Tax laws can change quickly and keeping up with those changes can be quite a challenge! Even so, it’s extremely important for businesses to stay on top of all requirements and maintain accurate records. This will ensure that they are able to timely file their information returns and reduce penalties.
This article will provide some of the best practices for 1099-MISC filing that have emerged in 2022 and 2023.
1. Understand What is Reportable on Form 1099-MISC
It’s essential for businesses to know what types of information can be reported on which forms. Only certain information can be reported on Form 1099-MISC. A Form 1099-MISC must be completed for each individual that was paid the following during the year:
- At least $10 in royalties, broker payments in lieu of dividends, or tax-exempt interest
- At least $600 in:
- Rents
- Prizes and awards
- Other income payments
- Cash paid from a notional principal contract to an individual, partnership, or estate
- Any fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Gross proceeds paid to an attorney
- Section 409A deferrals
- Nonqualified deferred compensation
- Sales totaling $5,000 or more of consumer products to a person on a buy-sell, a deposit-commission, or other commission basis for resale.
2. Use Updated Forms
The IRS occasionally updates tax forms, so ensure that you’re using the most recent version of Form 1099-MISC. Starting in tax year 2022, the IRS started using a non-year specific form instead of an annually-dated form. Staying updated is crucial to prevent any compliance issues or unnecessary confusion.
3. Implement Automated Systems
Adopting automated systems for generating and sending out 1099-MISC forms is a trend that has gained momentum. With digital transformation, software solutions can automatically track payments to vendors, generate 1099 forms, and even submit them electronically. This minimizes manual errors and greatly enhances efficiency.
4. Leverage Electronic Filing
The IRS encourages electronic filing (e-filing). E-filing allows for faster processing, easy corrections, and immediate confirmation of receipt.
Beginning on January 1, 2024, the paper filing threshold form count is 10 forms. This means that a filer with more than 10 forms must be electronically filed.
5. Maintain Good Record-Keeping
Accurate record-keeping is an important part of owning a business. Staying on top of records can help make tax filings run quickly and easily.
Businesses should keep accurate records of all payments made during the tax year. This information should include the data, amount, purpose, and recipient for all payments made.
6. Know Your Deadlines
Meeting IRS deadlines is essential to avoid penalties. The deadlines for Form 1099-MISC are as follows:
- Furnish Recipient Copies – January 31st
- Submit a Paper Filing – February 28th
- Submit an Electronic Filing – March 31st
7. Seek Professional Advice
Tax laws and regulations can be complex and are constantly evolving. Hiring a tax professional, especially if your business has unique circumstances, can save you a lot of time and prevent costly mistakes.
Remember, accurate and timely 1099-MISC filing doesn’t have to be a daunting task. By keeping up-to-date with the IRS’s evolving requirements, leveraging modern automation, and seeking professional guidance, you can turn this necessary task into a routine, manageable part of running your successful business.
