Little Small business Tax Hints - I Forgot to Send Out 1099's by January 31 - What Do I Do Now?

Are you a little business owner who hires independent contractors? If so, you might be necessary by the IRS to send out a Form 1099-MISC to those men and women. This post will allow you to determine your obligation to issue those 1099's.

The simple rule works like this: Form 1099-MISC is employed to report total annual payments produced to self-employed individuals who produced at the very least $600 during the previous calendar year. This 1099 need to be given or mailed to the contractor by January 31 of the following year.

Note: For calendar year 2008, considering that January 31, 2009 is a Saturday, the deadline has been extended to the next company day (Monday, Feb. 2, 2009).

The key here is regardless of whether or not the individual who worked for you is self-employed. Clearly, this excludes employees. If you have employees, you give them a Form W-2 by January 31 (or Feb. 2) to report their compensation (wages, salaries, bonuses, and withholdings). And this also indicates you do not need to send out a 1099-MISC to corporations who provided services to your enterprise.

The purpose of the 1099-MISC is similar to that of the W-2, but the objective here would be to report income created by non-employees, not employees. And this is why the annual total income of self-employed contractors is reported in Box 7 of the 1099, "Nonemployee compensation."

In other words, the IRS is expecting you to provide a approach to assist them track the income of the self-employed. Does all income earned by sole proprietors get reported on 1099's? Naturally not. Who knows just how much is unreported. And self-employed men and women know that if they don't get a 1099, it is tough and nearly impossible for the IRS to figure out how much income a specific self-employed person created. And so lots of self-employed persons take advantage of this situation and only report income if they get a 1099.

And so there are lots of self-employed individuals who make plenty of income but obtain no 1099's, and report no income, even though the law says they're supposed to report the income no matter if or not they receive a 1099.

But back to you, the organization that paid the income to the contractor. Do you really would like to be part of the underground economy? In the event you take a deduction for payments to independent contractors but do not issue the corresponding 1099's, and you get audited, you're asking for trouble. Do not go there. Do the best thing and concern the 1099's.

What if the January 31 (or February 2) deadline has already passed? Go ahead and problem the 1099's anyway. Give the contractor a call correct away and tell him you're sending him a 1099 as soon as possible. Why not do the best thing?

For details on how to comply with the 1099 reporting rules, download the Form 1099 instructions from the IRS internet site or consult along with your tax expert. You'll would like to send Form 1099-MISC Copy B to the self-employed individual right away and Form 1099-MISC Copy A, together with Form 1096, to the IRS by March 2, 2009.