After failing to pay your taxes, failing to file the appropriate returns is the second easiest way to incur the wrath of the IRS. Your reporting obligations go beyond issuing W-2s to your employees. Many other outgoing payments should be reported on Form 1099.
Form 1099-MISC is called Miscellaneous Income because it is a catch-all form that covers many types of income. There are four general rules for when you need to file a Form 1099. Your bookkeeping services can help you track your payments and issue the appropriate forms.
Purpose of Payment
Common payment purposes covered by Form 1099-MISC include the following.
- Services rendered
- Broker payments
- Fishing boat proceeds
- Legal fees
The purchase of goods and other tangible assets is generally not covered by Form 1099-MISC.
Who You're Paying
In general terms, Form 1099-MISC is issued to everyone but corporations. This includes individuals, partnerships and most professional business entities.
An LLC is only considered to be a corporation if it has elected to be taxed as a corporation. If it has not, the LLC should receive a 1099-MISC.
Note that the form's instructions list six special circumstances where payments to corporations are reportable and a 1099-MISC is required.
Method of Payment
You should only include payments made by cash, check, ACH transfer or other direct means on Form 1099-MISC.
Payments by credit card or through third-party transaction networks that are reportable on Form 1099-K (see below) are specifically excluded from Form 1099-MISC reporting.
The bartering of goods or services rather than a monetary transaction may still trigger Form 1099 reporting requirements as outlined in Topic 420.
Amount of Payment
You do not need to file a Form 1099-MISC if your payments are below the minimum reporting threshold. For most transaction types, the threshold is $600.
You are not prohibited from filing if the minimum threshold wasn't met, and the recipient is not excused from reporting the income regardless of whether you file or the threshold was met.
Other Types of Form 1099
There are 32 types of information returns outlined in the General Instructions for Form 1099. Many cover extremely specific transaction types. The following five may affect a broader range of businesses.
Financial institutions report canceled debts on Form 1099-C. Only organizations whose significant trade or business involves lending have an obligation to file this form. Merely writing off a past due invoice would generally not trigger a reporting obligation.
Form 1099-CAP is used when a corporation is acquired or has a substantial change in capital structure. If shareholders receive cash, stock or other property during such a transaction, you should issue a Form 1099-CAP.
If you issue stock and pay dividends, you should report the dividend payments on Form 1099-DIV.
Form 1099-K reports gross receipts collected by a credit card processor or third-party transaction network such as PayPal or Stripe. If you operate an online marketplace or otherwise act as a payment intermediary, you may have Form 1099-K reporting obligations.
Form 1099-S is used to report the proceeds from most real estate transactions except for the sale of primary residences valued at up to $250,000 or in transactions in which the transferor is a corporation or government entity.
The instructions for some forms set a minimum payment threshold below which you are not required to file the form. However, if you backup withhold, you must issue the appropriate Form 1099 regardless of the payment amount. For example, you must issue a Form 1099-MISC on a $400 payment to an independent contractor subject to backup holding even though the usual threshold for independent contractor payments is $600.
Looking for a better way to manage your 1099s? Check out what we had to say about Track1099 and then learn whether our accounting and controller services can help you with this and the rest of your accounting needs.