Below is a brief summary of rules that would be pertinent to our clients regarding issuing 1099-Misc forms to contractors they have worked with during the calendar year. Keep in mind, if you have to issue a 1099 to a contractor, the deadline is February 2, 2015!
If during the calendar year you hired contractors in the course of running your trade or business you may have to issue them a 1099-Misc in order to remind them to include such payments on their tax returns. Additionally you would need to furnish the IRS with a copy of the 1099-Misc.
The current rules are:
• Payments to any one contractor of $600 or more during the tax year in the course of your trade or business. The contractor must be an individual or partnership; payments to corporations currently do not require a 1099, except for noted below.
• Professional fees to an attorney, doctor or other professional are included, as long as they are made in the course of your trade or business – not PERSONAL expenses.
• Payments to corporations are included only if they are for medical, health care, legal or fishing activities.
• Payment of $600 or more in rent for office space, machines, equipment or land in the course of your trade or business will also require a 1099-Misc if the payment was made to an individual or partnership, not a corporation.
• Payments include commissions, fees, interest, rents, royalties, annuities and any other type of compensation or income to a single recipient.
Some additional notes to consider:
• The IRS deadline for mailing 1099 forms to your recipients is February 2, 2015 – you should ask them to verify information. After making any corrections from contractors, submit to IRS by February 28 if paper file and March 31, 2014 if electronically.
• If you inadvertently fail to issue a proper Form 1099, the IRS can assess a $50 penalty. The penalty for each intentional failure can be $100 or more.
• Do not send 1099-MISC personal payments! An independent contractor to whom you have made a personal payment unrelated to your trade or business does not receive a 1099-MISC.