1099 Reporting Requirements for Business and Rental Property Owners
We recommend that you obtain a completed W-9 from your vendors and subcontractors before any payments are made to them. This will provide your company with the correct information (legal name, entity type, and identification number so you can properly determine your 1099 reporting requirements for this vendor or subcontractor.
Current tax returns have a question regarding 1099 reporting
and compliance with this rule. Therefore, compliance (or
lack of) is reported on the tax return and subsequent
discovery of non-compliance when the company has stated that
all required 1099s have been issued would most likely result
in significant penalties for failure to file Forms
We have attached a W-9 Form. You can also get this form at www.irs.gov.
Here is the information regarding the 1099 reporting requirements.
Under the current tax laws, businesses (including corporations, partnerships, and sole proprietors) and rental property owners will report aggregated payments of $600 or more to all non-corporation vendors – but not tax exempt organizations – for services rendered. The businesses should track all payments made directly or through their employees or owners.
Taxpayers receiving income from renting real estate should be aware of their new information-reporting responsibilities. For this purpose only, rental income recipients are subject to the same requirements as a trade or business, even if they are not otherwise treated as engaged in the trade or business of renting real estate.
Action plans should identify all reportable transactions, characterize the type of payment, and develop a process to aggregate payments by reportable entity.
Implementing this change may require collaboration among businesses, software vendors or other consultants and CPAs. Businesses routinely collect name, address and taxpayer identification numbers (TIN) of payees for performance of services. However, businesses probably don’t routinely obtain a TIN and W-9 from every party with whom they make a purchase, including those payments reimbursed to an employee.
Action plans should identify the appropriate modifications to payment voucher or expense recording software, and to systems for sorting and reporting payment transactions. Also, if you expect the new requirements to increase required information returns to be 250 or greater, electronic filing will be mandatory.
Penalties for failure to file information returns correctly and by the prescribed filing date have substantually increased.
Action plans should identify a compliance project timeline for implementing new reporting requirements to avoid compliance penalties.
Businesses will not only provide information returns to their vendors, but will be receiving these returns for their own reportable gross income. Currently, the IRS presumes all information returns to be correct and it is the responsibility of the taxpayer to report those payments received as income. Businesses with fiscal year ends will have the added challenge of reconciling 1099 returns received based on calendar year transactions to fiscal year gross income.
Action plans should include a process to reconcile 1099 reported transactions to the income reported on the appropriate tax return.
RECOMMENDED ACTION PLAN
We recommend that you obtain a completed W-9 from your vendors and subcontractors.