If there’s one thing I see freelancers let fall through the cracks, it’s issuing 1099s. In the past, many people were lax about issuing them. After all, the IRS rarely, if ever, penalized taxpayers for sending them in late.
Well, it looks like those days are over. Keep reading for why this matters so much now, and tips to ensure smoother, speedier filing of 1099s in 2017.
Penalties doubled last year
Thanks to the Trade Preferences Extension Act of 2015, there is a substantial increase in failure-to-file and late filing penalties for 1099s filed after December 31, 2015, effectively doubling the amounts.
A “failure” may include failing to file the forms by the due date, failing to furnish a copy of the form to the recipient, failing to provide all required information and failing to provide correct information. The Act increased the penalty for general failures from $100 to $250 per return and raised the annual cap on penalties from $1,500,000 to $3,000,000.
Anyone who intentionally disregards filing requirements will see penalties increase from $250 to $500 per return with no annual cap.
Deadline moved up in 2017
The Consolidated Appropriations Act of 2016 also moved the deadline for filing Form 1099-MISC to January 31 if you are reporting amounts in Box 7: Nonemployee Compensation. Tha majority of 1099-MISC filers report information in Box 7.
If you aren’t reporting amounts in Box 7, then the deadline remains February 28 for paper filing or March 31 for electronic filing.
Who needs to file Form 1099?
If you are engaged in a trade or business and made payments for services, non-employee compensation, rent, real estate sales or prizes or $600 or more during the year, you are required to issue a 1099 to the recipient.
Before you shrug and think that doesn’t apply to you, consider:
- Did you outsource the design of your website?
- Did you hire a virtual assistant?
- Did you hire a lawyer to help with setting up your business structure or reviewing a contract?
- Do you work with other independent contractors?
If you paid $600 or more to any of these people, you might need to issue a 1099.
You don’t need to send a 1099 to corporations or for payments of rent to real estate agents. There is one catch, though: even if your lawyer is incorporated, you are still required to send them a Form 1099 if you paid them more than $600. I guess the IRS doesn’t trust lawyers!
You also don’t need to send 1099s to sellers of merchandise.
What you can do now
To make complying with deadlines and avoiding penalties easier, ask all new vendors and contractors for a Form W-9 before issuing any payments. The information provided on Form W-9 is used to prepare 1099s, so gathering that information before issuing any payments will ensure you’re not scrambling for addresses and social security numbers with the deadline looming.