Now is the perfect time to review your vendor files and determine whether you have all of the necessary information to issue 1099s-MISC for the next tax season. To some, the thought of 1099’s can be the cause of stress and headaches. Thankfully, with some understanding and preparation, the stress and headaches can be a thing of the past.

What is a 1099-MISC? It is a type of IRS tax form used to report miscellaneous income during the last tax year. Payments for prizes, awards, legal services, and other non-employee activities may be reported on this form as well. The information provided on this form (Fig 1) is simple: payer’s name, payer’s address, payer’s FIN, recipient’s name, recipient’s address, recipient’s FIN and the total amount paid.

Why is it necessary to issue the 1099? Individuals sometimes view non-employee income as extra money that is non-taxable. Unfortunately, the IRS does not share this same view and requires individuals and businesses to report all of their income. Form 1099 gives the recipient the ability to report their income accurately, thus avoiding penalties and fines by the IRS.

Now that we have determined what a 1099 is and why it should be issued, the next question is who should get one? Any person/entity that provides services as an independent contractor or non-incorporated vendor that has been paid $600 or more during the last tax year should be issued a Form 1099. Payments made to attorneys regardless of amount and royalty payments of $10 or more need to be reported as well.

So you know the what, why and who. The final question to be asked is when is it due? Forms are due to the recipient by January 31st and to the IRS by February 28th. Three copies are issued; one for the issuer, recipient and the IRS. It is recommended that you send the IRS copy as close to the due date as possible in the event that information reported needs to be revised.

In order to successfully issue Form 1099, a completed W-9 (Fig 2) is required from your vendors. This form requests the vendor’s name, address, and FIN. When conducting business with a new vendor, be sure to provide them with a W-9 and require they complete it before any payment is made. If you take the time now to verify that you have all of the necessary information, you can avoid the last minute scramble to comply with the due dates.

Author: Ed Ormazabal and Melissa Cunarro Earle