Dodging Unnecessary Penalties in the Small Business World

Our Step-By-Step Instructions below were accessed from the IRS website:

IRS Website 1099 Instructions

For further information, this website is available with the Internal Revenue Service’s breakdown of all necessary payments and forms- of course, so are we! The article below has helpful tips for filing 1099 forms for all independent contractors, you can always contact Paragon for the help you need.

As the end of the year approaches, it is important for small business owners to issue 1099-MISC forms to all of their independent contractors.

First things first, make sure you know who your independent contractors are:

An individual is typically classified as an independent contractor if you, as the small business owner, have the right to control or direct only the result of the work- not what will be done and how it will be done. Basically, independent contractors are self-employed.

Examples of independent contractors who would receive Form 1099-MISC are:

-Guest Speakers/Lecturers
-Physicians
-Performers
-Attorneys
-Accountants
-Bookkeepers
-Rents
-Royalties

Form 1099-MISC. is used by businesses and individuals to report miscellaneous income. The IRS wants you to use a 1099 form to report payments for such services — not goods — related to operating your company or trade when you’ve paid them at least $600. Have them to fill out a W-9 upon hire as well! You can’t 1099 them without it. At the end of the year (by January 31^st) you will need to issue the 1099. The form needs to be mailed by February 28^th, or filed with the IRS electronically by March 31^st.

 

Below are step by step instructions on how to input correct amounts for Form 1099-MISC:

BOX 1 – RENTS: Rents that you paid for. Enter amounts of $600 or more for all types of rents, such as:

• Real estate rentals that were paid for office space, however; you do not have to report rental payments if you paid them to a real estate agent. The real estate agent must use Form 1099-MISC. to report rent paid over to the property owner.
• Machine rentals is “part of a contract that includes both the use of the machine and the operator, prorate the rental between the rent of the machine (report that is box 1) and the operator’s charge (report that as non-employee compensation in box 7).
• Pasture rentals are for farmers who pay rent of grazing land use.

BOX 2 – ROYALTIES consists of royalties that amount to $10 or more.

• Royalties that are reported here would be royalties from gas, oil, or other mineral properties that may have been withheld and paid.

BOX 3 – OTHER INCOME consists of income of $600 or more that cannot be reported in box 1 and 2.

• Other income examples would consist of prizes and awards that are not for services performed.

BOX 4 – FEDERAL INCOME TAX WITHHELD consists of backup withholding.

• For example, persons who have not furnished their TIN to you are subject to withholding on payments required to be reported in boxes 1, 2 (net of severance taxes), 3,

5 (to the extent paid in cash), 6, 7 (except fish purchase for cash), 8, 10, and 14.

BOX 5 – FISHING BOAT REPORTING consists of proceeds from the individual share of all proceeds “from the sale of a catch of the FMV of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew member.

• In addition, cash payments of up to $100 per trip must be reported.  Usually, a fishing boat has on average 10 or less crew members.

BOX 6 – MEDICAL AND HEALTH CARE PAYMENTS consists of payments of $600 or more in the course of a trade or business to each physician, medical supplier, or provider of health care services. Payments include charges for drugs, injections, dentures, and similar items.

BOX 7 – NON-EMPLOYEE COMPENSATION consists of non-employee compensation of $600 or more.

• Items that are reported in Box 7 include, commissions, prizes, awards, fees, or other forms a compensation for services performed for your business or trade by a non-employee.

BOX 8 – SUBSTITUTE PAYMENTS IN LIEU OF DIVIDENDS OR INTEREST consists of payments of $10 or more received by a broker

BOX 9 – PAYER MADE DIRECT SALES OF $5,000 OR MORE consists of purchases that you made for your trade or business including consumer goods.

BOX 10 – CROP INSURANCE PROCEEDS consist of crop insurance proceeds of $600 or more paid to farmers.

BOX 11 – FOREIGN TAX PAID consist of foreign tax paid from payments that you made. You must report the payment amount in U.S. currency.

BOX 12 – FOREIGN COUNTRY OR U.S. POSSESSION

• For this box, enter the name of the foreign country or U.S. possession for which foreign taxes were paid and reported in box 11.

BOX 13 – EXCESS GOLDEN PARACHUTE PAYMENTS

• For this box, enter any excess golden parachute payments. The excess golden parachute amount is the excess of any section 409A.

BOX 14 – GROSS PROCEEDS PAID TO AN ATTORNEY consists of proceeds of $600 or more that was paid for attorney services.

BOX 15a – SECTION 409A DEFERRALS

• Most of the time, you will not have to complete this box, however; if you do, “enter the total amount deferred during the year of at least $600 for the non-employee under all non-qualified plans. The deferrals during the year include earnings on the current year and prior year deferrals.

BOX 15b – SECTION 409A INCOME consists of all amounts deferred that are included in income under section 409A.

BOXES 16-18 – STATE INFORMATION

• You only need to use this box if you report payments for up to two states

 So, why do you want to make sure this is done?  If you fail to issue these contractors 1099 forms, you will be penalized. The IRS also might disallow expenses claimed as deductions if they’re not documented as they should be on 1099s.

The following penalties will be in effect for the year 2014:

$30 penalty for filing a 1099 not more than 30 days late
$60 penalty for filing a 1099 more than 30 days late and before August 1
$100 penalty for filing a 1099 on or after August 1
$250 penalty for intentional failure to file.

In order to avoid penalties and safeguard your business, make sure to request a W-9 form from all independent services you’ve used each year.

The best part? We can do all this for you! Call us with any questions or concerns- let Paragon take care of you and your business.