Over the past years, it seems the IRS is placing more emphasis on ensuring businesses are complying with the 1099 reporting requirements. The belief is that by encouraging compliance at the business level, that the problem of unreported income will gradually diminish.
The biggest change that we have seen is the IRS now asks 2 questions on business tax returns and Schedule C’s for the self-employed:
Were you required to issue any 1099’s?
If so, did you issue those 1099’s?
We believe that the answer, for most companies, should be “yes” on both counts.
So who needs to receive a 1099?
In short, any unincorporated service provider that you pay more than $600. The people that you would most likely issue a 1099 would be your landlord, attorney, accountant, cleaning service, landscaping service, etc. You do not have to issue a 1099 to people that you purchase goods from – only services.
You do not have to issue a 1099 to corporations. So, purchases from places like Costco, Best Buy, Target, etc. are not subject to this reporting.
The best thing you can do to track this is to have any service provider complete a Form W-9 (found on the homepage of irs.gov) and forward it to your CPA. The W-9 gives the name, address and EIN of the vendor so that a 1099 can be issued if necessary. If you are using a software vendor like Quickbooks, you can also go to the client information and click the box that signals that the client is subject to 1099 reporting. If this is done, you will get an-easy-to-use report at the end of the year.
The penalty for not complying with the law can be up to $250 per 1099 you should have issued. Of course, the penalty would be waived if you attempted to get a W-9 from a vendor and they simply did not comply.
One exception to the rule is that you DO NOT have to issue a 1099 to any vendor that you pay via credit card. This is because credit card companies are already compelled to report all income collected by a vendor.