A client sent me this email recently: Will I need a 1099 FROM (emphasis added) a vendor I paid money to?
No. Your business doesn’t NEED 1099s from other vendors. It needs to send 1099s TO vendors (with some exceptions) that your business has paid $600 and over to.
There are exceptions. What kind of rule would that be without exceptions?
Did you pay under $600? No 1099.
Did you pay over $600 on a credit card? No 1099.
Did you pay a vendor with “Inc.” in its name? No 1099.
Did you pay over $600 not on a credit card to a person, e.g. Monique Lusse? Yes 1099.
Did you pay over $600 not on a credit card to a company name, e.g.: Equity By Design? No 1099.
1099s are the IRS’s way of keeping us all honest. A check made out to a person’s name is easy to hide from the IRS and they want to know about those. So if you made a check out to me, Monique Lusse, I could go to your bank and cash the check, not declare that income on my Schedule C and the IRS would be none the wiser. So that’s why you should send a 1099 to anyone you wrote a check or ACH transfer to. Now if you send me a check made out to my business, Equity By Design, I cannot go to your bank and cash it. That’s against banking rules. So the IRS is not so concerned that I’ll be able to “shelter” that income from them. That check has to be deposited to my business account, hence an audit trail, which the IRS loves.
Your business will receive 1099s from other businesses that you have done busines with over $600. You just need to archive them. That’s it. No other action needed.
The deadline for 2015 1099s to vendors was 1/31/16. The deadline to send the 1099 info to the IRS via snail mail was 2/29/16. You should still send them now if you need to. Exception: the deadline date to send to the IRS is coming up, 3/31/16, if you do so electronically. Another exception to keep us all on our toes! So you can still make it if you need to.
Have a question about this? Throw it up in the comments section and I’ll get you an answer!