The most common 1099 mistake we see

It’s 1099 filing season again! All forms need to be filed with the IRS and delivered to your contractors by the last day of January. (Postmarked by 1/31, at the very least.)

A lot of business owners still think that they need to buy stock forms, print, and mail. However, the very easiest way to fulfill your 1099 filing requirement is by using an online filing service. All you do is type in your company information, enter the vendor’s name and tax ID, and fill in the appropriate box with the correct amount. The website will then file the form with the IRS electronically, and often also has a secure email delivery option for your vendor, or maybe even a mail service. Either way, you were going to have to type up the forms manually – why not input it directly into a service that also files it for you?

We currently use 1099online.com for all our client filings, but that is only one of several similar websites.

I’d also like to address a very common reporting mistake, and that is issuing 1099’s to contractors and companies that you paid with a debit or credit card. This is such a common mistake that we have caught CPA’s giving incorrect instructions to their clients, and we’ve had to correct them by citing the IRS website.

The short version is: exclude any and all payments made to vendors via a merchant processor, which includes payments made by debit card, credit card, or even PayPal. If we ignore the IRS’ clear instructions and include those payments, then the payee’s income would be reported twice to the IRS, once by the payor and once by the merchant processor, making the IRS believe they are under-reporting their income on their tax return. And you can guess what kinds of problems that can cause for your contractors!

Here is the direct quote from IRS.gov, found on page 2 of the official IRS instructions for the 1099-MISC form:

Form 1099-K. Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC. See the separate instructions for Form 1099-K.

If you have questions about this or anything else regarding filing 1099’s, please contact us today!