Was this the year you started subcontracting out business as you brought in more clients? Congratulations! Now, don’t forget to send your freelancers an important tax form by Jan. 31.
If you or your company paid more than $600 for services to another person or unincorporated business (like a sole proprietor or LLC) a 1099-MISC is a must. The IRS requires that forms go to subcontractors by Jan. 31. Uncle Sam needs a copy by Feb. 28, and one goes to your state, too.
Payments to corporations are exempt from 1099 rules—except for attorney services. Rental payments of more than $600 also require a 1099, unless it was office rent that went to a real estate agent.
Most tax-prep programs for businesses will produce 1099 forms. An accountant can help as well. You’ll need the W-9s you (hopefully) made contractors submit—they contain the information you need, including taxpayer identification number. The IRS has a full set of 1099-MISC instructions online.
The cost of neglecting your 1099s? Fines of up to $250 per form if the IRS catches on. Plus, recent changes to business tax forms make owners declare that they have filed their 1099s; if you answer incorrectly or dishonestly, that can mean more trouble.
But it also makes business sense to file a 1099—the money you pay freelancers can be deducted from business income when you file your tax return.