Ask the Tax Czarina: 1099-MISC
So far, SFWA’s own “Tax Czarina” has discussed basic tax issues writers face and questions about bartering. This week, she focuses on questions regarding Form 1099 MISC.
Q: Did I miss the deadline for Form 1099-MISC? What should I do?
A: The deadline for delivering Form 1099-MISC was February 1. So you may have missed that deadline. The deadline for filing 1099-MISC forms with the IRS is February 29 if you’re paper filing and March 31 if you’re e-filing the forms. So it’s still possible to make that deadline.
The first thing you should do is determine if you were even required to file a Form 1099-MISC for 2015. So take a look at the following questions to figure that out.
- Are you in a trade or business? That’s the primary question. If you make a personal payment, you’re exempt from filing a 1099-MISC. So what’s a trade or business? An activity engaged in for profit or with the intention of making a profit is the primary definition of a trade or business. Then the IRS throws in not-for-profit entities such as SFWA and a few others that are exempt from taxation. They’re not engaged in an activity to make a profit, but they still have to file Form 1099-MISC if they meet the other requirements. If you’re one of the ‘others,’ you should consult a tax advisor to see if you have an obligation to file. But the big point here is that hobbyists and people clearly not in a business are not required to issue a Form 1099-MISC to anyone. If you answered yes, go to question 2. If you answered no, you’re done. No filing requirement.
- Did you pay someone $600 or more for services or $10 for royalties during the calendar year? This can be a series of payments or a single payment. Note that the threshold for Box 2, royalties, is ridiculously low. Guess they’re not adjusting that box for inflation, huh? Those are the two most likely types of payments made by the intended reader of this blog. If you made a different type of 1099-MISC payment in 2015, consult a tax advisor. If you answered yes, go to question 3. If you answered no, you’re done. No filing requirement.
- Did you make the payment by check or cash? Payments made via third party systems, such as PayPal or credit card or debit card are not subject to the 1099-MISC rules. The third party is supposed to file a 1099-K, but only if this payee received more than $10k in payments from the third party. Wait. Really? All of us have to send a 1099-MISC if the amount is over $600 ($10 for royalties) and the credit card company only has to send this other form if the payments are over $10k? Yeah. No one said life was fair. If you already gave someone a 1099-MISC anyway, don’t panic. The IRS is aware that Form 1099-K and Form 1099-MISC may have overlapping amounts. If you answered yes, go to question 4. If you answered no, you’re done.
- Did you make the payment to a corporation or to someone who files their tax return as a corporation (some LLCs do this)? Wait. How do I know if I paid a corporation? In this case, if you answered yes, you’re done. No filing requirement. If you answered no, or you don’t know the answer, go to question 5.
- So how do you know whether the person you paid is a corporation, an LLC, a partnership, an individual with a ‘doing business as’ name? You have them fill out Form W-9, The Request for Taxpayer Identification Number and Certification. This is where the payee tells you what type of entity they are and gives you either a social security number or an employer identification number. Box 3 tells you what type of entity your payee is. If they check “C Corporation,” “S Corporation” or indicate that they are an LLC filing as one of those two, you’re not required to send them a Form 1099-MISC. Send one to anyone else. The real trick is to get in the habit of asking a payee to fill out a Form W-9 before you pay them. (Form W-9 is available for download on irs.gov under Forms and Publications.)
So that’s the end of the questions. I should mention that you’re supposed to send one to attorneys if you pay them more than $600 by cash or check. Attorneys are generally not organized as a corporation, so the above question should still work. There are a few states that allow a ‘professional corporation’ for attorneys and similar professionals, which might confuse things. Ask a tax advisor, if you encounter this situation.
If you got to this part of the Q&A, you think you still have a filing requirement for 2015. In which case, you have all the information you need to prepare one, since you obtained a Form W-9 in question 5 above. There are inexpensive options online for preparing the forms. A typical online service will prepare the form, mail it, let you download a .pdf copy and will do your filing with the IRS for just a few dollars per form. They handle it all. I’ve personally used a service called efilemyforms.com for several years. Some other options are efile4biz.com and efile1099now.com. The pricing is pretty much the same for all three services. And that’s just a sample.
What I like most is that when I push the button to pay for the form, my work is done. They send me emails when the forms are mailed to the payee and when the forms are filed with the IRS.
Even if you missed sending out Form 1099-MISC to the payee by February 1, you should still issue one. Contact the payee, let them know it’s coming. Then go online and complete it and get your filing to the IRS on time. Check the date the service will begin their e-filing with the IRS. For efilemyforms.com, that date is March 15. Even if you get a notice from the IRS in the future that you were late sending to the payee, it’s better to file than not to file. You can send a response to the IRS stating that you corrected the error as soon as you became aware of it and contacted the payee and you won’t make the same mistake again. They might waive the penalty. Yes, the IRS waives penalties from time to time.
Now you know what you need to do for 2016.
- Make your payments by third party systems and you won’t have to issue a 1099-MISC. F
- ailing that, obtain a Form W-9 from payees before you send them a check or cash.
- And then send payees the required 1099-MISC forms by the end of January, using a convenient online service (or find someone to do that for you).
The IRS has added a question to every business return and Schedule C that asks “Were you required to file Form 1099-MISC?” and if you check yes, the next question is “Did you file Form 1099-MISC?” Answer those questions with confidence!
The Tax Czarina is a licensed CPA with more than 25 years of experience preparing US Federal and state tax returns. After earning a Masters of Accountancy degree, her resume includes working for the now-defunct largest accounting firm in the world, for the world’s largest cement and construction material firm, and for her own one-woman company, which specializes in individual and small business income tax. She is currently the preparer for SFWA’s tax filings. She is not looking to add new clients.