Business to Business $$$ – The IRS Wants to Know
Businesses are required to report business transactions with other businesses annually. The IRS 1099 system tracks business to business payments. Every business must complete 1099’s for payments of rent, interest, non-employee compensation, prizes or awards, attorney fees and other payments informing both the recipient of the money and the IRS of the payment. Interest and Dividend 1099’s are required if you pay more than $10. Most other 1099’s are required if you pay more than $600. in a year. EXCEPT – Any payment to an Attorney!
To view a list transactions requiring 1099’s or another type of information return such as a 5498 or 8300 go to www.irs.gov/efile/article/0,,id=98114,00.html
In most cases 1099’s are not required for payments to corporations or payments for merchandise. There are special rules for payments to attorneys and even the purchase of fish from a fisherman. However, the recent Health Care Act has made changes to who should be sent a 1099 in future years – Stay Tuned! The general rules and other special situations are explained in the “IRS Instruction for Form 1099-MISC” found at www.irs.gov/instructions/i1099msc/index.html . Instructions for the other types of 1099’s and information returns can also be found on the IRS website www.irs.gov
Every information return, whether is is a 1099-MISC, 1099-INT, or 8300 requires the recipient’s Taxpayer Identification Number, or TIN. A TIN could be a Social Security Number or an EIN (Employer Identification Number). The IRS cross-checks names and TIN’s. Make sure you have the name as it appears on the Social Security card for an individual or the business name as it appears on the EIN application. Before you sign a business contract, make sure that you have the payee’s TIN. If the payee is reluctant, an official request can be made using the IRS Form W-9 ( www.irs.gov/pub/irs-pdf/ fw9.pdf ). The IRS can impose fines for failing to file an information return or failing to include the correct TIN. A sub-contractor that refuses to give the payor his/her TIN should not be hired! If you have hired a sub-contractor, he has completed the job, and he refuses to supply a TIN or supplies you with an incorrect TIN, you must remit to the IRS Backup Withholding equivalent to 28% of the payment.
Remember, Information reports are due to the recipient by January 31st, or the first business day thereafter. And due to the IRS by February 28th, or the first business day thereafter.
Ask yourself, as you write business checks or enter checks into your records: Should this payment, or series of payments, be reflected on a 1099 or other information return? Keep a file of the payees, their contact information and TIN’s to make information reporting at the end of the year a breeze.
