We’re getting close to the 2023 deadline for sending out essential tax forms like the 1099 – is your business up to the task?
Each year, the IRS requires businesses to send out an array of tax forms. Unfortunately, this process often creates a lot of confusion. Many businesses struggle to understand why they need to send out 1099s, much less to whom they should be issuing them.
Whether your business contracted a freelancer, enlisted a lawyer’s services, paid rent, or otherwise, you’ll need
to figure out these tricky forms. Failing to do so can lead to some seriously costly consequences.
The truth is that most people simply don’t like thinking about accounting and tax issues until the last possible moment – unless, of course, you work in those industries. That’s why we’ve created this helpful guide to sending out your 1099 forms in the 2023 tax season!
What is a 1099 Form?
Have you paid any contractor or freelancer more than $600? Hopefully, you had them fill out an IRS W-9 form with their identifying information – most importantly, their tax ID number. By January 31st next year, you’ll need to provide them with information about how much you paid them before the 2023 tax deadline. Additionally, you’ll have to provide that same information to the IRS and the state you do business in.
A 1099-MISC form enables you to handle both of these tasks at the same time. If your business uses outside contractors for work, the IRS requires you to issue 1099 tax forms to each of them for the work they performed. 1099-NEC forms are designed for this type of non-employee compensation.
To get your 1099-NEC and 1099-MISC forms, you’ll need to order them in hard copy format. You will need a 1099-NEC or MISC Copy A and a form 1096 to file with the IRS. The IRS requires that you have a pre-printed form for Copy A. You can print these purchased forms directly from tax software like QuickBooks. In addition, you can use an online platform to send them out for you – like Tax1099.
Failure to Issue
If you don’t issue a 1099 form by the January 31st deadline, you should prepare to be fined. The penalty for failing to issue your 1099s varies between $50 and $280 per form depending on how long past the deadline you waited to send them out.
Also, suppose you intentionally disregard the requirement to provide a 1099 form when it’s required. In that case, you’ll be responsible for a minimum penalty of $570 per form or 10 percent of the income reported on the form. In other words: you’ve been warned!
Latest 1099 Rules for Business Owners
A newer form called a 1099-NEC (Non-Employee Compensation) form has changed certain ways businesses issue their year-end tax forms to vendors.
Your business must send Form 1099-NEC to contractors and vendors you paid during the course of business who are not employees. This differs slightly from the prior rules for 1099-MISCs.
You do not need to send out 1099-NEC forms to sellers of merchandise, freight, or storage facilities. If you have questions about who should receive which form of 1099, make sure you contact us at Gemsbok Consulting.
Important Points to Remember
- Limited Liability Corporations (LLCs) can file their federal taxes as a sole proprietor, partnership, or corporation (depending on what they told the IRS when setting up). Due to this, it’s often a good idea to issue a 1099 regardless of how they fill out their IRS W-9 form.
- People often fail to fill out W-9 forms accurately – especially LLCs. They’ll usually file as a partnership or sole proprietor. Your business should still issue a 1099, regardless of which boxes they check on their W-9 form.
- Regardless of entity type, you must issue a 1099 if you pay rent.
- If you paid legal fees to an attorney this year, regardless of their entity type, you must issue a 1099-NEC.
- If you don’t have a contractor’s tax ID number, you should still issue them a 1099! That way, the IRS will see you’re still attempting to follow tax laws. Try to avoid issuing any form of payment to a vendor without first receiving their W-9 form.
Do you have further questions about what your small business needs to know during the 2023 tax season? Check out other helpful posts on our blog or give us a call today at (303) 679-6332 to learn more!