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This March 22, 2013 file photo shows the exterior of the Internal Revenue Service building in Washington.  (AP Photo/Susan Walsh, File)

This March 22, 2013 file photo shows the exterior of the Internal Revenue Service building in Washington. (AP Photo/Susan Walsh, File)

Most individuals receive an IRS Form 1099—Miscellaneous Income (1099s) early each calendar year as part of their annual tax return documentation. They hold the document for their tax return preparation and then file it away without giving it another thought. If you are a small business owner, know that you too must send 1099s to nonemployees paid in the course of doing business. Members of the Pennsylvania Institute of Certified Public Accountants warn that many small business owners do not understand the requirements for issuing 1099s, and they can receive hefty fines and costly IRS audits if not complied with properly.

Let’s start simple: If you are deducting a payment to a vendor, then the IRS wants to make sure that they are picking it up as income. There is a dual requirement. The recipient of the payment is required to report any income—whether or not it meets the threshold for receiving a 1099—and the business is required to issue 1099s to any nonincorporated business or individual from whom it purchases more than $600 in goods or services during a calendar year. Failure to do so will result in a $100 penalty for each 1099 that is not issued as well as the potential loss of that deduction on the tax return. That seems pretty straightforward.

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