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Form 1099

Deadline for Form 1099-MISC–Avoid Late Penalties!

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Form 1099MISC deadlineForm 1099-MISC has to be filed when payments are made in the course of a trade or business.  Personal payments do not have to be reported on a Form 1099-MISC.  The IRS requires businesses to issue Form 1099-MISC to the payee and submit a copy to the IRS.  This is done to ensure that the payee reports and pays income tax on the payment.

FILING DEADLINE FOR FORM 1099-MISC

The IRS copy of the form must be filed with the IRS by January 31 if you are reporting payments in box 7 (non-employee compensation).  This is the second year the Form 1099 deadline is January 31.  The prior due date was February 28 (and March 31 if filing electronically).  The form filing deadline for payments outside of box 7 (e.g., rent or royalty) have not changed (i.e., due February 28 or, if filed electronically, March 31).  The payee copy, regardless of the type of payment, is still due on January 31.

Penalties for Late Filing/Non-Filing

If the Form 1099 is filed within 30 days after the deadline, the penalty is $50 per 1099.  If the Form 1099 is filed between 30 days after the deadline and by August 1, the penalty is $100 per 1099.  If the Form 1099 is filed after August 1 (or not filed at all), the penalty is $260 per 1099.  If there is intentional disregard of the filing requirement, the penalty is $530 per 1099.

The above penalties apply if the form is not filed with either the IRS or the payee.  If the Form 1099 is not filed with either the IRS or the payee, the above penalty is essentially doubled.

What Type of Payments Have to Be Reported on Form 1099-MISC?

Payments that require the filing of a Form 1099-MISC include:

  • $10 or more in royalty payments
  • At least $600 in:
    • Rents
    • Services provided to you by someone who is not your employee (e.g., independent contractor)
    • Prizes and awards
    • Other income payments
    • Crop insurance proceeds
    • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
    • Cash paid from a notional principal contract to an individual, partnership, or estate
    • Payments to an attorney
    • Any fishing boat proceeds

In addition, Form 1099-MISC is used to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

What Payments Do NOT Have to Be Reported on Form 1099-MISC?

Certain payments do not have to be reported on Form 1099-MISC, although they may still be taxable to the payee.  Common payments that do not have to be reported on a Form 1099-MISC include:

  • Payments to a corporation (see exceptions below)
  • Payments to an LLC that elects to be treated as a corporation (again, see exceptions below)
  • Payments for merchandise
  • Wages paid to employees
  • Payments of rent to real estate agents (but the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner)
  • Payments made by credit cards (the credit card company will issue a 1099-K to the recipient)

When Payments to Corporations Must Be Reported on Form 1099-MISC

Form 1099-MISC is required for payments to corporations for:

  • Medical and health care payments
  • Fish purchases
  • Attorney fees
  • Gross payments to attorneys (generally by insurance companies)
  • Substitute payments in lieu of dividends

When Backup Withholding is Required

You must withhold 28% of the payment you make to certain recipients.  This withholding is referred to as backup withholding and is paid to the IRS.  Backup withholding is required when:

  • The payee fails to furnish a SSN or TIN (it is recommended to get the payee’s SSN or TIN prior to the payee performing any services for you)
  • IRS notifies payer to impose backup withholding

To see how this applies to you, give us a call at 248-538-5331.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

IRS Provides Relief for Credit Card Sales Reported on 1099-K

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Beginning in 2011, credit card companies were required to report business’ credit card sales to the IRS via Form 1099-K.  This form reported a business’ total credit card sales for the year, and the form broke that sales figure down into monthly totals.

A substantial problem with this form was that the credit card sales reported on the 1099-K included sales tax and employee tips.

Example:  JoJo’s Restaurant has credit card sales (excluding sales tax) of $600,000 for 2011.   At the end of the year, JoJo’s Restaurant received Form 1099-K showing credit card sales of $731,400.  The reason the sales on the 1099-K is much larger than the actual credit card sales is because it includes sales tax of $36,000 plus tips of $95,400 (assuming a 15% tip rate).

Since the sales reported on Form 1099-K will almost certainly exceed actual sales, businesses were required to reconcile the sales reported on Form 1099-K with their actual sales.  The above example was a fairly simple one—imagine if those sales included carry-out sales on which tips are not paid.  A point of sale system should be able to capture this information, but for restaurants using cash registers, it will be very, very difficult to gather this information.

Recognizing the hardship this would cause on businesses (plus the hardship on the IRS to actually audit this information), the IRS waived the reconciliation requirement for 2011 tax returns.  Based on a recent letter from the IRS deputy commissioner for services and enforcement, Steven Miller (not the singer), to the National Federation of Independent Businesses, the IRS is extending indefinitely the waiver of the reconciliation requirement.  Mr. Miller stated, “There will be no reconciliation on the 2012 form, nor do we intend to require reconciliation in future years. (emphasis added)”

Good news!  However, credit card companies will continue to issue Form 1099-K.  If the sales amount on these forms differ substantially from sales reported on tax returns, you may still want to conduct an informal reconciliation (not included on any tax filings) in case of an audit.

Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230