In following up with the reasoning for why you need to prepare and send out the 1099s, we will now offer some advice on what needs to be reported on the 1099-NEC & 1099-MISC.
As the 1099-NEC is for non-employee compensation, it is a requirement that you report if you paid $600 or more over the year to any contractor. So, for example, if you paid someone at any point of the year for designing your website, you must report it on a 1099-NEC if:
They receive $600 or more as compensation.
They are unincorporated, a Partnership, a Sole-Member LLC, or a Limited Liability Partnership.
They are not an S-Corporation or C-Corporation.
They are providing services and not merchandise.
They weren’t paid through a 3rd Party payment network like Paypal or a credit card.
If you are not certain that the individual happens to be part of those you are required to submit a 1099-NEC to, the easiest way to confirm is to refer to a W-9 that lists their information. In the event that you do not have one for some reason, there is no harm in submitting a 1099-NEC to them anyway.
As for the 1099-MISC, this form is now meant to record any sort of miscellaneous payment that the business makes that needs to be monitored. The categories are self-explanatory for the most part, but there are three in particular that you should take note of:
Rent: You are required to report rent made not only towards Office Space rental, but also warehouse storage, machinery, or equipment rentals. Hotel rooms are also reportable, but often these are paid via 3rd party payment networks like credit cards. Likewise, rent paid to a property manager or real estate agent, who are acting as a 3rd party, are an exception and do not need to be reported.
Medical and Health Care Payments: Payments of $600 or more towards physicians, dentists, or any other kind of healthcare providers must be recorded regardless of the business being incorporated or not. The only exceptions are insurance premiums and prescription costs.
Gross Proceeds Paid To An Attorney: Attorneys must always receive a 1099 if they pass the $600 threshold, regardless of their status as an individual or corporation.
This knowledge will hopefully make it easier when it comes to filling out your 1099s in time to avoid penalties. But remember to file them to the IRS as well. Sending out the 1099s to the vendors and not submitting them to the IRS will still result in an unnecessary penalty.
For more advice when it comes to bookkeeping, feel free to subscribe to us. And if you have any questions, feel free to Contact Us. We’ll be happy to help with keeping your books in the black.
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