January is 1099 Month

It’s that time of year again. The calm before the tax storm. Within the next month, a

flurry of W-2s and other income reporting forms will be sent to the government and

taxpayers. Amongst those reporting forms are 1099s. 1099s are one of the most

mismanaged forms by business owners. This is largely due to the lack of awareness

regarding the requirements. Hopefully, by the end of this post, you will have a better

understanding of when Forms 1099 are required.

Requirements

As a business owner, you must report and file Form 1099 for transactions with

unincorporated businesses or individuals at least $600 that fall under the following

categories:

• Rents

• Prizes and awards

• Other income payments

• Cash paid from a notional principal contract to an individual, partnership, or

• estate

• Fishing boat proceeds

• Medical and healthcare payments

• Crop insurance proceeds

• Gross proceeds paid to an attorney

• Section 409A deferrals

• Nonqualified deferred compensation

  
  

Royalties require payments reported on 1099s if the payment is $10 or greater. Most

taxpayers will fall into the rents, proceeds paid to an attorney, or other income payments categories. Payments are required to be reported via 1099-NEC or MISC if the payee is an unincorporated business. However, for incorporated businesses, including S Corporations, most payments are not required to be reported. The payments required to be reported to a corporation via a 1099 are:

• Cash payments for the purchase of fish for resale

• Medical and health care payments

• Substitute payments in lieu of dividends or tax-exempt interest

• Gross proceeds paid to an attorney

  
  

Payments to an Attorney

The definition of attorney includes a law firm or “other provide of legal services”. Gross

proceeds paid to an attorney should be reported on Form 1099 if they are in connection with legal services which occurred during the normal course of a trade or business. They would not need to be reported if they were incurred in a settlement agreement, as an example.

Other Exceptions

There are other types of payments which either do not need to be reported or must be

reported using a different form. Some of those payments include:

• Payments to employees (W-2)

• Scholarships (W-2)

• Canceled debt (1099-C)

• Payments for merchandise, telegrams, telephone, freight, storage and similar

• items (not required)

• Payments to a tax-exempt organization (not required but may need other documentation for deductibility)

  
  

Additional Requirements and Due Date

When completing Forms 1099, you will see copies A, 1, B, and 2. Copy A is the copy

that will get e-filed or mailed to the Internal Revenue Service. Copy B is for the recipient or payee. Copy 1 goes to the state tax department when necessary and copy 2 would go to the recipient so that they may attach the 1099 to their income tax return when required. Both 1099-MISC and 1099-NEC are required to be filed with the IRS by

January 31. The recipient should also receive a copy of Form 1099 prior to or by that

date.

If you have any questions about 1099 reporting, would like to discuss a payment type you do not see listed here, or have other tax or business related questions, please

contact us at abs@westhighlandtax.com or 571-445-0201.