It is now near the end of the year, hence each business needs to wrap up and prepare to submit several tax forms, of which the most common form is 1099-NEC to be issued to independent contractors.
If during the year, the total money your business paid to an independent contractor amounted to $600 or more, you will need to issue Form 1099-NEC to that independent contractor. This seems to be a simple task, but in practice there are many errors made by businesses. Followings are some practices that a business should take to avoid the errors:
– When you start doing business with a new independent contractor, ask them to send you Form W-9. This form must be sign and clearly show their name, address, tax ID (SSN or EIN).
– After the year-end, summarize all amounts paid to each independent contractor during the year. If the amount is $600 or more, you should prepare a Form 1099-NEC for each contractor.
– If you have several independent contractors, it is better to use a software or online solution, or use the service of a CPA firm. Nowadays several CPA firms can prepare and file form 1099-NEC at a reasonable price.
– All forms 1099-NEC must be filed with IRS by January 31 each year. A copy of the form also needs to be sent to the independent contractor by that date.
– If you file form 1099-NEC late (i.e. after the due date January 31), there are penalties as follows:
o $50 per each form 1099, if filed within 30 days of the due date.
o $110 per each form 1099, if filed by August 1.
o $280 per each form 1099, if filed after August 1.
– If you find errors or mistakes after filing a form 1099, you should prepare and submit a corrected form. The errors may happen to the independent contractor’s name, tax ID, amount, address, etc. For each type of errors, there are different instructions from IRS to correct the form. Again, it is better to contact a CPA firm in case you need to correct 1099.
CMCD LLC has prepared and filed hundreds of form 1099s every year for many years, so we have solid experience in this area. If you need our service, please contact us right now to better prepare for next year filing.