What A 1099 Accountant Can Do For You
With the new year comes tax season. It’s time to pull together all the year-end data and documents needed to file your business tax returns. Part of that process involves sending 1099s to certain vendors you paid for services during 2022—independent contractors, but also other non-employee individuals and unincorporated entities. Compiling 1099s can be confusing, you don’t have much time, and there are expensive penalties if you do it wrong.
Whether you need to issue just a few or hundreds of 1099s, your accountant can guide you through the process or—better yet—handle all the details on your behalf. You will save time and gain valuable peace of mind knowing everything is done right. If your business also receives 1099s from others, your accountant can ensure all of those are exactly right, too.
Which Form Should You Use?
The 1099 isn’t a single form. There are 20 different versions you might conceivably need for 2022 taxes, depending on the type of non-employment income (payment from you) to be reported. For example, there’s 1099-DIV for dividends and distributions and 1099-INT for interest payments. But the most common for businesses are 1099-MISC and 1099-NEC.
1099-NEC (non-employment compensation) is the form to report payments of $600 or more to:
- Freelance creative service providers (graphic designers, web developers, writers, etc.)
- Professional service providers (accountants, consultants, etc.)
- An attorney (for usual services), even if the firm is a corporation
- Service businesses (plumbers, snow removal, catering, computer repair, etc.) that operate as sole proprietors
Note that the $600 is based on payment date (within 2022).
There are some exceptions to a 1099-NEC, notably S corporation and C corporation businesses and limited liability companies (LLCs) that are taxed as S or C corporations. Medical and healthcare providers also fit within this rule.
You can also use a 1099-NEC report for:
- Attorney payments that relate to a settlement rather than regular services
1099-MISC is still the go-to form for payments that don’t fit other specific categories, including payments such as:
- Prizes or awards
- Royalties ($10 or more)
You Must Issue 1099s by January 31
There are a few exceptions, but in general, you must mail or electronically send 1099-NEC and 1099-MISC forms to service providers by the end of January. You must also send the 1099s to the IRS, but the deadlines differ:
- January 31 is the deadline to submit 1099-NEC forms.
- February 28 is the deadline to submit 1099-MISC forms on paper. In this case, you will also need to include Form 1096, the Annual Summary, and Transmittal of U.S. Information Returns.
- March 31 is the deadline if you file electronically. Note that if you are filing 250 or more 1099s with the IRS, you are required to do that electronically.
Certain states also require businesses to provide copies of 1099s you issue, typically if state tax was withheld from the payments. Your accountant can advise you about this.
The IRS takes 1099s seriously–it’s how they track taxpayer income that isn’t reported on a W-2–so they do, in fact, match 1099 forms with tax returns. There are penalties for making mistakes, based on how late you are, how many forms you file late, and whether your business has annual gross receipts below or above $5 million.
A single penalty can range from $50 to $280 for 2022 if you made an error. “Intentional disregard” (deliberately not providing a correct 1099 to a payee) will earn you a penalty of $570. For multiple filings, the penalties can add up quickly–far better to follow the rules and do things right the first time.
As important as it is to follow the rules, there are a surprising number of details that can trip you up such as:
- Missing the deadline
- Using the wrong form
- Checking the wrong box, even if it’s the right form
- Inaccurate or incomplete payer or recipient information
- Reporting the wrong amount paid
- Failing to file electronically if required
Keep in mind that creating an error on your 1099 form has a cascading effect–it’s not just you who is affected. It can affect your contractor who may have already filed their taxes as well as make your business less attractive to outside contract workers.
Get Help and Get it Right
Did you know that if the payee’s Taxpayer ID Number (TIN) is their Social Security number, you must put their personal name, not a dba, on the form? You could take the time to double-check each payee’s TIN online, or you could solicit help from a CPA firm, give them copies of non-employee W-9s and let them ensure the information is correct.
Even a “simple” mistake such as checking the wrong box on the form could directly affect the payee’s taxes, misstating the amount paid. And any errors mean you’ll need to issue a corrected 1099.
The easy way to avoid time-consuming work and the potential pitfalls of issuing 1099s is to let your accountant handle the details as part of your tax preparation and reporting process.
Melissa Doumbia, CPP
Melissa Doumbia, CPP, is a manager at Redpath and Company and leads the payroll services team for the Accounting and Management Outsourcing practice. She works with clients in a variety of industries and has a special expertise providing accounting and payroll services for the construction industry. Melissa’s payroll expertise includes return preparation and filing, tax credits, and tax and regulatory compliance. She also has experience providing union payroll and benefits and preparing and filing of Form 1099. Melissa received her B.A. in Political Science and International Studies from Macalester College. She has been providing accounting and payroll services since 1998 and joined Redpath and Company in 2022.
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