It’s almost time to send out 1099s….What every business owner needs to know.

The 1099 rules are confusing and each year we get a number of questions about them. This Q&A provides you the basic rules you need to know for your business.

Q: Do I really need to issue 1099s to my vendors? I don’t have subcontractors. My vendors are people who clean my windows or fix my computer.

A: Yes, you probably have to issue these vendors a 1099-MISC. The basic rules are, if they provided a service to you, they are not corporations and you paid them more than $600, you will need to issue a 1099 by February 1, 2016. (There are some exceptions for attorneys and rents paid to real estate agents).

Q: I need to get my vendor’s name, address and social security number? That seems a bit intrusive, no?

A: Most business owners know about the 1099 requirement and should be prepared to provide you this information. To make it more official, you can ask your vendors to complete a Form W9 which has all the required information for the 1099. If, as a vendor, you do not want to provide your Social Security Number (SSN), then we recommend you apply for an EIN (Employer Identification Number) number from the IRS.

Q: One of my vendors refuses to give me his EIN or his Social Security Number. How do I avoid this problem in the future?

A: We recommend that you trade a vendor’s first payment of the year for a completed W9 form. This way, you have the information in your system if you go over the $600 threshold and you don’t have to be chasing down people at the end of the year. (I promise you that they want to get paid, so they’ll gladly complete the W9 for you).

Q: What’s the big deal about issuing a 1099. I have a copy of the check so I can still deduct that expense, can’t I?

A: Per California Revenue and Taxation Code (17299.8), the Franchise Tax Board can disallow a deduction if the 1099 was not filed. The IRS does not have the same codified statute, but they do ask on the tax return if you filed all 1099s and if you did not, you could get a call from the auditor. (If you do get contacted by an auditor, be sure to call an Enrolled Agent to properly represent you). Even if the auditor does not disallow the expense, you could get a penalty for not filing the 1099s.

Q: What happens if I file the 1099s late?

A: There are penalties that range from $50-$100 depending how late you are. If you intentionally disregard the requirement the minimum penalty is $500.

Q: Ugh. This seems complicated. Can I hire you to do my 1099s?

A: Yes! Cromwell Tax & Bookkeeping can help you with all your information reporting needs including 1099-MISC, 1099-INT, 1099-DIV, 1098, and W2s.

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