The first headache of tax season for many small businesses is issuing form 1099 MISC to your independent contractors. If you have employees, there are also W2’s for them, although most payroll providers handle that chore for you.
January 31 has long been the deadline to get 1099’s and W2’s out to recipients, and that hasn’t changed. What’s new this year is that you also have to file them with the IRS by January 31, instead of February 28 or March 31. Having the W-2s and 1099s earlier is intended to make it easier for the IRS to verify the legitimacy of tax returns and prevent refund fraud.
Does your business need to issue Form 1099’s?
There’s an alphabet soup of different 1099 forms—A, B, C, DIV, H, INT, etc. The one most horse businesses need to pay attention to is 1099 MISC, for reporting “non-employee compensation”. What is “non-employee compensation”? It’s everything you pay to an individual or non-corporate entity during the year for services to your business.
Let’s look at that more carefully:
- Paid more than $600 during the year (by cash, check, or barter)
- To an individual or non-corporate entity (such as a partnership or LLC)
- For services
- To your business
There are also a few special cases to be aware of ($600 minimum applies):
- Rents paid for real estate (including pasture land) and machinery/equipment, unless the recipient is a real estate agent.
- Fees to attorneys, lawyers, and law firms
- Prizes and awards, whether cash or fair value of merchandise
What are common examples where a horse business needs to issue 1099 MISC?
- Commission paid on the sale of a horse
- Freelance grooms
- Contract labor
- Accountant/tax preparer
What information do you need?
Chances are your business will need to issue at least a few 1099 MISC forms for 2016 payments. You can avoid stressing out in January by making preparations now. Check your vendor records for Tax ID (Social Security or Employer ID number). If you have them all, great! If not, the proper way to request them is to send IRS form W-9 Request for Taxpayer Identification Number. You can download the form directly from the IRS at https://www.irs.gov/pub/irs-pdf/fw9.pdf.
Don’t wait until January to make a plan for getting tax ID numbers and issuing 1099’s. Start NOW. Make a goal of getting all the W-9’s you need to send out before Thanksgiving, and back before Christmas.
Some accounting software allows you to generate 1099 MISC forms directly from their system. For those that don’t, there are a variety of stand-alone programs on the market. The better ones allow you to go paperless—e-file with the IRS and email the returns to recipients. Figure out your situation as soon as possible, and plan accordingly.
If you’re like most business owners, though, your time is better spent taking care of your clients, or their horses, than figuring out another computer program. Stable Books offers outsourced preparation and filing of 1099 MISC and all other required tax forms. Schedule a free consultation to discuss how we can take the headache out of tax season for your business.