A self-employed person has to pay self employment tax and complete Schedule SE , include payments for services on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship). But before all that one other legal responsibility of self-employed is to send a 1099-MISC to the contractors you paid.So let us start from basics ..
What is a 1099-Misc Form?
Self -employed persons or employers use Form 1099-MISC, Miscellaneous Income, to report payments made in the course of a trade or business to a person who’s not an employee or to an unincorporated business. Apart from that this form is also used to report payments of
- at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
- at least $600 in:
- services performed by someone who is not your employee;
- prizes and awards;
- other income payments;
- medical and health care 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;
- generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
- payments to an attorney; or
- any fishing boat proceeds,
Not just payment, but if direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment, then that too needs to be reported on 1099 Misc form.
Is there an exception to rule of filing Form 1099?
Yes, if a company makes payments to another company that is incorporated or to an LLC that elects to be treated as a C-Corporation, then this would not be reported on a 1099-MISC.However, there is an exception this exception. That is if you pay to an attorney who has an LLC treated as a or C-Corp, you still need to report on Form 1099-Misc
What is the deadline for 1099-Misc reporting?
The important deadline for the issue of Form 1099-MISC to the contractor and the IRS is January 31. However, there is one exception to the deadline is that there is no payment that can be reported in box 7 “nonemployee compensation” , the filing deadline extends to February 28.
What if you failed to file 1099 by 31st January?
You can request an automatic extension for 30 days by filing file Form 8809.
Is there a penalty for late filing of tax form 1099 misc?
The late penalty varies between $30 to $100 perform. So if you defaulted in the filing of Form 1099 for 10 contractors, your penalty will be multiplied by 10 ( 10 defaults).
Further, there is an additional $ 250 penalty perform if facts and circumstance compel IRS to hold that you intentionally did not file or late file the 1099 -misc.
What to do to avoid a penalty for late or non-reporting of Form 1099?
Two steps are needed to ensure that no fault in filing the tax form 1099 happens.
1.Request a completed Form W-9 from contractor so those following things become clear to you in the beginning
- if they have a corporation, saving them the trouble of receiving a 1099-MISC under their personal SSN.
- If they return the completed W-9 back to you indicating the EIN and name of their corporation, that’s one less 1099 you have to prepare.
- If a contractor does not submit completed W-9 with their Tax ID Number you need to withhold 28% of payment to comply with Backup Withholding requirements.
2. Hire a professional CPA, payroll provider, or bookkeeper to handle the 1099 reporting and filing.
3. Prepare before the end of the year.