Tax Strategies & Credits

Knowing When to Use Form 1099

Knowing When to Use Form 1099

Many businesses use the services of independent contractors throughout the years. These professionals offer their goods or services for a fee; when you pay an independent contractor more than $600 per year you are able to deduct the cost of their labor and expenses as long, but only as you have issued them a Form 1099-MISC. This year the 1099 must be provided to the contractor by February 2, 2015.

Independent contractors can provide a number of different services throughout the course of the year. They can range from repairmen to freelance writers, and if you contract with them throughout the course of the year for small sums, it is easy to lose track of how much you spend with them. Failure to file a 1099 for independent contractors to whom you pay more than $600 puts you in jeopardy of IRS penalties. In order to avoid these penalties, we suggest that you request that all vendors to whom you provide payment for services complete and sign IRS Form W-9. By keeping the completed form in your records, you ensure that you have the information needed to file a 1099 at the end of the year, as well as with documentation of compliance with the tax law in case the contractor has given you invalid information. 

All of the information that you need in order to complete and file a 1099 is found on IRS Form W-9, which is available online in both English and in a Spanish-language version. The W-9 is strictly an information-gathering document, and does not get filed with the IRS. It does, however, serve as valuable protection in the event that an independent contractor gives you wrong information, as it provides you with proof that you sought the data for filing purposes. Each independent contractor vendor to whom you pay more than $600 per year must be provided with a copy of their 1099 no later than February 2, 2015, and the copies must be submitted to the IRS no later than March 2, 2015.  The forms can be provided in optically scannable format or on magnetic media.

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Lee Reams, BSME, EA

Lee Reams, BSME, EA

Editor-in-Chief

Besides his role at CountingWorks as an educator and speaker to thousands of accountants nationwide, Lee manages a technical research service for a large group of tax accountants which sharpens his technical skills. Lee served on the Board of Blackline Systems, is a former Board of Director for the California Tax Education Council, is a Past President of the San Fernando Valley Chapter of Enrolled Agents, Member and Past Director for the California Society of Enrolled Agents.

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