Form 1099 Reporting for 2012

Questions often come up from clients as to when they need to issue 1099's and what the requirements for filing are. You are required to prepare a Form 1099-Misc for any payments made to individuals, vendors, subcontractors, and independent contractors if you paid them $600 or more during the year. This includes LLC's treated as a partnership or sole proprietorship. You do not need to issue a 1099 to a corporation, unless payments were made to an attorney, a law firm or a health care provider.

IRS Scrutiny

The IRS uses 1099s submitted to them to verify if the recipients report the income on their tax returns.  Failure to comply with 1099 filing requirements may result in substantial penalties.  The IRS added two new questions on the 2011 individual and business tax forms.

1. "Did you make any payments in 2011 that would require you to file Form(s) 1099?"
2. "If 'Yes', did you or will you file all required Forms 1099?"

Two penalties may apply to 1099 filings:

• Failure to file 1099s with the IRS
• Failure to provide copies of 1099s to payment recipients

The penalties increase the longer the filing failure continues and ranges from $30 to $100 per form.  If you fail to file 1099s with both the IRS and the recipient, the penalties may be double the standard penalty rates.

Examples of situations where 1099 reporting may be required

• You paid rent to an individual or partnership for services provided to your business
• Your business paid over $600 to an individual, sole proprietorship, or partnership for services
• You paid over $600 to an attorney or law firm for legal services (even if the law firm is incorporated)
• You paid rent for pasture lease

So how do you know if a business is incorporated or not

The IRS form W-9 "Request for taxpayer number and identification" should be used to obtain information from all of your vendors to determine whether they are operating as a sole proprietor, corporation, or partnership and to obtain their federal taxpayer identification number.

The due date for furnishing most types of 1099s for 2012 payments is January 31, 2013.  If you think your trade or business activities may require you to file a 1099, you can go to the IRS website at www.irs.gov/form1099misc where it gives more in-depth information on 1099-misc or contact us.

Posted by Bob G Dellinger, CPA