1099s

For those of you who don’t know… 1099s are due January 31^st!  Out of all of the businesses I know, only one or two were ready to file 1099s.  This is actually very common.  This is caused by businesses NOT requiring vendors to fill out W-9s.  Here is what I always tell my clients: “When in doubt have vendors fill out a W-9.  It’s better having one on file and not needing it, than not having one and scrambling to get it at the end of the year.”

So let’s get back to the basics…

Q:  What is a 1099?

A:  1099s are similar to W-2s.  W-2s are used to report wages to employees.  1099s are used to report wages paid to independent contractors.  There are several different kinds of 1099s.  The three most common are 1099-MISC (used to report miscellaneous wages), 1099-DIV (used to report dividends paid), and 1099-INT (used to report interest income).  Most of the small businesses I work with only file 1099-MISCs.

Q:  The 1099-INT and 1099-DIV are pretty self explanatory but WHO DO I NEED TO FILE 1099-MISCS FOR?

A:  You need to file a 1099-MISC for anyone you paid over $600 (per calendar year) for work performed (or other work related services).  You also need to file a 1099-MISC for your landlord (if your landlord in not a corporation).  My client’s file 1099s for my company using my company’s EIN (tax payer ID).  Other types of individuals or businesses you may need to file 1099s for are: consultants, IT professionals, web developers, lawyers, landlords, contractors (construction), doctors, etc…  Most 1099s are filed for businesses that operate either as a sole proprietor or partnership.  You do not need to file 1099s to corporations unless the payments you sent to them were for legal, medical, or fishing related activities. 

Q:  Okay, I understand what a 1099 is, but what is a 1096?

A:  A 1096 is a summary of all the 1099s you filed.  For example, let’s say you file three 1099s.  One was for $800, one was for $2,200, and the last was for $1,300- Your 1096 would total $4,300.  I like to think of 1099s as the detailed forms and the 1096 as the summary form.

Q:  How to I file 1099s?

A:  There are two ways you can file your 1099s.  You can mail them or you can e-file them.  If you only need to file a few 1099s I recommend e-filing them.  If you need to file a lot of 1099s (and you use accounting software like QuickBooks) I recommend mailing them. 

Before mailing 1099s or your 1096 you have to go to buy the actual forms.  Beware…the 1099 forms are usually very expensive.  For example, Intuit charges $69.99 for only (10-ten) 1099 forms!!  If you are using QuickBooks all you have to do is use the 1099 Wizard and follow the steps.  Once the process if complete you just print your 1099s and your 1096 (using the 1099 and 1096 forms you purchased) and mail them out.  Remember to make two copies of each 1099 - one to send to the individual who you are filing one for; the other you mail to the IRS. 

E-filing is also pretty simple but has a few additional steps.  First, you need to find out exactly who you need to file 1099s for.  This can also be done using the 1099 Wizard in QuickBooks.  The information you will need in order to e-file a 1099 is: payee’s name, address, SSN/EIN, and the amount paid to the payee during the calendar year in question.  The payee’s email and phone number are not required but I recommend using them if you have them.  Once you have compiled this information you are ready to e-file.  There are many websites that offer e-file for 1099s.  The one that I use is www.efileforbusiness.com. 

Q:  What else do I need to know about 1099s?

A:  The most important thing to remember is that 1099s are due Jan. 31^st (so are W-2s if you haven’t mailed those out yet).  Secondly, if you are unsure about who to file a 1099 for or how to file one, I recommend hiring a bookkeeper or CPA.  It’s better to be safe than sorry.  The last thing to remember is this…  You DO need to file a 1099 for your landlord if: 1.You paid your landlord more than $600 in the calendar year and, 2. If your landlord is a sole proprietor or partnership.  The most common misconception I hear regarding 1099s is that you do not need to file a 1099 for rent.  This is NOT true.  There is a special box on form 1099-MISC specifically for rent.

I hope this helps you understand what 1099s are about and how to file them.  If you have any more questions please feel free to leave a comment.