Individual taxpayers, including owners of rental properties, sole proprietorships, and single-member LLCs, may be required to provide Forms 1099-MISC to nonemployee service providers, business landlords, and/or attorneys. The due date for providing 2019 Forms 1099-MISC to recipients of reportable payments and to file the forms with the IRS is January 31, 2020. You are only required to file a Form 1099-MISC for payments made by your trade or business, not for personal payments. Thus, while you may be required to report payments to a handyman for services performed on your rental property, typically, you are not required to report payments to a plumber for services performed on your personal residence.
The following discussion is addressed solely to individual taxpayers, including owners of single member limited liability companies (SMLLCs) treated as disregarded entities for tax purposes. Different requirements may apply to other taxable entities including corporations, partnerships, and multi-member LLCs. The following discussion of the Form 1099-MISC reporting requirements rules is very general. It is not intended to provide comprehensive guidance or address many of the less common situations that may apply to specific taxpayers.
Do you have a trade or business?
In most cases, you will know if you have a trade or business for tax reporting purposes. For individual taxpayers, these activities are reported on your tax returns on Schedule C (Profit or Loss from Business – Sole Proprietorship), E (Income or Loss from Rental Real Estate), or F (Profit or Loss from Farming). The Form 1099 reporting requirements for the rental real estate activities of small landlords has been a source of dispute over the years. Recently, in guidance following the federal 2017 tax reform (the TCJA), the IRS stated its position that if a property owner claims the 20% qualified business income deduction benefits for a rental activity, then, the property owner is likely subject to the Form 1099 reporting requirements. You should consult with your tax advisor if you are uncertain whether your activity constitutes a trade or business for purposes of the Form 1099 reporting requirements.
What payments are reportable on a Form 1099-MISC?
The most common payments by business owners and landlords reportable on a Form 1099-MISC are:
- Services performed by someone who is not your employee, and
- Payments to an attorney.
Rents typically incudes payments for office space unless the payments are made to a real estate agent or a property manager. Nonemployee compensation includes payments for services in the course of your trade or business to an individual, partnership (including an LLC taxed as a partnership), or estate. Payments to an “attorney” includes fees paid in the course of your trade or business to a law firm or other provider of legal services.
In most cases, payments to a corporation are not required to be reported on Form 1099-MISC. One exception to this rule is that payments to a corporation for attorneys’ fees are subject to the Form 1099-MISC reporting requirements
In general, you (or your SMLLC) are required to file Form 1099-MISC for each person or entity to whom you have made reportable payments of at least $600 during the course of the year.
What are the possible penalties for late filing or non-filing of Form 1099-MISC?
If you fail to file a correct Form 1099-MISC by the due date and you cannot demonstrate reasonable cause for the late filing, the IRS may assess penalties. Penalties are based on when the correct Form 1099-MISC is filed. For each form correctly filed within 30 days of the January 31 due date, the penalty is $50. The penalty increases to $110 for each form filed 30 days after the due date but by August 1. For each form filed after August 1, the penalty is $270. If any failure to file a correct 1099-MISC is due to intentional disregard for the filing requirements, the penalty can be increased to the greater of $550 or 10% of the amount required to be reported on each Form 1099-MISC.
If your trade or business activities are reported on Schedule C, E, or F, note that each of these schedules requires a response to the questions: 1) Did you make any payments in 2019 that would require you to file Form(s) 1099? and, 2) If Yes, did you or will you file required Forms 1099?
What do you need to file Form 1099-MISC?
To determine if you have made payments reportable on a Form 1099-MISC and to obtain the correct information to report of the form, you should request a Form W-9 from each individual or entity to whom you may have made reportable payments. Form W-9 will indicate the payment recipient’s:
- Name of individual or business
- Classification (e.g., individual, corporation, partnership, trust/estate, LLC)
- Taxpayer Identification Number (social security number or employer identification number)
BPM is here to help you with your compliance requirements. Please contact your BPM tax advisor with any questions.