Throughout the year, your business has likely hired the help of either contractors, attorneys or other services. As part of your business' tax-paying duties, you need to report this income paid out to non-employees. The forms you use to do this are called 1099s.
While there are many different types of 1099s, the one most commonly required and addressed below is the 1099-MISC.
What you need to get started:
- A list of those to whom you paid more than $600 throughout the year for services, rents, prizes and awards, or other income payments.
- Form 1096. You can obtain this form from the Internal Revenue Service (IRS).
- As many 1099 forms as you need to send out. There are three ways to obtain these forms:
1. (They are built-in accessories to many accounting software programs.
2. They can be ordered from the IRS and picked up from an IRS service outlet.
3. If you're fast enough to get them before they're gone, you can pick these forms up from your local post office.
Note on exceptions: There are many specialized exceptions, but the main exceptions are these:
- You aren't required to send 1099s to corporations.
- You don't need to send one to real estate property managers to whom you paid rent (if the property owner is the one accepting payment, he or she should receive a 1099).
Even attorneys who are incorporated need to be sent a 1099 if you paid more than $600 for their services.
How to send a 1099:
1. Once you've identified to whom you need to send a 1099 and have obtained the forms, you simply need to fill out the 1099. The 1099 is a simple form with only 17 boxes, most of which you will likely never touch. These are the likeliest boxes you will need to fill out:
- Your business' name and address.
- Your business' Federal Identification Number (AKA: your EIN or FEIN).
- The recipient's name and address.
- Box 7 is where you put the amount paid in non-employee compensation.
That's it. This is one of the simplest forms the IRS offers.
If the 1099 is being sent to a property owner to whom you've paid rent, instead of putting the total amount paid in Box 7, put the amount in Box 1.
2. The 1099 forms are filed in triplicate. One copy is sent to the recipient; one copy is sent to the IRS; one copy is kept for your records.
3. Mail the completed 1099s to all recipients.
4. Complete Form 1096. The official name of this form is the “Annual Summary and Transmittal of U.S. Information Returns.” That is a long name for what basically amounts to a cover sheet for your 1099s. You need to complete a 1096 for each type of 1099 you are submitting; if only 1099-MISCs, then you only need one 1096 attached to all your forms.
5. Attach all 1099s to your Form 1096 and mail them to the IRS.
6. Relax. You've just completed your 1099 reporting duties for the year.
- All 1099s need to be mailed to contractors and vendors by Jan. 31.
- Form 1096 and copies of the 1099s need to be mailed to the IRS by Feb. 28.
- You may also need to report 1099 earnings to the state. Deadlines will vary.