For small business owners and self-employed individuals, the IRS requires third party reports (1099s in most cases) be filed if certain limits are met. For example, if you paid any unincorporated person more than $600, as part of conducting your trade or business, then you will need to issue a 1099. Common situations where a 1099 may be required include:
- Interest paid
- Solo 401k distributions
- Nominee income
Just to emphasize the point, these reports are not optional, the IRS assesses steep penalties for late filing, starting at $50 per 1099 which increases to $100 and $260 after being late 31 days or being filed after Aug 1. So, it’s worth at least asking your bookkeeper or tax professional if you’re unsure. What if they’re unsure? Well, good thing there’s OTA Tax Pros!
Need to file a 1099? The trickiest part is requesting the SSN of the recipient. We recommend you send the recipient a Form W-9 and request they return the completed form to you. This gives the recipient a chance to let you know if they have been doing business with you via their own entity.
We often get the question, “What if they don’t normally report this income? I don’t want them to pay more in taxes.” This is a sticky area. We understand. While you don’t want to abet in tax evasion, you want to do what’s best for them. For this reason, rather than you having to answer their tax questions, refer them to OTA Tax Pros and we’ll offer them a complimentary 30 minute consultation. Who knows? They may be missing out on huge tax savings!
Once you receive the W-9, you can create and issue the 1099s. Most bookkeeping systems, including QuickBooks Online can easily produce this for you. If you need assistance, the OTA Tax Pros team is here to help. The deadline to provide the recipient with a 1099, in most cases, is January 31st. If extenuating circumstances exist, a 30-day extension can be made to file. For more info, please refer to the IRS General Instructions for Certain Information Returns.
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About the Author
As an enrolled agent with the IRS with an MBA from Washington University in St. Louis, Michael brings a passion for educating and helping investors achieve their financial goals.