Accounting is often confusing. Trying to understand sales tax, and making sure employees and independent contractors are paid correctly can get confusing fast.
Yet, when preparing for year-end tax items and tax season every January, fitness business owners around the country are scrambling to understand what the requirements are behind the 1099-MISC form and what they have to do.
To help make things easier for you, I have broken down the basics behind the 1099-MISC form.
Who do I need to send a 1099-MISC to? Any individual, company, contractor, vendor, etc. that you paid $600 or more to throughout the year in your business. This can include payments for rent, services, prizes, legal, etc. Any personal payments you made are not reportable.
Are there any exceptions? Yes, there are some instances in which you paid a person or company $600 or more but you do not have to issue them a 1099-MISC and those are:
- Payments to C or S Corporations
- Payments for merchandise, freight or storage
- Payments of rent to real estate agents or property managers. Note: If you paid rent directly to the property owner, then it would still be required unless another exception was met.
- Payments made via credit/debit card or PayPal
- Payments made to employees (These would be reported on a W2 instead.)
Note: The C or S Corporation exception does not apply for payments to attorneys.
How do I get the payee information? You might be getting ready to start filling out a 1099 and wondering where you find the required information from your payees. The IRS has a Form W-9 that you can request your payee to fill out. This will be extremely useful for you because it will provide you with the legal name, address, EIN/SSN and indication if they meet the C or S Corporation exception. You can download a copy of the W-9 form here.
When to file? You must have your 1099s mailed or given to your recipients and submitted to the IRS by Jan. 31.
What if I don't file? You can be hit with a per form penalty depending on how long past the deadline you are. If you intentionally do not file, the penalty can be much higher.
Tips Moving Forward
If after reading this you are starting to scramble contacting all of your previous year vendors asking for a W9, you are not alone. However, take this as a lesson so that you can be better prepared for this time next year. Here is a quick hit list to help relieve some stress next January:
- Have a solid bookkeeping system. Make sure your books are in good order. This can be helpful in determining who might be eligible for a 1099 when January comes around.
- Always collect a W-9 up front. Do not wait until you hit $600 or next January to request a W-9 from your contractors/vendors. Ask them for this up front when your relationship first begins.
Mike Jesowshek, CPA, is the founder of the accounting firm JETRO and Associates. His team at Jetro and Associates is also the official accounting firm for the Association of Fitness Studios (AFS). He has a strong passion for both fitness professionals and technology. He helps provide a digital accounting, bookkeeping, and tax solution for studio and gym owners who are looking to take it to the next level by utilizing modern, cutting edge technology. You can reach him at MJesowshek@jetrotax.com or 844-327-9272.