Filing Form 1099-MISC

Looking through your mail, you see a letter from the IRS. This can’t be good news, you think. Sure enough, the letter contains a penalty assessment of $5,000 for failure to file Form 1099-MISC for 20 required payees over the last three years. The explanation given is an intentional disregard of filing requirements.

You call over your bookkeeper and ask him what is going on. “What is a Form 1099-MISC?” you ask. “I don’t know,” he replies. “I remember our tax accountant asking if we made any payments that required us to file Form 1099-MISC. I said, ‘No.’ ”

Form 1099-MISC is an information return that must be filed by all businesses that make payments greater than $600 in a calendar year to unincorporated businesses or individuals. The IRS compares these reported payments to the tax returns of those businesses and individuals to ensure that their reported revenues include these payments.

If you make a payment to a partnership or proprietorship, you need to send them a Form 1099-MISC at year end with the total payments reported in Box 7 (Non-Employee Compensation). These businesses generally include your attorney, accountant, consultants, independent contractors, small vendors, etc.

When filing the income tax return for the business, there are two questions on the return pertaining to Form 1099 filings. “Did you make any payments during the year that require you to file Form 1099?” “If Yes, will you file the required Form 1099’s?”

When setting up a new vendor in the Accounts Payable system, prior to making a payment to the vendor, you should request the vendor to complete Form W-9. Upon receipt of the completed Form W-9, place it in a W-9 folder, and update the Accounts Payable vendor file in Quick Books. This process will provide documentation to the IRS in the event of an audit that you are complying with the 1099 reporting requirements.

In January, the Bookkeeper runs the Form 1099 program in the Accounts Payable system. Prior to performing this task, the Bookkeeper should go through the vendor files and check that he has the information he needs for all unincorporated businesses. He needs to purchase forms from an Office Supply store and insert them in the paper tray of the laser printer. Form 1099-MISC must be mailed to the appropriate vendors and filed with the IRS by January 31, 2014.

At year end, the Operator should meet with the Bookkeeper to discuss the inclusion of all appropriate vendors for Form 1099-MISC reporting. If the required information is not on file, the Bookkeeper must telephone the vendor and obtain it. Once all appropriate files are updated, the Form 1099 program should be processed and the forms mailed to the payees and the IRS. If over 250 documents, Form 1099 filing with the IRS must be done electronically.

Compliance with the Form 1099 reporting requirements is fairly simple. The penalties imposed for failure to comply far outweigh the effort needed to properly report these payments.

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