Fall is in the air and winter has begun to creep into the cracks of our lives. I went shopping yesterday and the mall was already bursting at the seams with Christmas mercantile cheer.  I absorb the surrounding manufactured winter and my mind leaps over Santa’s elves to 1099 reporting.

There are ten types of 1099’s listed on the irs.gov website in the article Reporting Payments to Independent Contractors. Today I am discussing 1099-MISC, the one that makes, pay me in cash, an allusive promise that in my opinion is courting disaster.

In my previous life, before my husband hoodwinked me into the medical gas world, I spent my days and often nights digging through laundry bins, black plastic trash bags, and even a matching set of suitcases in an effort to piece back together years of financial paperwork.  I worked for an accounting firm preparing past due tax returns for mostly small contractors who woke up one day to the realization that the increasingly ominous letters from the Internal Revenue Service was not a joke hosted by their brother-in-law. I have also survived my own “audit from hell” and everyone involved, except possibly the IRS, was happy that I had said, “we will not be doing business that way”.

Quite simply, according to Uncle Sam, “if the following four conditions are met, you must generally report a payment as nonemployee compensation”.

• 1.   You made a payment to someone who is not your employee;
• 2.   You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
• 3.   You made the payment to an individual, partnership, estate, or in some cases, a corporation; and
• 4.   You made payments to the payee of at least $600 during the year.

For example, as a corporation I fill out our W-9’s automatically when I create an account with a new vendor.  This keeps us from receiving a deluge of 1099’s in February. We still get some, but I just shred them. Our vendors are not required to send me a 1099 because we do not file a tax return as an individual or an estate. We file it as a corporation. If you are not sure of your company status in regards to a 1099, ask your accountant or tax professional for assistance.

Seems pretty simple, correct?  But keep in mind that vague little word, “generally”. Some services, even if performed by a corporation, still require a 1099 to be issued. In an article provided by Charlotte CPA Firm, Bordeaux & Bordeaux, a business is required to issue the company lawyer a 1099 for any payments made during the tax year “regardless of the amount and regardless of whether the attorney is incorporated or not”.

Bordeaux & Bordeaux also point out that.  “Rents totaling more than $600 paid to an individual landlord, partnership, or estate (but not rents paid to a corporation) must be reported on Form 1099-MISC”. If you are paying your rent through a real estate agent, then you do not generally need to issue a 1099.

And, as if it is not already getting complicated enough, your customers pay you with a credit card, then you are not required to issue them a 1099. This is “picked up by 1099-K through merchant services”.

The IRS requires that 1099 forms be mailed to recipients by January 31. They give you another month (a short one) to get that information to the IRS. They want the data sent to them by February 28^th.  Thinking of ignoring this winter accounting chore? Penalties are stiff, a total of $200 per 1099 form.  This is an increase from previous years and a strong hint that 1099 reporting just might be the IRS’s pet peeve in the coming years. 

 Now you see why corporations that are not required to receive 1099’s receive them anyway. Businesses small and large throw up their hands and just send one to everybody they paid anything to, including the kid who they hired to shovel their walk for cash and paid $100 on that one day it snowed.

The internet is full of advice on 1099’s. I have included a few links below. Or you can do what I do now, send off a quick blast to my accountant.  They have saved me far more grief than I have ever had to pay them.

https://www.bing.com/search?q=www.charlottecpafirm.com/form-1099-reporting-vendor-payments/&form=APMCS1&PC=APMC

http://www.efile.com/what-is-form-1099-misc-income-tax-return-requirements/

http://www.rhdtlaw.com/1099d-employer-liability-independent-contractors-service-sector/

https://www.irs.gov/businesses/small-businesses-self-employed/reporting-payments-to-independent-contractors

Great question.  Let's clarify that if a foreign or International corporation is operating in the United States then that company is required to have an EIN#. They should submit a W-9 to your company just as an American owned corporation would do.

I am assuming that you are referring to your company paying for services in a foreign country with payment being made to that company by your company via a wire service, check, or cash. According to Donna Bordeaux of Bordeaux & Bordeaux, CPA's, "Foreign companies do not have EINs so you cannot send them 1099s". Therefore your company would not be required to issue either a foreign corporation or an inidiuvdual not operating in the Untied States a 1099. 

I have included the websites for my sources below.

http://www.charlottecpafirm.com

http://smallbusiness.chron.com/international-corporations-need-tax-identification-number-60026.html