by Georgia Frady and Bill Stukey, CPA, CVA
Attention Business Owners!
Businesses that pay independent contractors $600 or more for services during any calendar year MUST issue a Form 1099-MISC at the end of the year to the independent contractor. A business is any activity operated for profit. An independent contractor is a person or business not incorporated, or an attorney whether incorporated or not, who performs services of any kind for a business. Forms 1099 for 2012 must be given/sent to the recipient on or before January 31, 2013 and sent to the IRS on or before February 28. 2013.
Failure to file the required Forms 1099 can result in penalties of up to $500 for each form not filed. Failure to file Forms 1099 can also result in loss of deduction of the payment to the independent contractor from business expense which increases net income and costs more tax.
There are two new questions on every business tax return. Question #1 is, “Did you make any payments in 2012 that would require you to file Forms 1099?” Question #2 is, “If “Yes,” did you or will you file all required Forms 1099?” Failure to answer the questions or answering the questions untruthfully makes a taxpayer subject to penalties of perjury.
Begin collecting information at the beginning of the year. Keep a supply of Forms W-9 on hand. The forms provide the information necessary to properly complete the 1099, including name, address and social security or employer identification number. The W-9s should be filled out by the contractor, because they provide verification that you complied with the law, should the contractor/vendor provide you with incorrect information. Each time a new independent contractor comes to work for you, have them fill out a W-9, even though you don’t plan on paying them $600 at that time. Should you use their services later in the year, and total payment exceeds $600, you already have the necessary information.