Author Topic: Consequence for not filing 1099-misc  (Read 2070 times)

Mighty-Dollar

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Consequence for not filing 1099-misc
« on: December 20, 2016, 07:28:56 PM »
If for your business you pay someone $600 or more, fail to do a 1099, but report the expense and the receiver reports the income as well, what are the consequences? Does the IRS fine you? Or is it just a red flag that might trigger an audit?


Wile E. Coyote

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Re: Consequence for not filing 1099-misc
« Reply #2 on: December 20, 2016, 08:44:30 PM »
The IRS website has a good summary of the potential penalties, here: https://www.irs.gov/government-entities/federal-state-local-governments/increase-in-information-return-penalties-2

The penalty can be waived if due to reasonable cause and not willful neglect.

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SeattleCPA

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Re: Consequence for not filing 1099-misc
« Reply #3 on: December 21, 2016, 07:28:24 AM »
You should file the 1099s IMHO... And the reason isn't the penalty.

First, your tax return asks a couple of very specific questions about whether you owe people 1099s and will file them... so you have to lie once or twice on your return. That's a bad idea... Probably the IRS computers will be able to guess that's happening and will bump your DIF score for that. (The DIF score tells IRS which returns are most likely good returns to audit.) And if you do get audited, you don't want to have little lies like this shadowing the rest of the audit.

Second, your filing of 1099s probably supports your treatment of the vendors as independent contractors and not as employees. By filing 1099s, everybody (IRS, employee, you) have official paperwork that says, "Yup, these guys were not employees. They were independent contractors."


Drifterrider

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Re: Consequence for not filing 1099-misc
« Reply #4 on: December 21, 2016, 08:50:24 AM »
If for your business you pay someone $600 or more, fail to do a 1099, but report the expense and the receiver reports the income as well, what are the consequences? Does the IRS fine you? Or is it just a red flag that might trigger an audit?

If you hire an individual, you should follow the rules for the 1099 (keeps you from being on the hook for 1/2 payroll tax).

If you hire a company, a standard invoice should be sufficient.

SeattleCPA

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Re: Consequence for not filing 1099-misc
« Reply #5 on: December 21, 2016, 10:35:24 AM »
I think the rule is if you pay an unincorporated business more than $600 for services, you file a 1099.

So what you want to do is make sure the entity is incorporated. BTW, an LLC isn't necessarily treated as a corporation. It may be. But you want to get a W-9 filled out. (A corporation will always be treated as either a C corporation or an S corporation. An LLC can be treated as a C or S corporation, but can also be a sole proprietorship or a partnerships.)

 

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