Due to last year's audit, I now know that self-employed people and businesses must file 1099 forms to anyone whom they pay more than $600. Every consultant, your landlord, and the person who cleans the office. Since I own my office and don't pay rent, I sent three 1099's, one to the office cleaning person, one to my consultant, and the other, in my business as landlord, to the contractor who rebuilt a floor for me.
Why 1099's? The IRS wants to be able to know if your payees, the consultant and your landlord, are declaring all their income.
How 1099s? You want the 1099-Miscellaneous Income (or 1099-MISC) form. They come 2 to a page. I always ruin one by putting my consultant's name where mine should go. Read carefully. And you need to get the tax i.d. or social security number of every payee. Which, unless they're working under the table, they'll be glad to give you. Put the $ amount in the appropriate square (Probably not "crop insurance proceeds"). When you've filled them out, send the top layer to the IRS, one of the middle ones to the "recipient" and file the rest in your file. When you send the top layers, they need to go with form 1096, which just has the total. After you've done this once, the IRS sends you a pre-printed form.
To get forms call the IRS at 1800-829-3676 or go to www.irs.gov
If you don't do this, and you get audited, it will cost you for every audit year and every form. I know this the hard way. It will take you about an hour total, to figure it out. So order the forms, get the Social Security #'s, and start figuring out who you paid what in 2010.
Sorry you were audited.
When you were audited, did the person give you a publication number or URL to the documentation of this requirement? I’d like to have direct access to this information.
I have consulted with several accountants and talked with many savvy therapists in private practice, and not heard this before. If I have the “cite” I can (and will) share it far and wide in my network!
Thanks for alerting us to this.
This page seems to indicate the 1099 is required if one is paying a “person”; it doesn’t mention payments made to corporations:
http://www.irs.gov/instructions/i1099msc/ar02.html
And this article seems to confirm that, and goes on to say that in 2012 the law will be expanded to apply to all entities:
http://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/
I pay my rent to a corporation, so it appears that for now, I don’t have to send a 1099 to them until 2012. I pay for supervision/consultation to a couple individuals, but while they are self-employed and “people”, they may actually be providing services as a corporation, depending on how they have set up their businesses.
So now I’m confused…
PS: Do you have any clues on how you got selected for an audit?
My accountant educated me about this 1099 stuff, Robin..I was very grateful to her. When I mentioned it to other therapists they looked at me like I was crazy, so I think it’s great that you’re sharing what you’ve learned about this here.
@Secret Agent Girl: I think that if you are writing the check to an individual then you need to file a 1099. It seems to me that your check would need to be written to the corporation for it to be considered payment to the corporation.
Secret Agent Girl, If you write it to a person who is incorporated, you dont have to do a 1099.
Marlon Danley
Thanks so much for the post.Much thanks again. Really Cool.