Small Business Tips for IRS Form 1099 Reporting

Small Business Tips for IRS Form 1099 Reporting

If you pay $600 or more to an independent contractor in a year or $10 in royalties to an individual, the Internal Revenue Service (IRS) requires that you send a MISC-1099 form. The form must be postmarked by January 31 to cover any miscellaneous income or royalties from the previous calendar year. Businesses typically issue MISC-1099 statements to individuals and sometimes partnerships.

Other Situations that Require IRS Form 1099 Reporting

In addition to royalties and money paid to independent contractors, the IRS requires businesses to issue a MISC-1099 for the following:

  • Cash paid from a notional principal contract
  • Cash payments for aquatic life, including fish
  • Crop insurance proceeds
  • Lawyers and attorneys
  • Medical and health care payments
  • Prizes and awards
  • Proceeds from a fishing boat
  • Rents  

Each of the above has a payment threshold of $600. The IRS also requires businesses to issue a MISC-1099 for direct payment of consumer products meant for resale anywhere except retail stores. This payment threshold is $5,000.

It will sometimes be necessary to issue an IRS Form 1099 reporting to a corporation. This includes companies operating under a C, S, or limited liability corporation tax structure. However, it only applies to the following circumstances:

  • Fish purchases
  • Gross proceeds and fees paid to attorneys
  • Payments received from federal agencies for services
  • Payments received from dental, medical, and other health-related insurance companies  

Steps to Prepare a MISC-1099 Form

If your company routinely works with independent contractors, be sure that each one completes a W-9 Form before performing any services. This information provides you with the details you need to complete a MISC-1099 form, including the name, mailing address, and social security number of the independent contractor. You can download blank copies of W-9 forms from irs.gov.

It’s important to track payments that you make to independent contractors accurately throughout the year. Although you can do this manually, using accounting software or outsourcing this task to Doerhoff & Associates can save you time. If you track payments yourself, run a report at the end of the year to determine who earned more than $600 from your company and requires a MISC-1099 statement.

You will now need to complete separate IRS Form 1099 reporting for each person who earned above the $600 threshold. The form has 19 separate boxes to complete. However, most will not apply to your situation. In the case of an independent contractor, you should only need to fill in Box 7 for non-employee compensation along with his or her name, address, and social security number. Once you have completed all MISC-1099 forms, you can mail them to the IRS, submit them online, or give them to your accountant to submit on your behalf.

IRS Form 1099 reporting is just one accounting function we can handle for you at Doerhoff & Associates CPA. We invite you to contact us at 573-634-4006 to learn more.