A couple months ago, I had the opportunity to write for Chase News & Stories about a new study from the JPMorgan Chase Institute that analyzed data from nearly 600,000 small businesses and found that only about half of small businesses maintain a cash buffer large enough to support 27 days of typical cash outflows.
I had a tight deadline for this piece, and I needed to find a small business owner willing to discuss cash flow – not exactly a topic that many small business owners want to publicly admit they struggle with. Fortunately, I have a connection to Neva Peterson of Neva Knows Business, a bookkeeping and consulting business in Las Vegas, Nevada.
I’ve been friends with Neva’s daughter, Jennifer since junior high school, so she was willing to open up about her experiences starting her own small business and dealing with cash flow while growing her business and hiring employees. Her thoughts are not only insightful but pretty entertaining!
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.
The increased penalties apply to both the copy filed with the IRS and the copy filed with the payee, so the penalties essentially total $500 per form with an annual cap of $6,000,000 for general failures. For intentional failures, combined penalties are $1,000 per form with no 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.
Next, Use the IRS’ Taxpayer Identification Number (TIN) Matching Program to ensure that the TIN provided on the Form W-9 is correct. If a discrepancy is found, contact the contractor immediately to resolve the issue. For program guidelines, see IRS Publication 2108-A.
Finally, forget paper filing those forms. The simplest – and cheapest – option I’ve found for filing 1099s comes from Yearli by Greatland. You can stay compliant for just $4.99 per 1099. Yearli will e-file state and federal 1099s, mail a copy to the recipient and save all of your data from year to year, saving you time in the future.
Use my referral code to get 15% off your filing! All you have to do is enter promo codeU72 when you file your forms to receive the discount. (Note: This post is in no way sponsored by Yearli, but if you use my promo code, I receive a $10 Amazon gift card. So thank you!)