As you probably know, the IRS has a form for just about everything. Some forms are known as informational, and the 1099-MISC form is one of them.
The IRS is the ultimate form of big brother when it comes to the government. A lot of money moves about the US economy and the IRS needs to track it. When it comes to business transactions, specifically revenues and earnings, the 1099-MISC form is one way it accomplishes this.
In general terms, the 1099-MISC form is known as the independent contractor form. The form is essentially where you report what you paid to any independent contractors during the tax year in question. If you are preparing your taxes for the 2006 year, you would total up everything you paid to various independent contractors and file a single form for each one of them. You also send a copy out to the independent contractor so they can see it and know the IRS knows about the payments. In general, you must file the form for any contractor you paid more than $600 total during the tax year in question.
So, what exactly does “independent contractor" mean? Well, we are talking about the IRS and taxes, so common sense is out the window. An independent contractor as defined by the form is a very broad definition. It can include basic things like paying someone to design a website for you, water the plants at your business and so on. It also covers a wide variety of other people you probably would not think of as independent contractors including any payments made for legal fees to an attorney regardless of the amount, rents of more than $6,000, payments to a physician of more than $600 and so on.
Frankly, the 1099-MISC filing requirements can get very bizarre. For instance, you are also supposed to issue the form if you pay more than $600 to buy fish for the purpose of reselling it. You only have to do this if you pay cash for the fish. Pay with a credit card, and it is no problem. Strange indeed, eh? If you actually pay a crew of a fishing boat, you have to issue the form regardless of the amount and regardless of whether you paid in cash or not! Obviously, the IRS has a thing for the fishing industry.
Given the wide scope of the form, what happens if you do not file a form? Not much. If the IRS tracks you down, you get a fined under a hundred bucks for each one you failed to issue. It can add up, but you should not panic if you are not sure you issued all the necessary forms.
If you need to issue 1099-Misc informational returns, the deadlines can come quickly. You must send the form out to the “independent contractor" by January 31st and then file it with the IRS by February 28th.
Richard A. Chapo is with BusinessTaxRecovery.com - providing loads of tax articles .