What is the big deal about 1099s?

I heard someone ask: "what's the deal about 1099s?!"

If you don't know what 1099s are and what they are used for, here's a short summary for you!

In short, 1099s are required by the IRS to double check numbers when people file their tax returns.

When you issue a 1099 to an individual or a company, a copy goes to that person (the recipient), a copy goes to the IRS, and a copy goes to the state. So, if the recipient of a 1099 tries to understate their taxable income by excluding any income from their tax return, the IRS has a way to notice they are doing that.

You may wonder "what if I just don't issue 1099s?"

Well, the IRS could penalize you for not issuing them. You see, as the business owner, you are responsible for filing information returns (like 1099s) by the deadlines set forth by the IRS. If you don't, the IRS has strict penalties. There are penalties for filing late, and there are more severe penalties if you are intentionally not filing them.

In 2024, there is a $60 penalty PER FORM, and PER PAYEE STATEMENT, if you file them up to 30 days late. If you have multiple contractors, that penalty can add up pretty quickly... and the fees go up from there - $120 if you file 31 days late up to August 1, and $310 if you file after August 1 or don't file at all. And again, these amounts are PER FORM, and PER PAYEE STATEMENT.

If you are doing this intentionally - you can expect to pay $630 per form.

So, if your business has paid rent, or has paid anybody (or any company that is not a corporation) for any services in 2023, you probably need to file 1099s.

You still have a few days to get this sorted out. Below are a couple helpful links with information. But you can always reach out to us if you need help at hello@keyaccounting.llc

General Info about 1099s: https://www.irs.gov/instructions/i1099gi

Information about IRS penalties: https://www.irs.gov/payments/information-return-penalties