January is 1099 Season!

Happy New Year everyone! January makes most businesses think of W-2s. But another often-overlooked information return due to recipients in January is the 1099! The IRS has begun to look more heavily at taxpayer compliance with these information returns, and penalties have been increasing.

Generally, any person or entity, including corporations, partnerships, single member LLCs and individuals, who make reportable transactions in the course of a trade or business during the calendar year, must file information returns to report those transactions to the IRS and recipient, and often the state.

For small business owners, 1099s are required in, but not limited to, the following common situations:

• Any vendor or contractor to which you pay a cumulative total of $600 or more in the calendar year for services, if they are not incorporated (C Corp or S Corp). This can include services you purchase for advertising, legal, accounting, consulting, auto repair, cleaning, catering, repairs, etc.

  • Bear in mind LLCs can be single member LLCs or partnerships, both of which require 1099s to be sent to them. You will need a W-9 to distinguish an LLC.

  • Payments to a lawyer must be reported, regardless of the structure of the legal firm.

• Any lessor to which you pay rent in the amount of $600 or more through the year.

• Lendors to which you pay interest of more than $10, if they are not incorporated. This typically would not include banks, but could include personal loans or seller-financing arrangements.

There are many other types of 1099s, most of which are more specific to certain industries and situations. When you hire any type of vendor or contractor for services, it is important to get a W-9 from them, so you can track whether or not you are required to send them a 1099. Penalties for not filing required 1099s can be as much as $630 per required 1099.

Think you have a filing requirement? I'd be happy to review your possible obligations with you and help you to prepare those filings, when required. Give me a call or send a message at your convenience. The deadline is January 31, 2024.