I Forgot to Send Out 1099's by January 31 – What Do I Do Now?
by Wayne Davies, EA on February 8, 2011 7:00pm
Are you a small business owner who hires independent contractors? If so, you may be required by the IRS to send out a Form 1099-MISC to those people. This post will help you determine your obligation to issue those 1099's.
The basic rule works like this: Form 1099-MISC is used to report total annual payments made to self-employed people who made at least $600 during the previous calendar year. This 1099 must be given or mailed to the contractor by January 31 of the following year.
The key here is whether or not the person who worked for you is self-employed. Obviously, this excludes employees. If you have employees, you give them a Form W-2 by January 31 to report their compensation (wages, salaries, bonuses). And this also means you don't have to send out a 1099-MISC to corporations who provided services to your business.
The purpose of the 1099-MISC is similar to that of the W-2, but the goal here is to report income made by non-employees, not employees. And this is why the annual total income of self-employed contractors is reported in Box 7 of the 1099, "Nonemployee compensation."
In other words, the IRS is expecting you to provide a way to help them track the income of the self-employed. Does all income earned by sole proprietors get reported on 1099's? Of course not. Who knows how much is unreported. And self-employed
people know that if they don't get a 1099, it's difficult and almost impossible for the IRS to figure out how much income a particular self-employed person made. And so many self-employed people take advantage of this situation and only report income if they get a 1099.
And so there are many self-employed people who make plenty of money but receive no 1099's, and report no income, even though the law says they are supposed to report the income whether or not they receive a 1099.
But back to you, the business that paid the money to the contractor. Do you really want to be part of the underground economy? If you take a deduction for payments to independent contractors but don't issue the corresponding 1099's, and you get audited, you are asking for trouble. Don't go there. Do the right thing and issue the 1099's.
What if the January 31 deadline has already passed? Go ahead and issue the 1099's anyway. Give the contractor a call right away and tell him you are sending him a 1099 as soon as possible. Why not do the right thing?
For details on how to comply with the 1099 reporting rules, download the Form 1099 instructions from the IRS website or consult with your tax professional. You'll want to send Form 1099-MISC Copy B to the self-employed person right away and Form 1099-MISC Copy A, along with Form 1096, to the IRS by February 28.Source: www.businessmanagementdaily.com