“Happy New Years!!! Now get working on your taxes.”
With the start of every new year comes the beginning of another season – tax season. The first task is the preparation of 1099-MISC forms, which must be sent out to individuals reported on by January 31, 2014.
The 1099-MISC is what the IRS refers to as an information return. The IRS uses the information to calculate the total reported income for a party during 2013. This number is then compared to the total income the party reports on their tax return for 2013 with any discrepancies potentially giving rise to an audit.
For example, assume the IRS receives a number of 1099-MISC filings reporting total payments of $49,000 to Phil Smith Consulting in 2013. Phil Smith Consulting reports gross revenues of $40,000 on its 2013 tax return. The numbers obviously don’t jibe, so one can expect the IRS will open an investigation into why the consulting business is apparently under-reporting income.
When Reporting Is Required
When are you required to file a 1099-MISC? The answer depends on the nature of the payments and who is paid. For example, you must report parties you paid $600 or more in the 2013 tax year for:
- Services rendered by independent contractors,
- Payments for medical or health care needs,
- Payments for legal services,
- Cash payments to fishermen, and
- Insurance proceeds paid on agricultural crop problems.
1099-MISC forms must also be filed for:
- Each person you have paid at least $10 in royalties during the year, and
- Broker payments in lieu of interest or tax-free dividend payments in excess of $10.
The deadlines for filing 1099-MISC forms are:
- January 31, 2014 – Provide a copy of the 1099-MISC form to the party you are reporting on,
- February 28, 2014 – 1099-MISC forms filed with the IRS if you are sending them in by snail mail, or
- March 31, 2014 – 1099-MISC forms if you are filing them electronically with the IRS.
Penalties for Not Filing
Is there a penalty for not filing 1099-MISC informational returns? Yes. The penalty is $30 to $100 depending on the reason for the non-filing. If the IRS determines you intentionally failed to file, the penalty is a minimum of $250. In short, you need to get your books together for 2013 and start issuing 1099-MISCs.
As I write this on January 8, 2014, you have 23 days remaining until the first 1099-MISC deadline on January 31, 2014. Don’t say you haven’t been warned.
Richard A. Chapo, Esq.