2019 Increased 1099 Penalty Fees

THE EVER INCREASING 1099 PENALTY

The IRS is issuing large penalties for not submitting the Form 1099 Misc.

The federal government has determined one of the best ways to decrease the underground economy is to increase the income reporting through the Form 1099 Misc income reporting system.

Companies are experiencing increased penalties for not issuing the required Form 1099 to vendors who receive over $600 in a calendar year as an independent contractor for services, OR pay rent for facilities, OR issue prizes and awards, OR pay for medical services, OR pay for legal services.  All of these activities are on the Form 1099 required list which has expanded across many types of business activities that often surprise business owners.

Beginning this year, the IRS penalty for not issuing a Form 1099 for the 2019 tax year will be $270 per occurrence.

 More details regarding the IRS penalty schedule for both late and non-filed Form 1099s can be viewed at the following link:

https://www.irs.gov/government-entities/federal-state-local-governments/increase-in-information-return-penalties

The IRS has a 3-year look back audit program that they have instituted specifically towards determining if a company has missed issuing a Form 1099 properly. Many companies are receiving IRS Audit letters requiring a full compliance audit and penalty application.

Reviewing and auditing the company’s issuing of the Form 1099 is now included as part of all direct IRS contact with audit staff which may have initially begun for any other reason.

Business use Subcontractor / Outside Service (Gardeners, Janitorial, Computer Technician, Doctors)

Businesses must report payments to independent contractors.  Typically, you need to supply a 1099 to independent contractors, firms that are not on your regular payroll, or any other company or worker that you paid $600 or more for services that is not on your payroll.

Attorney

The term “attorney” includes a law firm or other provider of legal services. Attorneys’ fees of $600 or more paid in the course of your trade or business are reportable.

Rent paid for Business purpose

Enter amounts of $600 or more for all types of rents, such as any of the following.

  • Real Estate rentals paid for office space. However, you do not have to report these payments on Form 1099-MISC if you paid them to a real estate agent or property manager. But the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
  • Machine rentals (for example, renting a bulldozer to level your parking lot). If the machine rental is part of a contract that includes both the use of the machine and the operator, prorate the rental between the rent of the machine and the operator’s charge
  • Pasture rentals (for example, farmers paying for the use of grazing land).

To Prepare a Form 1099

Provide your vendor with a Form W9 (https://www.irs.gov/pub/irs-pdf/fw9.pdf) to receive the following information:

  • Name of the individual or entity you paid
  • Their tax identification number (SSN or EIN)
  • Their address
  • The total amount paid to them in 2019
  •  Any Tax Withheld

Issuing the Form 1099 is due by January 31st of 2020 for the 2019 tax year.

Further information can be found on the IRS instructions for preparing Form 1099 Misc which includes a full listing of the required types of services and circumstances for the 1099 reporting.

https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

 Please be reminded, based on the instructions cited above that the forms are required to be submitted either electronically or on the optical scannable document which is color coded pink. This required format is not generally printable out of a standard printer and must be purchased to be properly filed.

The Freeman & Associates Accounting team can assist you in preparing and filing the Form 1099 to your vendors and to the government.  Freeman & Associates needs to receive Form 1099 information at least by January 15, 2020 to ensure preparation before the IRS filing deadline.

Steven Z. Freeman, CPA and the staff at Freeman and Associates provides Business Services, Tax Planning, Entity Formation plus Maintenance, and Accounting Services and can assist you with these services. If you have any questions on this matter, or to schedule an initial consultation, Please contact us at (805) 495-4211 or Steve@FreemanAssoc.net

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The IRS is issuing large penalties for not submitting Form 1099 Misc. The federal government has determined one of the best ways to decrease the underground economy is to increase the income reporting through the Form 1099 Misc income reporting system. Companies are experiencing increased penalties for not issuing the required Form 1099 to vendors who receive over $600 in a calendar year as an independent contractor for services, OR pay rent for facilities, OR issue prizes and awards, OR pay for medical services, OR pay for legal services. All of these activities are on the Form 1099 required list which has expanded across many types of business activities that often surprise business owners. The IRS penalty for not issuing a Form 1099 for the 2019 tax year will be $270 per occurrence. The IRS penalty schedule for both late and non-filed Form 1099s can be viewed at the following link: https://www.irs.gov/government-entities/federal-state-local-governments/increase-in-information-return-penalties The IRS has a 3-year look back audit program that they have instituted specifically towards determining if a company has missed issuing a Form 1099 properly. Many companies are receiving IRS Audit letters requiring a full compliance audit and penalty application. The Form 1099 review and audit is now included as part of all direct IRS contact with audit staff which may have initially begun for any other reason. Business use Subcontractor / Outside Service (Gardeners, Janitorial, Computer Technician, Doctors) Businesses must report payments to independent contractors. Typically, you need to supply a 1099 to independent contractors, firms that are not on your regular payroll, or any other company or worker that you paid $600 or more for services that is not on your payroll. Attorney The term “attorney” includes a law firm or other provider of legal services. Attorneys’ fees of $600 or more paid in the course of your trade or business are reportable. Rent paid for Business purpose Enter amounts of $600 or more for all types of rents, such as any of the following. • Real estate rentals paid for office space. However, you do not have to report these payments on Form 1099-MISC if you paid them to a real estate agent or property manager. But the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner. • Machine rentals (for example, renting a bulldozer to level your parking lot). If the machine rental is part of a contract that includes both the use of the machine and the operator, prorate the rental between the rent of the machine and the operator’s charge • Pasture rentals (for example, farmers paying for the use of grazing land). To Prepare a Form 1099 Provide your vendor with a Form W9 (https://www.irs.gov/pub/irs-pdf/fw9.pdf) to receive the following information: • Name of the individual or entity you paid • Their tax identification number (SSN or EIN) • Their address • The total amount paid to them in 2019 • Any Tax Withheld Issuing the Form 1099 is due by January 31st of 2020 for the 2019 tax year. Further information can be found on the IRS instructions for preparing Form 1099 Misc which includes a full listing of the required types of services and circumstances for the 1099 reporting. https://www.irs.gov/pub/irs-pdf/i1099msc.pdf Please be reminded, based on the instructions cited above that the forms are required to be submitted either electronically or on the optical scannable document which is color coded pink. This required format is not generally printable out of a standard printer and must be purchased to be properly filed. The Freeman & Associates Accounting team can assist you in preparing and filing the Form 1099 to your vendors and to the government. Freeman & Associates needs to receive Form 1099 Information at least by January 15, 2020 to ensure preparation before the IRS filing deadline. Steven Z. Freeman, CPA and the staff at Freeman and Associates provides Business Services, Tax Planning, Entity Formation plus Maintenance, and Accounting Services and can assist you with these services. If you have any questions on this matter, or to schedule an initial consultation, Please contact us at (805) 495-4211 or Steve@FreemanAssoc.net