Tax season looms just ahead and now is the perfect time to get ready to process 1099-MISC forms. These IRS forms record payments of at least $600 made to non-employees, including rent, medical and legal fees, awards, and other forms of payments made throughout the tax year.
The most important thing to remember about filing 1099s is the deadline. The IRS penalizes businesses that miss the deadline for filing. This penalty can range from a fine of $50 to $260 per late form. Depending on the number of forms you must file, missing the deadline can really impact your finances. This deadline varies somewhat depending on the type of income being reported. For example, payments made to independent contractors are reported in Box 7. These 1099s must be filed and sent to both taxpayers and the IRS by January 31, 2017. Businesses should file other payments recorded in the other boxes a month later by February 28, 2017 if filing by mail. March 31, 2017 is the last date to do this if e-filing.
With one month left before the first deadline, it’s important to start prepping to avoid the common pitfalls that make meeting the deadline difficult and stressful. Follow the steps below to get a head start on filing your 1099s.
1. Stock Up
The first step is to gather materials. Most accounting software includes everything needed to properly draft and print the 1099-MISC. In this case, stock up on ink for your printer since you will be printing a copy for the taxpayer, a copy to send to the IRS, and a copy for your files. Buy the paper for the forms and security envelopes from an office supply store. If you don’t have the appropriate software, order your forms directly from the IRS at 1-800-TAX-FORM or via their website. Also, buy the postage needed to mail these forms to the taxpayer and the IRS.
The next step is to verify your information on each taxpayer. Are addresses accurate? Email vendors, independent contractors, and other taxpayers asking for an address update. Do your taxpayer id (social security number, employer id number, or tax id number) match the w9 form you have on file? If you are missing w9s, make sure to collect them immediately. Ensuring all pertinent information is correct now will ensure a smooth process later.
This is also a good time to scratch off any exempt entities off the list of 1099s to send. According to the IRS, you don’t need to send 1099s to most corporations, unless they provided medical or legal services. You also don’t need to send these to any contractors to whom you paid less than $600 or who sold merchandise. While you do have to account for rent paid, in most cases property managers are also exempt from the 1099 requirement. Make a list of only those taxpayers who need to receive a 1099 from you to avoid extra work later.
3. Tally Up
The hardest part of creating 1099s is that of tracking down payments made to non-employees. It is not uncommon for businesses to pay a vendor in cash, which can make bookkeeping more difficult if the payment was not recorded along with other payment types. Tally up all payment made to each taxpayer and account for all checks, wire transfers, direct deposits, and cash payments. (Payments made via PayPal, credit card, or any other 3rd party sites are filed under Form 1099-K.) The sum of all these payment types will be the number you report when filing the 1099 for each taxpayer.
A little pre-tax season preparation goes a long way to guaranteeing 1099s will be accurate and meet the filing deadline. Having accurate information for each taxpayer and all the materials needed to print and mail out 1099s are the necessary components to ensure a smooth transition into tax season after the holidays.
Does thinking of tax season leave you feeling a bit stressed? Contact us today at (404) 955-7338 to see how our experienced tax gurus can help your business.
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