IRS Form 1099-Misc: Preparation Tips

IRS forms - tax form 1099 preparation tips

What is 1099 form for? Form 1099 is IRS form that is used to report various types of income other than wages, salaries, and tips. Form 1099-Misc is issued by your business to a subcontractor or anyone who provides services to you above a threshold during a calendar year. You will skip the 1099 if the provider of services is a corporation. Next we will discuss some 1099 preparation tips that you or your accounting/bookkeeping staff may need to know to issue this IRS tax form.

How to know if the providers of services are corporation?

Payments to corporation are not required to be reported on Form 1099-MISC. This exception is not apply to payments for legal service and medical or health care services.

In order to know if the providers of services are incorporated, you should hand them a form W-9 prior to paying for their services. The provider completes the W-9, by which they can be indicated if they’re a corporation and therefore not subject to receiving a 1099. The W-9 also gives you the tax ID number, without which you cannot file a 1099. This is why you ask for a completed W-9 prior to payment or prior to receiving services, to avoid the sort of conflicts wherein one party asks for the information in order to comply with the IRS regulations and the second party refuses to provide it, while they’ve already received their payment. 

What do you do if a subcontractor refuses to provide a W-9? 

If they refuse to provide the W-9 after receiving payment for a service, you issue form 1099-Misc with writing "Refused" in the Tax ID box of the form and send it off to the IRS and the subcontractor as usual. It's up to the IRS to deal with the subcontractor, but you've fulfilled your responsibility.

What if materials are included in what you paid to the service provider? 

You can break those out, by completing the 1099 for only what the service was. However, you’re not required to if you have all costs posted to the same account in your accounting software and aren’t sure which are materials and which are services, send a 1099 for the entire amount. It’s the provider’s responsibility to deal with that on their own tax return, and it’s rather easily done.

Cash or accrual? 

You issue form 1099 to someone for the amount you physically paid them during the year. If they billed you another $100,000 but at year end it’s still on your books as a payable, it doesn’t count. That’ll be for next year.

Production and distribution

You can order free 1099 forms from the IRS or buy the forms at the office supply store, and print them. Most  accounting or payroll software have capability to print on the 1099 form. You can also file online with various providers who will mail the forms for you and efile with the IRS.