The year-end is rapidly approaching. If you’ve hired anyone in your business, are you aware of the filing requirements? I’m going to tell you exactly what you need to do in order to remain compliant.
This is the time of year when it’s a good practice to look at your books and see, did I actually hire anyone to help me in my business this year? Did I pay them more than $600? If so, you would need to issue them a 1099 at year-end.
Employees should be handled separately, I’m talking about independent contractors. If you have employees, they get a different form, a W2 through your payroll service provider. Employee versus independent contractor debate is a hot and highly audited topic.
What is an independent contractor?
What is considered an independent contractor? An independent contractor is someone who performs a service for you and also performs that service for other people. A website designer, for instance, might perform a service by helping me with my website. And they also offer that service to other businesses as well. This could be a business or it could be an individual.
When you hire someone, it’s a good practice to have them complete a W9 form. This form would give you their name, business name, social security number or tax ID number and how they’re structured. Why is this important? It tells you all the information you need in order to issue that
1099 at year-end.
It tells you if you need to issue a 1099 at all, because if you hire someone and they’re actually incorporated, or they’re a corporation, you don’t have to issue them a 1099. That’s where the W9 form becomes important.
What 1099 form should you fill out?
Last year, they changed the 1099 form and there are now two that you need to be aware of. Independent contractors get reported on the 1099 NEC which stands for non-employee compensation. If you’ve paid someone more than $600 and they are a sole proprietor or an LLC, you would issue a 1099 NEC with the amount you’ve paid them through the course of the year.
The other 1099 form is miscellaneous and is often used for rent. A lot of small business owners don’t realize this. If you’re renting a space from an individual, you need to generate a 1099 miscellaneous stating the rent payments that you’ve paid to that person. It’s good practice to have them fill out the W9.
If your landlord happens to be a corporation, then a 1099 isn’t necessary. In general, anyone who is an LLC usually gets a 1099, but as with anything, there are exceptions to every rule.
How do you issue a 1099?
How do you go about issuing 1099’s? If you’re working with the payroll provider, chances are, they’ll do it for you. If not, there are several online services that will file the 1099 for you. You will just need to have the completed W9 from the person you’ve hired, go to the online service, enter the information, and it will all be taken care of. It’s a simple process.
What’s the due date for a 1099?
The due date for the 1099 to be sent to the person you hired is January 31st; a copy also needs to be filed with the IRS by March 31st.
What if you don’t file a 1099?
If you don’t file a 1099, under audit, you would have to prove that these payments to this individual were a business expense. And if you don’t have invoices from them, or documentation proving that it was a business expense it may not hold up under scrutiny and the expense might be denied.
If the expense is denied, your taxable income goes up and you get penalties from that. In addition, you’ll get a penalty for not filing the 1099. So it’s always best to stay compliant and file what you need to do.
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