Paper copies may have earlier deadlines.
Your Gordon Law tax lawyer can ensure you comply with the relevant deadlines to reduce the risk of tax debt.
Are There Penalties for Failing to File a Form 1099-MISC?
You can face IRS penalties if you don’t comply with any tax reporting obligation, including filing a Form 1099-MISC. The exact penalty depends on various factors, such as whether it’s a small or large business, and how overdue the Form 1099-MISC is. Penalty amounts start at around $60 but can exceed $600 per form in certain cases!
If you can show that you acted in good faith, or that there’s reasonable cause for missing a filing deadline, the IRS may agree to reduce or remove any tax penalty. Your Gordon Law tax attorney can explain how you might challenge IRS tax penalties—and help you avoid such penalties in the future.
Should I Record 1099-MISC on My Tax Return?
Yes, if you receive Form 1099-MISC, you should report such income on your tax return. Otherwise, you risk underreporting your income and possibly incurring IRS penalties. There’s no need to file the completed form with your taxes, but you should keep a hold of the form for record-keeping purposes.
If you receive Form 1099-MISC from a cryptocurrency exchange, this typically only reports certain types of income, such as staking rewards, and does not account for capital gains. Read our comprehensive guide to cryptocurrency tax reporting to learn more.
Need Help Completing Your Tax Forms? Contact Gordon Law Today!
Are you unsure how to complete or file IRS Form 1099-MISC? Or are you confused about how to use the information? Then don’t hesitate to contact Gordon Law. Our experienced tax attorneys in IL will explain everything you need to know about completing an IRS Form 1099-MISC and any reporting obligations you have. And if you have any questions about completing your business tax returns more generally, or if you need help mitigating any tax debt, then we’re on hand waiting to assist.
Don’t let complex tax forms overwhelm you! Instead, get the support you deserve from Gordon Law. Schedule a no-obligation first meeting online or by calling us today at (847) 580-1279.
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