Tis the Season for 1099’s. Should you file a 1099 for your vendors?


January 25, 2020

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In this day and age… the answer is often NO.

Does that surprise you?

Most of us have been trained to issue a 1099 to every vendor if they’re over that magic $600 limit. We’re even led to believe that if we’re not sure, issue one anyways, just in case!

But issuing a 1099 when it is not indicated can actually cause more harm than good. Here are two cases when you should not file a 1099 – even for an amount over $600. And in fact, these two cases very likely apply to most of your transactions with your vendors. You might need to file exactly zero 1099’s this year. I know, sounds too good to be true right? Here’s the scoop…

1. If you’re paying your vendor by debit card, ACH transfer, credit card, PayPal, or similar payment systems, then you should NOT file a 1099, ever. You see, back in 2011 a new tax law was passed which requires certain payment processors like PayPal, Stripe, etc to issue a 1099-K for their customers (the vendors receiving the funds). And thus, if you have been paying your vendors via credit card, and NOT by cash or check, then you should NEVER issue a 1099. Even if you paid $10k to that vendor, you still don’t issue that form! If you do, then the IRS would get two separate 1099’s (one from you and one from the payment processor), and thinks your vendor got paid double what they were really paid. And as you can imagine, that causes a huge headache for your vendor. Not a nice thing to do!

2. If your vendor is a corporation or an LLC filing as a corporation, then you never need to issue a 1099 to them, except in very rare cases. There is no particular harm in filing a 1099 to a corporation (unless you’re double-filing as referenced above). However, if an error is made on the 1099, it presents an issue with re-filing corrections – more work for you and for them. Even if the 1099 is correct, it still places an additional burden on the corporation’s efforts to keep records and file taxes because, well, extra paperwork.

By the way, JT Website Design, Inc. is a California Corporation, and you can verify that with the Secretary of State website.

Eric Nisall has some interesting opinions about 1099’s, and it’s worth a read if you’d like to know more.

Of course, I am not an accountant, and the above information is not intended to provide you with official tax advice. Please do your own research and double check with the IRS to verify. (Here’s a link direct to the 1099 instructions. Notice in particular page 2 “Exemptions” and “Form 1099-K”)

Once you check the facts for yourself, you might actually determine that you never have to file a 1099 again. Wouldn’t that be wonderful?!

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