Every contractor you pay more than $600 to over the course of the year requires a 1099 form, if that contractor is an individual person and not a corporation. 1099-misc forms are also needed for royalty payments of at least $10 and consumer goods sales of over $5,000 to any particular person, not business, for the intent of resale. So what are some top line things you should keep in mind about a 1099 form?
1099 forms are for contractors. While this status can be beneficial due to fewer company paid taxes, it should only be used when it truly applies to avoid IRS penalties (http://www.cfo.com/article.cfm/9140439?f=search
). Create a company policy that will let your managers know just when to fill out a 1099 versus a W2. Here are some of the qualifications the IRS uses to determine worker status (http://www.topechelon.com/recruiters/contracting/definiti.htm
If you uncover a case of fraud in the company, file a 1099. Criminal proceedings may not get your money back, but letting the IRS know about your employee’s undocumented earnings can get you a tax write-off and potentially a finder’s fee (http://www.cfo.com/blogs/index.cfm/detail/4100859?f=search
Hiring a contractor and filing a 1099 is a great way to get temporary help without the hassle of hiring a permanent employee. It can also be a valuable way to fight back against company fraud. Just be sure the 1099 forms are carefully filed in order to keep your company in the IRS’s good graces.