Updated January 15, 2019
Disclaimer: I love you all, but none of this is tax advice. It's tax infotainment. Please make sure to check in with your tax professional.
So what's up with issuing those 1099 forms?
A 1099-MISC form is used to report certain types of payments made in the course of a trade or business.
If you're a small business owner or sole proprietor who has hired the services of an independent contractor or freelancer, you may need to file and submit the 1099-MISC form to both the Internal Revenue Service and the person or business that you paid.
Did you get that? 1099 forms get sent to the person who performed the services AND to the IRS. More on that later.
If you don't file this form, it can result in significant fines from the Internal Revenue Service (IRS). To determine whether you need to file a 1099 form, there are a number of questions to ask about the relationship with a contractor, and amount paid over the course of the previous year.
Let's talk about how to determine who should receive a 1099 and then how to file the damn things.
1. Only Businesses Need to Issue a Form 1099
Only your business - this includes your sole proprietorship - is required to issue a 1099 form.
You don't need to issue a form 1099 for any services that was for personal use. For example, let's say you paid a housekeeper a total of $800 for personal house cleaning services in 2016. You don't need to issue your housekeeper a form 1099.
Your business must file a Form 1099 with the IRS and to each unincorporated business or individual to whom you paid $600 or more during a given tax year. For example, your sole proprietorship hired a graphic designer and paid them $1,200 for a logo design. You must issue the designer a 1099.
2. What's the Total Amount You Paid the Person or Company Over the Year?
Determine the total amount of money you paid the person or company over the year. If you made payments of $600 or more for services, not goods, you must issue a form 1099.
If you paid a contractor less than $600 for the year, you don't need to send them a form 1099.
3. What's Your #RelationshipStatus with Who You Paid?
Your relationship with the company or person will help determine if a form 1099 must be issued.
Typically, you need to supply a 1099 to independent contractors, third-party accounts, third-party public-relations firms that are not on your regular payroll, janitorial services, or any other company or worker that you paid for services that is not on your payroll.
An employees fills out a form W4 when you hire them and they get paid via payroll. They receive a W2 form and not a 1099.
4. You Must Send a Form 1099 to Your Attorney
If you paid your attorney for any legal services, you must issue them a form 1099.
5. Corporations Don't Receive a Form 1099
So any company that is legally an S-Corp, C-Corp or an LLC taxed as an S-Corp do not require a form 1099.
All you have to do is ask them. For example, what prompted this blog post was someone asking me if they needed to send me a 1099 for consulting work I did for their business. Since The Hell Yeah Group, Inc. is an S-Corp, none of our clients are required to send us a form 1099.
S/O to all our clients reading this and quietly freaking out about whether or not they needed to send us a 1099 and then feeling calm because they realized they didn't need to. You guys know I wouldn't do you like that. But I digress.
Companies that are sole proprietors, partnerships or LLCs who received at least $600 from your company should receive a 1099 from your business.
6. When In Doubt, Fill It Out
File a 1099 if you are unsure. If you file one but did not need to, there is no harm done. However, if you fail to file one and one was required, you might be penalized heavily.
7. How To Issue 1099 Forms
You can ask your accountant or bookkeeper to file your 1099 forms on your behalf. We can help you too.
Alternatively, Quickbooks Online and Xero both have the option to file the 1099 forms directly from the software. And a major bonus to using Gusto for both payroll and to pay contractors, 1099 forms automatically get issued.
8. Mind the Deadlines
Of course there are deadlines for when all of these things are due. And of course it's your own damn responsibility to keep up with all these deadlines.
Remember there are two forms that need to be filed. One form 1099 needs to be issued to the person or company and another one needs to filed with the IRS. But don't worry, these days any service you use will go ahead submit the forms to the IRS via efile for you.
Disclaimer: Please check with your accountant on the deadlines and fines. The deadline to file your 1099 forms is January 31. You can still file them 30 days after the due date and pay a penalty for filing late (I think the fee is around $30-$50 per form). You'll want to file them as soon as you can because after the 30 days, the fee will increase.