As Director of Accounting Services at The Foresight Companies, I’m reminding you that your 1099’s are due on Tuesday, January 31st. It’s January and many business owners are using this month to try and forget that taxes will need to be done soon. But as you immerse yourself in denial, have you forgotten that 1099’s have to be issued?
1099’s are like the neglected middle child of taxes. People have some vague idea that they exist but they aren’t sure what needs to be done for them. Let’s go through the Who, What, When, Where and Why of 1099’s.
1. Who has to file 1099’s?
All businesses that pay for services to unincorporated service providers must provide a 1099 to vendors that were paid more than $600 during the year.
2. What are the requirements for 1099’s?
There is confusion regarding who exactly must get a 1099. The rules are pretty clear, here is the checklist:
Was the payment for a service? Payments for products are not included in 1099 requirements. While there are several categories of payments that require 1099’s, funeral homes will generally be concerned with only three:
Payments for services,
Payments for rent
Payments to attorneys.
Was the vendor incorporated?
1099’s are required only for vendors that are not incorporated. Corporations include all C and S corporations as well as LLC’s that are treated as C or S corporations.
3. When are 1099’s due?
Currently, all 1099 filings, both to the recipient and with the IRS are due by January 31.
4. Where do the 1099’s get sent?
1099’s to the recipient must be mailed to the last known address or sent via email if the recipient has consented to receive their 1099 in that manner.
Businesses are also required to file a summary of their 1099’s on Form 1096 with the IRS.
5. Why do we have to file 1099’s?
1099’s are required for a simple reason: to allow the IRS to make sure everyone reports taxable income. Just like W-2’s allow the IRS to verify that workers are reporting all of their compensation, 1099’s allow the IRS to verify business income for unincorporated businesses.
Also, as with many IRS requirements, there are penalties for noncompliance. While penalties are rare, they can add up if you are audited and you have not issued the correct 1099’s.
Tips for 1099 Preparation
Ask all vendors you pay during the year for a Form W-9. This will provide all the information you need to determine if they will need a 1099 and any data necessary for issuing the 1099. Keep track of your 1099 vendors in your accounting software. Most programs will have a way to identify vendors as eligible for 1099’s and will allow you to run reports at year end with all of the information needed to complete and file the required forms.
Something unique to the funeral business is cash advances. When a family is charged for services such as clergy or musicians, but you are not marking up their fees for profit, we call it a cash advance. You are acting as a conduit between the family and the vendor so the family can have the ease making one payment to the funeral home instead of paying all the vendors separately.
Do payments to these vendors require 1099’s? The answer depends on how you handle your cash advances. If the family is writing separate checks to each vendor and you are simply distributing them, it is not a payment from your business and no 1099 is required.
On the other hand, if you take payment for all services from the family and your business writes checks to the vendors, 1099’s are required.
Remember that tax law is constantly changing and not all the changes are in the media. It is important to know the laws and how they affect your business.
Talk to your accountant about 1099’s and other tax issues or come see us at The Foresight Companies Funeral Accounting where we take care of the business so you can focus on serving your families.