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Form 1099-MISC

Sending 1099-MISC to contractors and vendors

Beginning of the year is a perfect opportunity to get even with all those contractors who worked for you during 2013: report them to the almighty IRS and make them pay taxes on the money they received from you. In fact, it applies not only to contractors but to everyone who did some kind of work for you last year: property managers, wholesalers, mentors, attorneys, and even – yes! – accountants.

Should you even bother?

Your first question might be – why should I? Well, three top reasons come to mind:

  1. It will allow you to deduct their earnings on your own tax return.
  2. It is required by law for any person to whom you paid at least $600 in 2013, total. If you do not report these earnings to the IRS, you can incur IRS penalties as high as $200 – for each worker.
  3. If the IRS gets busy auditing them, maybe they will leave you alone. Or maybe not.

When, where, and how?

The next question is – how do I do it? The short answer is: obtain form 1099-MISC, fill it out, and mail “copy A” of that form to the IRS by February 28th. The long answer is, well, longer:

  1. Unlike most other forms, 1099s cannot be simply downloaded and printed at home. You need the “official” form which is a perforated 5-part form, with the top layer printed in red ink. The blank forms are available for free from the IRS: pick them up at the IRS office or, if time allows, order by phone (1-800-829-3676) or online. You can also buy blank forms at places like Office Depot. Either way, make sure you have enough: there are two forms per page, and you need one form for each person, plus get a few extra in case you mess up.
  2. You will need to put the person’s name, address, and SSN on the form. Your information goes under “payer”, and the worker’s under “recipient.” Try to get it right the first time.
  3. Besides “copy A” of forms 1099-MISC, the IRS will need a cover page - form 1096. If you paid 10 different contractors in 2013, you will send 10 forms 1099-MISC but only one form 1096 for the entire package. Do not forget to pick up this form while at the IRS office – because it also must be the official red-ink form.
  4. You also have to send “copy B” and “copy 2″ of 1099-MISC to the recipient. In fact, the deadline to do this was January 31st. If you have not provided the form yet, do it right away. Otherwise, you will make angry both the contractor and the IRS, and I don’t know what is worse.
  5. What if you missed the February 28 deadline? Well, there is another possibility. Since it’s 21st century, you can submit your 1099s to the IRS online, however not directly with the IRS. This service is provided by several authorized 3rd party companies, and a small number of forms is usually processed for free. Google “eFile IRS 1099” to find those providers. The best part: with e-filing, the deadline is extended to March 31st.

Who should receive 1099-MISS?

The only other critical question is – whom do I need to send these 1099s to? The general rule is: to anybody who was paid by you for services (work) or who received a profit distribution from you – if he received from you a total of at least $600 during the entire 2013. This list includes:

  • contractors of all kind
  • wholesalers and birddogs (but not realtors!)
  • consultants, inspectors, and mentors
  • property managers
  • assistants
  • bookkeepers, accountants, and attorneys
  • landlords from whom your business rents
  • your business partners if you paid them

You do not need to send 1099-MISC in these cases:

  • You paid the person a total of less than $600 during 2013
  • The person who worked for you is a corporation, and you made payments to his corporation. Warning: this exception applies to corporations only. You still need to send 1099s to all DBAs, LLCs, and partnerships. Exception: attorney’s fees must be reported on 1099-MISC even if he is incorporated. The IRS clearly has an issue with attorneys.
  • Commissions paid at closing to licensed realtors and mortgage brokers
  • Payments for purchasing all kind of goods, materials, and property, including real estate itself
  • Repayments of loans

Finally, there are two important cases when you have to send the IRS forms other than 1099-MISC. First one is when you’re seller-financing your sold properties and receive more then $600 of interest from the buyer. You must report the interest on form 1098 – to the buyer (by January 31st) and to the IRS (by February 28th). The procedure is very similar to 1099-MISC: you need an official multi-part red-ink form (unless you do it online), and you need to include form 1096 as a cover page.

The second situation arises when you receive form 1099 for income that is not actually yours or is only partially yours. This is called a nominee recipient. An example would be when you receive compensation that you later split 50/50 with your partner. In this case, you need to file your own form 1099 showing payment from you as the payer to the actual recipient. You need to file the same variation of form 1099 that you received and include form 1096 as cover page, as well as send “copy B” to the recipient.

Help, anybody?

Although the IRS instructions for forms 1099 are remarkably confusing, you can call the IRS at the special toll-free number: 1-866-455-7438. Unless, of course, you have a good accountant on your team.

191 Responses to Form 1099-MISC

  1. GR January 21, 2014 at 11:35 pm #

    I have a vendor I should send a 1099 to but they have moved with no forwarding address. What do I ? File with name and ID# only?

    • admin January 22, 2014 at 8:39 am #

      I would use the last known mailing address. Leaving it blank is inviting questions. Thank you for asking! Michael Plaks.
      See disclaimers.

  2. Jenny January 22, 2014 at 6:39 am #

    For a LLC sole business as real estate rental, is it correct to assume they need to file a 1099 to all property management agents (if they are not corporations) even though the agent’s commissions are not paid directly but through deduction of the rent? Any except to that rule? Thanks!

    • admin January 22, 2014 at 7:32 am #

      Jenny, thank you for asking. This issue is somewhat of a gray area. If you do not send 1099s to your rental property managers, you will probably not have any problems. However, it’s a good business practice to do so, especially if you have multiple properties. You have nothing to lose by doing 1099s, and it might come in handy in case you’re audited. Michael Plaks.
      See disclaimers.

  3. Anne January 23, 2014 at 4:22 pm #

    My company acquired a piece of commercial real estate in 2013. We wired money to the title company, who then disbursed the funds to various parties. The title company issued the 1099-S for the proceeds.

    Do we, the purchaser, need to issue a 1099-MISC to the title company or any of the ultimate payees listed on the closing statement. E.g.,

    Attorney
    Survey company
    Loan original fees
    Real estate commissions

    • admin January 27, 2014 at 6:42 am #

      Anne,
      This is a great question that does not have a very clear answer.
      1. The title company does not have an obligation to issue 1099-MISC to the service providers, only 1099-S to the seller.
      2. You do not need to issue a 1099 to the title company unless they provided $600 worth of services to you. Title insurance is a product, not a service. What they charge you for the actual services is not clear. Besides, most title companies are corporations.
      3. It is my understanding that you do need to issue 1099s to the unincorporated service providers if the payments came out of your pocket, as opposed to that of the seller. For example, real estate commissions were probably seller’s responsibility. Surveyor, appraiser, attorney, etc. were likely your payments. Loan origination fees are grey area – were they payment for services or prepaid interest?
      4. To be safe, you may issue 1099s to those providers, just in case.
      5. That said, I have not heard of the IRS pursuing the buyers or sellers of real property for non-filing of 1099s.
      Thank you for asking! Michael Plaks
      See disclaimers

  4. Emmash January 24, 2014 at 3:54 pm #

    Do I have to issue a 1099 to my business tax preparer? When I called them to get their EIN they said that they shouldn’t be getting a 1099. Is this true?

    • admin January 27, 2014 at 5:55 am #

      Unless they are a corporation, they should receive a 1099 from your business if you paid them $600 or more. Their EIN must be listed at the bottom of the tax return they prepared for you, next to the signatures. If it’s not there and they refuse to provide their EIN – then find an ethical tax preparer and fire this one. Thank you for asking! Michael Plaks.
      See disclaimers.

  5. Sol Miranda January 24, 2014 at 7:08 pm #

    I am confused by 1099-Misc: a) form who we need to send 1099-Misc form & b) from who we need to receive 1099-Misc form:

    Our Federal Tax classification for our company is Partnership. I read the instructions but still not clear enough form me specific to my company. Thank you so much looking forward to hear form you soon…
    Sol Miranda

    • admin January 25, 2014 at 6:16 am #

      You send 1099s to people who worked for you or provided you some services – your contractors and your vendors.
      You should receive 1099s from people for whom you provided services – your clients.
      I could give you some examples if I knew what business you are in. Thank you! Michael Plaks
      See disclaimers

  6. Kathy January 24, 2014 at 10:08 pm #

    If an LLC files as a corporation and would otherwise receive a 1099-MISC; if they file as a corporation, do we still send a 1099-MISC? Thanks.

    • admin January 25, 2014 at 6:04 am #

      Kathy, If an LLC chooses to be a corporation for IRS purposes and files a corporate tax return – it IS a corporation for all tax issues. It will not need a 1099 then. Thank you for asking. Michael Plaks.
      See disclaimers.

  7. Scott January 24, 2014 at 10:59 pm #

    I am an owner/ landlord for one rental home and incurred management / maintenance / repair expenses for the 2013 tax year.

    Even though the 1099 MISC reporting requirement for landlords was repealed a couple of years ago, do landlords still have to fill out 1099 MISC forms for the 2013 tax year for repair / maintenance payments in excess of $600 to independent contractors and LLC’s??

    I ask because my 2013 tax preparation software is asking me to do so.

    Many thanks,
    Scott

    • admin January 25, 2014 at 6:10 am #

      Thank you for asking, Scott.
      I doubt that your software is asking you to file 1099s. I believe it is simply asking you whether, to your knowledge, you needed to do so. Answer to which is no, you do not have to. If you had multiple properties, I would have suggested that you do it anyway, but with just one rental property it’s not required. Michael Plaks.
      See disclaimers

  8. Debra Richard January 25, 2014 at 4:53 am #

    Thanks Michael, very informative and helpful. It reiterates some of the topics we spoke
    about a few days ago.

    • admin January 25, 2014 at 5:59 am #

      Anytime, Debra. Thank you for your feedback.

  9. John Evans January 26, 2014 at 4:34 pm #

    I paid a vendor on 12/30/13, they received it 1/3/14. In what year should that amount be reported in the 1099? If I record it in 2013, it will create a problem for the vendor. If I record it in 2014 it will create a problem for me.

    Thank you.

    • admin January 27, 2014 at 6:10 am #

      Excellent question, John, thank you! Legally, you’re considered to have made the payment on 12/30, when you mailed the check. You should deduct it in 2013, and you should include it on 2013 1099. I agree that it will create a problem for the vendor, but it will be, well, their problem. Michael Plaks.
      See disclaimers

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