This message is to remind you of two important upcoming tax deadlines:
January 15 is the deadline for the fourth and final estimated tax payment for 2014. Make sure your estimated payment is postmarked by the 15th. You might want to send it certified return receipt to be sure of when it arrives.
1099-MISC forms are due to contractors by January 31. They are due to the IRS by February 28 for paper filing or March 31 for electronic filing. For more information on who needs to receive a 1099-MISC please refer to this post.
When companies are hiring there is often a question of whether they are bringing on contractors or employees. Sometimes it is easy to figure out, like when you use an outsourcing company or a subcontractor. Other times it can be more difficult to determine, such as hiring a remote employee or a sales representative.
The IRS asks some questions when determining if someone is a contractor or an employee:
Does the company control what the worker does and how the worker does his job? For example, do you tell the worker he has to work from 9-5, or can he work whenever is convenient to him?
Are the business aspects of the worker’s cob controlled by the company? This can include how you pay the worker, if you reimburse expenses, if you supply tools, etc.
Are there written contracts or employee-type benefits? This can include pension plans, insurance, vacation pay, etc.
There are consequences for miscategorizing employees as contractors. If you are paying workers as contractors when they should be employees, you can be responsible for payroll taxes. Late fees and penalties for missed payroll taxes can be very steep, and the IRS takes this very seriously.
There is no set rule for answering the contractor vs. employee question. Consider the entire relationship, make sure you consider the degree of control involved (what will be done and how it will be done), and make sure you document the decision in case the IRS questions you.
If you have questions about contractors vs. employees or payroll issues, please contact me.
I regularly get questions about whether or not to file 1099s. They are often surprised that more vendors and contractors need 1099s than they think. The list goes well beyond a freelancer you hire or a subcontractor you use.
In general, 1099s are required for payments over $600 made to individuals and partnerships – NOT corporations. The following is a list of common vendors you will need to issue 1099s for:
Payments for services
Payments for rent to landlords
Payments for prizes and awards
Payments to attorneys
The biggest exception to the general rules above is that a 1099 needs to be filed for attorneys and legal services even if they are a corporation.
Not sure if you should file a 1099? My theory is- if in doubt, file it. There is no problem if you file a 1099 you did not need to file. However, the IRS can hit you for up to $100 per 1099 you do not file if you needed to. Even worse, the IRS can disallow the corresponding deduction on your income tax return.