Business

Should I issue 1099s for my payments?

By April 22, 2019 May 7th, 2019 No Comments

By Gary Hewamadduma ACMA, CPA, CGMA, MBA, B.Sc.(Hons) in Computer Engineering

 

All businesses have goods and services vendors. IRS mandates that all service-related vendor payments be reported on a form 1099 at year end, with a copy to IRS. However, there is a quite a bit of confusion around collection of W9 form and submission of year end 1099s. This article tries to summarize the reporting needs around reportable vendor payments.

What is a W9?

In a general business setting, Form W-9 is used to collect the correct name, tax ID and address of a person or a business in order to file an information return with the IRS to report the payments made within a calendar year.

What is Form 1099-MISC.
If a business (Purchaser) spends $600 or more for services from an unincorporated business during a tax year, the total is reported on a 1099-MISC. Businesses file a 1099-MISC when purchasing services (not goods) from unincorporated vendors (not corporations).

The IRS can issue a $50 fine for each missing 1099 form.

The 1099 is a series of 17 different forms.  This article focuses on 1099-MISC; the form applicable to most small-scale businesses.

 

Who should receive a 1099-Misc?

A service provider who is either a Sole Proprietor or a Partnership (LLC / LP) with over $600 in payments for the year.

If an LLC that elects treatment as an S-Corporation or C-Corporation there is no need to send 1099-MISC with following exceptions

  • Attorney’s fees even if the lawyer is incorporated
  • Gross proceeds paid to an attorney (such as for legal settlements)
  • Payments to for-profit medical care providers

What type of payments?

Reportable Payments

  • Compensation for personal and/or professional “services” (including parts & materials used in performing service)
  • Rental fees (Equipment, Office space etc.)
  • Copyright, license, and royalty fees
  • Event Catering
  • Conference Planning, training, workshops, etc.
  • Membership dues
  • Entertainment services
  • Transportation services
  • Creative services (Advertising, display ads, marketing material, etc.)
  • Payments for medical/healthcare and legal services regardless of whether or not the entity is incorporated
  • Gross proceeds paid to an attorney or law firm regardless of whether or not they are incorporated

Non-Reportable Payments

  • Expense Reimbursements to non-employees
  • Utilities (telephone, gas, electric, cable, etc.)
  • Merchandise -when no service, such as installation, training, technical support, customizing, etc., is included in the purchase
  • Freight
  • Subscriptions
  • Rental of storage units
  • Food/Meals purchased that are not catered
  • Classified ads and T.V. or radio promotional ads where ads are not created by the vendor (just runs the ads)
  • Scholarships
  • Software – when no software support is provided or where no annual renewal fee is required to continue using software
  • Payments made to a school, college, university, church, or other recognizable tax-exempt entity
  • Payments to a corporation – with the exception of payments for medical/healthcare and legal services and gross proceeds paid to an attorney or law firm

 

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