If you have a small business or are self-employed, and have engaged in certain financial transactions during the calendar year, you are most likely required to file an information return to the IRS. Below are some of the transactions that you are required to report.
- Services performed by independent contractors, meaning those that are not employed by your business
- Prizes and awards including certain other payments that are termed other income
- Backup withholding or federal income tax withheld
- Payments to physicians, physicians’ corporation or other suppliers of health and medical services
- Substitute dividends or tax-exempt interest payments, and you are a broker
- Crop insurance proceeds
- Gross proceeds of $600 or more paid to an attorney
- Interest on a business debt to someone, excluding interest on an obligation issued by an individual
- Dividends and other distributions to a company shareholder
- Distribution from a retirement or profit plan, or from an IRA or insurance contract
- Payments to merchants or other entities in settlement of reportable payable transactions, which could be any payment card or third-party network transaction
Being in receipt of a payment may also require you to file an information return. Examples of these situations include:
- Payment of mortgage interest (including points) or reimbursements of overpaid interest from individuals
- Sale or exchange of real estate
- You are a broker and you sold a covered security belonging to your customer
- You are an issuer of a security taking a specified corporate action that affects the cost basis of the securities held by others
- You released someone from paying a debt secured by property, or someone abandoned property that was subject to the debt or otherwise forgave their debt to you (1099-C)
- You made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than in a permanent retail establishment
Please remember this information is for businesses, and you will not need to file an information return if you are not engaged in a trade or business. You also will not have to file an information return if you are engaged in a trade or business and 1) the payment was made to another business that’s incorporated, but wasn’t for medical or legal services or 2) the sum of all payments made to the person or unincorporated business was less than $600 in one tax year.
This is just an introduction to a very complicated topic, and the mechanics of filing such a return are filled with essential details. If you are running a business, even a small one, and wish to discuss this topic in more detail, please reach out to one of our executive team members.