Failure To File 1099s Can Be Expensive
When a business pays $600 or more to a service provider who is not an employee, it must generally report those payments to the IRS and to the service provider on Form 1099. This includes payments to sole proprietorships, partnerships, and limited liability companies. It generally does not apply to payments made to corporations.
For every Form 1099 you overlook, the IRS can impose a $50 penalty. If you intentionally ignore the rules, the penalty increases to $100 per form.
Even worse, as a recent court decision illustrates, you can be held liable for backup income tax withholding equal to 31% of the payment amount if you fail to obtain a tax identification number from the service provider. Form 1099 cannot be properly completed without this number.
If you failed to file the required Form 1099s last year, you can reduce the potential penalty by filing them before August 1, 2001. Call us for details about complying with this reporting requirement so you can avoid unnecessary penalties being imposed upon your business.
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© Copyright 2001 Raymond S. Kulzick. All rights reserved. 010703.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.