With the changes and updates regarding the reporting rules for 1099-Misc Forms some business owners may be tempted to guess as to what the rules are, or just give up choosing to file nothing at all. This can be dangerous as the penalties of $30 to $250 per statement, with no maximum, can add up quickly!

The general rule is that business owners must issue a Form 1099-MISC to each person to whom a business has paid at least $600 in rents, services (including parts and materials), awards, or other income payments. Please note, no 1099 is necessary for payments made for personal purposes, but only for payments made in the course of a trade or business.

Here are the basics:

  • Who? Businesses must send Form 1099 to vendors or sub-contractors if during the normal course of business they were paid more than $600; including individuals, partnerships, Limited Liability Company’s (LLC), Limited Partnerships (LP), or Estates.
  • Exceptions? Most common situations where businesses don’t need to send a 1099 include:
    • Vendors operating as S or C-Corporations
    • Credit card payments, debit card, gift card, or third-party payment network such as PayPal. These payments are generally reported by third-party payment networks on Form 1099-K.
    • Payments of rent to or through real estate agents or property managers; however, you normally need to issue a 1099 to a landlord businesses are paying rent to directly.
    • However, Lawyers, even if ‘incorporated’, are still required to receive a Form 1099 if paid them more than $600.

If you are frustrated that you don’t have the information you need to issue the 1099, a best practice we encourage clients to adopt is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. This practice will give you the vendor’s mailing information, Tax ID number, and also require them to indicate if they are a corporation or not.

Isler CPA offers 1099 preparation services. Please contact our offices at your earliest convenience if we can be of service.