The IRS requires all businesses to file Form 1099-Misc for each
non-incorporated payee to whom they paid $600 or more for non-employee
compensation or rent, or to whom they paid $10 or more of royalties. There
are other 1099 thresholds which you will probably not have to use, for
example for fishing boat proceeds and Indian gaming winnings.
Please note the payments are for SERVICES, like consulting or
commissions, not for the purchase of goods. The payments must have been
for BUSINESS, not for personal things. The amount reported is the total of
PAYMENTS, not the total of purchases (so amounts owed to a vendor at year
end are NOT included and amounts that WERE owed at the start of the year
that got paid during the year ARE included - you add up the checks written
to that vendor).
Rents can be of space or of stuff.
CONTRACTERS
Where the value of trade given a contractor for services exceeds $600,
you are still supposed to give them a 1099 Misc for the value of the
compensation - even though it was non cash.
Where a client paid a subcontractor for FEES and EXPENSES, generally
you report the TOTAL paid on Form 1099-Misc. The subcontractor herself
will deduct the part that was reimbursement of costs on her own tax
return. If the vendor provided goods and services, for example, sold the
client furniture and also refinished other furniture, Form 1099-Misc
should include just the service portion.
PARTNERSHIPS
Partnerships and LLCs or LLPs taxed as partnerships DO get 1099s; so do trusts and estates.
Only corporations do not. (LLCs can choose to be taxed as corporations;
such LLCs would thus NOT get 1099s unless they were lawyers or health
care providers - see below.)
Payments to partners of a partnership or to employees of a business are
NOT reported on Form 1099 unless the payments are outside the normal
duties of the payee. For example, if I am a clerk for a business, I get a
W2. But if I ALSO have a late-night cleaning service and clean the office
as such, I would get a 1099 for the cleaning payments.
LAWYERS
Payments to LAWYERS are reported on Form 1099-Misc whether or not the
lawyer is incorporated. There are TWO boxes which might be used to report
payments to attorneys: Box 7, for regular legal services, and Box 14, for
gross proceeds of a legal settlement.
MEDICAL CARE
Payments for MEDICAL CARE are also reported on Form 1099-MISC even if
the doctor or other health care practitioner is incorporated. There is
likewise a special 1099 box for medical payments.
PAYEES
It is important that the names used for payees on Form 1099 match the
tax ID#s. If a vendor uses his SS#, then his personal name should be used
for the 1099 and not some trade name.
The payees get their forms postmarked by Jan 31. The IRS and
Commonwealth of MA DOR get their copies of the 1099s with a cover Form
1096 postmarked by Feb 28. The IRS gets the original 1096; the DOR gets a
copy.
TOOLS
QuickBooks can print 1099 data. Prior software versions might not align
with current tax forms. On QuickBooks, you flag Vendors as eligible for
1099s by checking a box on the Other Info tab of the Edit Vendor screen.
Also on QuickBooks, you set up which G/L accounts report on which box of
the 1099 in the Preferences:1099 section.
QuickBooks has a report called 1099 Report that can show payments to
vendors that may be eligible. Pay attention to the filters you set on the
report; you can set it to include all vendors or just 1099 vendors; or to
include all accounts or just 1099 accounts.
For detailed QuickBooks tips, click
here.
MYOB software has a similar report called either Vendor Payments or
1099 Report depending on the version of the software that you use. You
tell MYOB about the 1099 eligibility of a vendor on the Terms button of
the Vendor's card in the Card File or, in the latest versions, on the
Buying Details tab of the Vendor Card. MYOB can also print on 1099 forms
from the Purchases Command Center.