The IRS is the ultimate form of big brother when it comes to the government. A lot of money moves about the US economy and the IRS needs to track it. When it comes to business transactions, specifically revenues and earnings, the 1099-MISC form is one way it accomplishes this.
In general terms, the 1099-MISC form is known as the independent contractor form. The form is essentially where you report what you paid to any independent contractors during the tax year in question. If you are preparing your taxes for the 2006 year, you would total up everything you paid to various independent contractors and file a single form for each one of them. You also send a copy out to the independent contractor so they can see it and know the IRS knows about the payments. In general, you must file the form for any contractor you paid more than $600 total during the tax year in question.
So, what exactly does ?independent contractor? mean? Well, we are talking about the IRS and taxes, so common sense is out the window. An independent contractor as defined by the form is a very broad definition. It can include basic things like paying someone to design a website for you, water the plants at your business and so on. It also covers a wide variety of other people you probably would not think of as independent contractors including any payments made for legal fees to an attorney regardless of the amount, rents of more than $6,000, payments to a physician of more than $600 and so on.
Frankly, the 1099-MISC filing requirements can get very bizarre. For instance, you are also supposed to issue the form if you pay more than $600 to buy fish for the purpose of reselling it. You only have to do this if you pay cash for the fish. Pay with a credit card, and it is no problem. Strange indeed, eh? If you actually pay a crew of a fishing boat, you have to issue the form regardless of the amount and regardless of whether you paid in cash or not! Obviously, the IRS has a thing for the fishing industry.
Given the wide scope of the form, what happens if you do not file a form? Not much. If the IRS tracks you down, you get a fined under a hundred bucks for each one you failed to issue. It can add up, but you should not panic if you are not sure you issued all the necessary forms.
If you need to issue 1099-Misc informational returns, the deadlines can come quickly. You must send the form out to the ?independent contractor? by January 31st and then file it with the IRS by February 28th.
1099 forms are IRS documents. They are known as information tax returns. You do not have to pay any money with them. Instead, they simply tell the IRS what you paid to who during the year. The ?who? is generally an independent contractor of some form or another for the purposes of this article, to wit, the 1099-MISC form.
Filling out the form is a fairly simple process. You just total up your payments over the tax year to the various people that you paid, enter their business information and the amount. You need to put together one form for each contractor. You also need to make sure you use the correct form of the?well, form. It must be a three piece carbon copy because the IRS computers read the information. In practical terms, this means you cannot print it off your computer. You can usually find the form at local post offices and libraries. If you are feeling brave, you can head down to the local IRS office as well.
So, when do these forms have to be filed? Well, there are two dates. Hey, we are talking about taxes here! Actually, there is a good reason. You must send one copy of the 1099-MISC to each independent contractor no later than January 31st. You then must send the IRS copy to the agency by February 28.
So, why the different dates? The one month lag has a purpose. It gives the contractor the time to check their records and make sure your number is accurate. If you underreport what you pay them, they are supposed to call you and report as much. Have fun waiting for that call! If you over report what you paid them, they will definitely call. Why? The IRS uses the forms to determine if the contractor is reporting all their revenues.
1099 forms are fairly simple to get out the door. The biggest problem you will run into is finding the forms. Lots of people have to send them out, so there can be a real rush on them. The IRS offices are almost always picked over, but libraries seem to have them in stock. Regardless, try to get them as soon as possible to avoid any problems.
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