REMEDY FOR FAILING TO FILE 1099s
If you’re thinking back on the previous year and realizing there are 1099 forms you did not submit, here are the steps you can take to remedy the situation and possibly avoid having to pay fines on your errors.
- Reach out to your tax attorney and share the information of which contractors you failed to file 1099s for.
- Gather any necessary information (EIN, Tax ID # or SS#) for those parties.
- Have your tax attorney reach out to IRS and submit the correct forms with a letter of explanation for why the forms are late. The reason for late filing has to be more substantial than, “I forgot” but with supporting evidence and documentation, fines can be waived.
Think the IRS isn’t after small fry like you? Think again. In the case of Chelsea Piers in NYC, criminal tax proceedings were brought against referees who, in collusion with Chelsea Piers, cashed multiple $40 checks for referee work under false names over, and over and over again to save money come tax time.
They played tax dodge-ball and got hit in the face with a criminal indictment for fraud… Yet another reason not to like dodge-ball.
Small businesses often pay contractors for projects, services and even rent (paid to non incorporated companies). Form 1099 is the form business owners send to those contractors and submit to IRS to share the information with IRS of how much was paid to those contractors. If the amount paid was over $600 in a fiscal year, it is mandatory to file form 1099. Take note: The deadlines for filing 1099s are different from the regular April 15th deadline, so read on…
Form 1099 comes in many varieties, including 1099-INT for interest, 1099-DIV for dividends, 1099-G for tax refunds, 1099-R for pensions and 1099-MISC for miscellaneous income. All 1099 forms are informational tax filings, not tax return documents and as such the information that your business submits to IRS has to be correct. If you failed to file 1099s for 2018 you may find it challenging to gather all the required information for your payees. Take this as a lesson for next year… gather contractor Tax ID# or SS#, address, legal name and even phone number so you can submit your 1099s on time to IRS for 2019. Late or non filed 1099 forms risk fines starting at $50 and escalating quickly from there.
If you realize you have made a mistake or have forgotten to file certain 1099s, act as soon as possible, the longer you wait, the more you may have to pay in penalties.
Deadlines:
File Form 1099-MISC on or before Jan. 31 if you are reporting non-employee compensation (also known as NEC) payments (in Box 7) using either paper or electronic filing. For all other reported payments, file Form 1099-MISC by Feb. 28, if you file on paper, or April 1, if you file electronically.
Guidelines for non-incorporated contractors you must file 1099s for:
- Independent contractors who worked for your business
- Recipients of prizes and awards from your business
- Rent (even between related parties, if not incorporated) for your business
- Physicians, physicians’ corporation or other supplier of health or medical services (corporations need a 1099-MISC for medical services) for your business (not personal)
- Gross proceeds of $600 or more paid to an attorney for your company
- Interest on a business debt to someone (excluding interest on an obligation issued by an individual)
- Dividends, even to a company shareholder
Remember, you are only required to issue a 1099-MISC for "Non-employee services" when personal services are provided.
Resources:
Visit IRS.gov:
Form 1099-MISC
Instructions for Form 1099-MISC
Information Return Reporting