As the new year approaches, your small business will have many annual accounting responsibilities to complete. One of the least understood by many owners is the completion of Forms 1099. Does your company need to file these forms? And if so, how do you do this? Here's a primer to get you started.
What Is Form 1099?
In general, Form 1099 is a category of IRS information forms completed by a payer to inform both the payee and the tax agency of certain payments. Although it's often referred to as a single form, it actually encompasses more than twenty different versions. The payments reported range from tax refunds to payments for crop insurance.
No matter which type of Form 1099 is received, the payee then uses the information to complete their personal income tax returns. A copy is also given to the IRS for confirmation.
Who Receives Form 1099 From Your Company?
Most small businesses only issue a few types of Form 1099. The most common is Form 1099-NEC. This is to report any individual who was paid more than $600 during the year but who is not your employee. Depending on your services, industry, and suppliers, you may also need to complete Form 1099-MISC (miscellaneous services), Form 1099-S (Proceeds from Real Estate Transactions), or Form 1099-C (Cancellation of Debt).
What Do You Need for Form 1099?
If you must complete Forms 1099-NEC or Forms 1099-MISC, you'll need to gather a few pieces of information. The first is the name and mailing address of all independent contractors, sole proprietorships, and LLCs taxed as a sole proprietorship who performed services for your company.
Tax software often helps track qualifying payments throughout the year. But if you haven't kept track of eligible service providers, you may need to go back through your bookkeeping records retroactively to identify the right recipients.
Once you create a list of qualifying payees, you need the tax identification numbers for each as well as the total paid for services only. Requesting and verifying this information can take significant time, so start as early as possible.
Where Can You Get Help With Forms 1099?
If you're new to filing Forms 1099, your best resource is an experienced accounting service. They will work with you to identify all relevant suppliers and report correct information on this year's forms. Then, they can help you set up an easier system going forward to lessen your workload next year.
Call today to make an appointment and learn about these mandatory, but often overlooked, early-year tax obligations.
For more information, reach out to a company such as Batista & Associates Corp.
