1099 Rules for Business Owners

Updated: Sep 23

1099 Rules for Business Owners

If your business paid anyone over $600 this year, you may have an obligation to send those individuals and small businesses a 1099 form before the deadline of JANUARY 31st.

The easiest way to be prepared each year for this reporting process is to ask your Vendors for a W9 form & Email address (ideally before you pay them). If you have not done this yet this year, then now is a good time to start collecting these emails and W9's from your suppliers.


Over the past few years, there have been a number of changes and updates regarding the reporting rules for the illusive 1099-Forms. Many business owners simply guess as to what the rules are and oftentimes get exasperated and just give up choosing to file nothing at all. This can be a dangerous result as the penalties can add up quickly.


If you are not sure which forms you may or may not need to send, be sure to get help from a bookkeeper or tax pro. That is your best bet for getting this right. Feel like you can handle it on your own? Read more to find out what you need to know.


The W-9 is your “best friend”. Some of you may be frustrated that you don’t have the information you NEED to issue 1099. One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor’s mailing information, Tax ID number, and also require them to indicate if they are a corporation or not. You can download a W-9 here.


EASY SOLUTION:

Always ask for a W9 & Email before you pay a new Vendor their first bill payment. This way you and your Vendor know from the start that you’ll 1099 them for any qualifying payments, and it means that they will have the motivation to give you this info as their 1st PAYMENT depends on it. Always get an email address from every Vendor you work with and make sure your bookkeeper has this (we suggest uploading these to your HubDoc account!). Then if you fail to request a W9, at least your bookkeeper can ask for one for you by emailing the request for a W9 to your Vendor. Then your bookkeeper can gather everything they need for you and handle the filing and everything for you. Just be sure to give them all your Vendor emails.


The 1099 filing procedure is done with SPECIAL forms & Submissions. Regrettably, you CANNOT simply go to www.irs.gov and download a bunch of 1099 Forms and send them out to your vendors before the deadline. The form is “pre-printed” in triplicate by the IRS. Thus, you have to order the Forms from the IRS, pick them up at an IRS service center, or hopefully grab them while supplies last from the post office or some other outlet. The best bet is to collect W9's and or emails all year from your Vendors, then send all this info to your bookkeeper throughout the year and have them enter this info into accounting software like QuickBooks. Then at year-end, your bookkeeper can simply review which people to 1099 and have all the forms filed on your behalf ELECTRONICALLY, and mailed & emailed out to your Vendors. QuickBooks Online particularly has a 1099 Wizard that will remove any Vendors who don't qualify for a 1099. This is great because maybe this year they do but next year they won't. Let your bookkeeper help you decide. Schedule a meeting to discuss this in November and again in early January so you are prepared.


First, you have to determine WHICH 1099 form to send out; and, my oh my, there are a number to choose from including:

  • 1099-A, Acquisition or Abandonment of Secured Property

  • 1099-B, Proceeds From Broker and Barter Exchange Transactions

  • 1099-C, Cancellation of Debt

  • 1099-CAP, Changes in Corporate Control and Capital Structure

  • 1099-DIV, Dividends and Distributions

  • 1099-G, Certain Government Payments

  • 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments

  • 1099-INT, Interest Income

  • 1099-K, Merchant Card and Third Party Network Payments

  • 1099-LTC, Long-Term Care and Accelerated Death Benefits

  • 1099-MISC, Miscellaneous Income

  • 1099-NEC, Nonemployee Compensation (this is an old form that was previously discontinued in 1982 but recently made a comeback in the year 2020)

  • 1099-OID, Original Issue Discount

  • 1099-PATR, Taxable Distributions Received From Cooperatives

  • 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530)

  • 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

  • 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA


Second, the general rule is that business owners must issue one of the above 1099 forms to each person to whom they have paid at least $600 in rents, services (including parts and materials), prizes and awards, or other income payments. You don’t need to issue 1099's for payments made for personal purposes. You are required to issue 1099 reports only for payments you made in the course of your trade or business.

The penalties for not doing so can vary from $30 to $100 per form ($1.5 million for the year), depending on how long past the deadline the company issues the form. If a business intentionally disregards the requirement to send a 1099, it is subject to a minimum penalty of $250 per statement, with no maximum. Bottom-line, the penalties can add up!!

Here are the basics you should know.


Who are you required to send a Form 1099? You are required to send Form 1099 to vendors or sub-contractors during the normal course of business you paid more than $600, and that includes any lawyer, individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP), or Estate. Check with your bookkeeper to find out if you should file a 1099-NEC or a 1099-MISC.


Who are considered Vendors or Sub-Contractors? Essentially, this is a person or company you have paid for services that isn’t your employee. Not sure if you should be classifying this person as a Vendor vs an Employee? use the QuickBooks Wizard tool to figure this out! You will likely send a 1099-NEC (Nonemployee Compensation) form to these individuals if they qualify.


What are the exceptions? The list is fairly lengthy, and it depends, but the most common is that you don’t need to send a 1099 to:


-SOME Vendors operating as S or C-Corporations (you’ll find their status out when you get a W-9…see below, though laws are changing rapidly on this as well).

-Sellers of merchandise, freight, storage or similar items (but get a W9 from them either way, because your tax expert might find a condition).

-Payments of rent to or through real estate agents (typically property managers). However, keep in mind you need to issue a 1099 to a landlord you are paying rent (who is not legally classified as a property manager), unless they meet another exception.

-Vendor payments of less than $600 in a calendar year

-Vendor Payments made with a credit card or business 3rd party merchant processor such as PayPal

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