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Penalties Companies Face for Not Filing or Late Filing 1099s

Video by The Resourceful CEO provides details on what leads to penalties related to 1099s including penalties for not filing, late filing and filing incorrect 1099s. Includes background and due dates.

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Penalties Companies Face for Not Filing or Late Filing 1099s

  1. 1. IRS Company Penalties for Not Filing 1099s The Resourceful CEOTM: 1099 Video Series
  2. 2. Introduction  Companies must file 1099s by deadlines.  Penalties for nonfiling or late filings can be harsh.   Harsher for deliberate nonfiling. Harsher for larger corporations than small businesses.   However, due to size, penalties have high impact on small companies. Best way to avoid penalties? File correct Form1099s by due dates.
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  4. 4. Filing Dates  Companies must mail out nearly all 1099s by January 31.     Includes Form 1099-MISC. Lone exception: Form 1099-C. Mailing date for this form: February 15. Companies must file 1099s with the IRS:   By February 28 if filing by paper. By March 31 if e-filing.
  5. 5. Errors / Omissions That Lead to Penalties  The IRS levies penalties for various 1099 infractions:       Late filing Failure to include required information Providing incorrect information Neglecting to report a TIN Filing an incorrect TIN Paper forms not machine readable
  6. 6. Penalty - Amounts IRS penalty assessment amount based on filing date of correct 1099. File within 30 days of due date: Penalty is $30 per incorrect / missing 1099. Maximum penalty for small businesses - $75,000 per year. File after 30 days but by August 1: Penalty is $60 per incorrect / missing 1099. Maximum penalty for small businesses - $200,000 per year. File after August 1 or never file: • Penalty is $100 per incorrect / missing1099. • Maximum penalty for small businesses - $500,000 per year.
  7. 7. Classification and Minor Errors  IRS small business classification:   Business generated <=$5 million in average annual sales over the prior three tax years. In general, the IRS can process minor errors and omissions.   Minor errors and omissions do not count as a failure. IRS perspective: If your business operates responsibly and acts to comply, your firm can claim it acted in good faith. Avoid penalties.
  8. 8. Exception to Failure to File Penalties  Don’t sweat it! You still have options! Cannot demonstrate reasonable cause?  IRS may exempt the greater of ten 1099s or 1/2 percent of the total 1099s you must file.   Must have filed the 1099s but omitted all the required information or had incorrect information. Must file corrections by August 1.
  9. 9. Unintentional Mistake Treatment/Example Unintentional Mistakes  No penalty if you demonstrate that error or omission was due to a reasonable cause, not intentional neglect.  Simple forgetfulness - not a good reason.   Must show omission was due to unforeseen events / mitigating factors. Must provide an explanation or supporting documentation. Example  When you realize you forgot a 1099, send it ASAP.    If missed paper filing deadline, file electronically. You mistakenly thought a company was a corporation and therefore not 1099 eligible. Document this reason. You thought you paid a contractor $500 but paid $700, document this.
  10. 10. References For more information and additional videos, visit Cash for Impact:  IRS: General Instructions for Certain Information Returns []