No matter what industry you are in or the type of small to medium-sized business you run, using contractors to handle some of your business workload is a double-edged sword ~ it can be both convenient and burdensome. It gives you the flexibility to manage staffing, but understanding the different rules for paying contractors can make tax time more complicated.
Utilizing IRS Form 1099 is the most common way to report pay for contractors and freelancers, but as with most government documents, there are questions about how to use the form properly. While there are many 1099 reporting myths that make the filing process more challenging, there are three myths, in particular, that seem to be more widespread and mistakenly accepted as fact above all others.
1. Filing a 1099 is at the Discretion of the Employer
As far as tax myths go, this is right up there with “filing income tax is unconstitutional.” Not filing 1099 forms is a big deal that can result in fines starting at $200 per instance and climbing up to $3 million per year. It’s important to send the copy to any contractor who made more than $600 in the previous calendar year by January 31. While those fines are not hard and fast, you might be able to reduce the penalty if you can show the
mistake was not intentional. As your tax accountant in Las Vegas will tell you, if you file paper copies with the IRS, the deadline is February 28. You can wait until March 31if you are sending the forms electronically.
2. Don’t Include Expense Payments on Form 1099-MISC
This depends on how your company treats expense payments for employees. Your tax accountant in Las Vegas knows that if your company requires receipts at the time of reimbursement to prove the charges are business-related, there is no need to include the expenses on the 1099-MISC form. However, if you do not require proof, you must include the charges. It is then up to the employee to deduct the amount of the business related expenses on the tax form.
3. Payments to Corporations do not Require a 1099
If you are making a payment to a corporation in lieu of a sole proprietorship, chances are you do not have to file a 1099 form. There are exceptions to this rule that include health care payments, attorney fees, gross attorney proceeds, payments instead of dividends, and money paid for services by a federal executive agency. Check with your tax accountant for a more complete listing of exceptions.
As one of Las Vegas’ most experienced tax accounting firms, Fair, Anderson and Langerman offers clients a wealth of knowledge through a personalized approach. Whether you have questions on dealing with 1099 forms, need advice on starting up a new business, have any financial planning or tax needs, FAL is big enough to have the experience working with large corporations, and small enough to understand the needs of a small business owner. FAL’s team of certified public accountants will dig deep into your business to provide you with the kind of expert advice to ensure you are maximizing your savings while minimizing your liabilities. We will listen to your problems, suggest possible solutions, and treat you with the dignity and respect you deserve. Call our tax accountants in Las Vegas today at 702-870-7999 and put your tax concerns in the hands of our team.