Answers Small Business Owners Should Know about the Form 1099
Posted by Real Search
The IRS is not known for making things easy. For small business owners especially, tax time is generally filled with frustration, uncertainty, and probably a few extra hours at your kickboxing class.
Here are the answers to 4 of the most common questions that many small businesses have when it comes to 1099 forms.
1 Which Form 1099 should I need?
There are 17 different types of Form 1099 that are issued by the IRS. For small business owners, the most important one is the 1099-MISC. It is used to report the payments made to contractors and independent service providers.
However, one must review the other sixteen Form 1099s to see if they need to file any of those too.
2 How to know if a worker is an employee or a contractor?
The IRS has issued these three guidelines to differentiate:
- The perception of the partnership– It is okay with the IRS if you and your contractor view your work relationship as an employer-employee relationship.
- Financial control– A contractor can actually be an employee if you have any say in how they manage their business and its finances.
- Behavioral control– A contractor is considered an employee when they have to follow your company’s procedures while on the job.
3 What kind of payments need to be reported?
The most important type of payment to be reported is the one you pay to independent workers such as contractors. However, there are a few other things to be reported through the Form 1099-MISC, like:
- Payments made to unincorporated businesses that provided a service to your business.
- The payments made as rent for ofice space, warehouses or any space related to the business.
- If you have awarded more than $600 to someone.
- Healthcare and medical expenses paid to independent workers.
4 What are the deadlines to file Form 1099?
All the Form 1099s – whether filed electronically or on paper — need to be provided to all the contractors by January 31. The only exception to this rule is that if January 31 happens to be a weekend, the forms have to be delivered by the next business day.
When it comes to filing the forms, there are two deadlines:
- Paper-??led Form 1099s should be submitted by February 28.
- Electronically filed Form 1099s can be submitted by March 31.
- If the Form 1099 isn’t filed on time, the IRS will still penalize you. This penalty is based on the February 28th deadline, and it ranges between $30 and $100 per form (up to a maximum of $500,000) depending on how late you file.