Hey everyone, I’m Bette Hochberger, CPA, CGMA. As the deadline to send out 1099s approaches, I wanted to come on here and discuss more about it.
As a business owner, it’s crucial to stay on top of your tax obligations, especially as year-end deadlines approach. A key task is issuing Form 1099s for payments over $600. This requirement, mandated by the IRS, plays a significant role in your business’s compliance and financial integrity.
What is Form 1099?
Form 1099 is used to report income payments from your business to individuals or entities that are not regular employees. This includes payments for services rendered by independent contractors, freelancers, or other non-employee services.
For the 2023 tax year, if you’ve paid anyone $600 or more for such services, you are required to issue them a Form 1099.
Why is the $600 Threshold Important?
The $600 threshold is the IRS’s set minimum for reporting payments. Payments below this amount do not require a 1099. However, surpassing this limit triggers the reporting requirement. It’s not just about adhering to tax laws; it also provides transparency and accurate income reporting for all parties involved.
UPDATE: The IRS had delayed the $600 1099-K requirement for third-party payments. They plan for a threshold of $5,000 for 2024.
The critical date to remember is January 31st. By this date, you must have sent out all necessary 1099 forms to the respective recipients. Additionally, the IRS must receive their copy of these forms by this date as well.
Steps to Ensure Timely Compliance
- Review Your Records: Identify all contractors or service providers to whom you’ve paid $600 or more during the tax year.
- Collect W-9 Forms: Ensure you have a completed Form W-9 for each of these individuals or entities. The W-9 provides necessary information like tax identification numbers.
- Prepare the 1099s: Accurately fill out the 1099 forms for each qualifying recipient.
- Distribute and File the Forms: Send the recipients their copy and file the form with the IRS, either electronically or by mail.
Penalties for Late Filing
Failing to file the required 1099s by the deadline can lead to penalties. These can range from $50 to $280 per form, depending on how late the forms are filed.
Issuing 1099s for payments over $600 is more than a regulatory requirement; it’s an integral part of responsible financial management. As the deadline nears, make sure your business is prepared and compliant. If you’re unsure about any part of this process, consider consulting with a tax professional (like myself)!
I hope you all learned something new today. I’ll see you again next time!