Dear Friends & Clients,
This note is to advise you about the filing requirements for form 1099. You may be required to file this form if you made business payments of $600 or more during the year to any individuals. The most common types of payments reportable are fees (accountants, assistants, attorneys, consultants, contractors, witnesses, etc.), commissions, rents, and miscellaneous compensation. Reports are also required for business payments of interest, dividends, or royalties of $10 or more.
Generally, form 1099 is only required for business payments as opposed to personal payments. For example, the form will be necessary if you paid your attorney $600 in connection with a business contract. However, the same amount paid for a personal matter, such as preparation of your Will, would not have to be reported on form 1099. According to the government's instructions, "you are engaged in a trade or business if you operate for gain or profit." Thus, most real estate rental activities would be considered a "trade or business" for these purposes. IRS also states, "nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements." This might include your pension trust (or Keogh plan) if you paid your accountant/attorney $600 for tax return preparation or other paperwork.
Purchases of merchandise do not have to be reported on form 1099. Also you generally do not have to report payments to corporations or real estate managing agents, but you do have to report payments to partnerships. The exemption from reporting payments made to corporations no longer applies to legal services. Thus, form 1099 will now be required to report payments of $600 or more to your attorney, even if he or she is employed by a corporation.
Other common situations where filing requirements are often overlooked include:
-Bartering transactions. For example, if a plumber performs work for his or her attorney in exchange for $600 worth of legal services, both the attorney and the plumber should receive a 1099.
Middleman payments. Additional reporting may be required if you receive form
1099 for income that was paid to someone else. This situation might arise if you
split a fee or commission with an associate. In this case you should issue form
1099 to the associate to report his or her share of the payments.
Although the government copies are not due until February 28, 2001, recipients' copies of form 1099 should be postmarked by January 31, 2001. The penalties for lateness or failure to file can be severe.
Contact us if you need help with 1099 forms. We offer a full range of tax and accounting services and our offices are conveniently located in NY City and upstate NY. We will be glad to provide a fee estimate for preparation of 1099 forms.
Peter G. Masullo, CPA