Today TaxMama hears from Carol in the TaxQuips Forum who wants to know, “Are there consequences to issuing 1099-Ms to contractors in October instead of the last of February?”
What is a 1099-M? Do you mean a 1099-MISC?
And what do mean about the consequences? To whom? To the company issuing the 1099-MISC’s? Or to the contractor who receives them?
Consequences to the company who issues a late 1099-MISC:
From IRS – Perhaps a $50 fine for each late 1099-MISC. Perhaps not.
From the recipients – intense anger, nasty phone calls, sometimes violence.
Perhaps that contractor will never be willing to work for the company again.
Consequences to the contractor receiving a 1099-MISC in October:
If they have reported the income – nothing.
If they did not plan to report the income, but have not yet filed their tax return – they will have a balance due they didn’t plan to have. They will be angry.
If they have filed their tax return already without including the income, they will have a nasty shock. They are going to owe much more money, with potential penalties, depending on the amount of the additional income plus interest.
a) They will have to file an amended return, and have to find some way to come up with the additional taxes and interest.
b) If they do nothing, they will get a CP-2000 notice from IRS for the additional assessment – with the new balance due.
c) Worst of all, if it’s a significant amount, they might get audited.
Naturally, a company who paid contractors and freelancers needs to report all those payments of $600 or more – or they will lose their right to the deductions. However, the best way to handle 1099-MISC reporting is to make it clear to all vendors that the 1099s will be issued. Your vendors will price their jobs with the taxes in mind (which they should anyway) – and there will be less fury and violence than if they get nasty surprises and audits later.
And remember, you can find answers to all kinds of questions about 1099s and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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