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Filing information returns? Avoid IRS penalties

by on
in Employment Law,Human Resources

If your business pays nonemployees for services, you have only until Jan. 31 to give copies of Form 1099 to recipients of certain payments. That includes independent-contractor compensation, dividends, interest, real estate transactions, attorney fees and retirement plan distributions.

The IRS must receive its copies by the end of February.

Tax trap: The IRS holds you responsible for providing the correct Social Security number, address, name and amount on the form. Even if the recipient has given you the wrong information, you’re still responsible.

The penalties:

  • $15 per information return if you correctly file within 30 days (by March 30 if the due date is Feb. 28), up to a maximum $25,000 per year ($75,000 for larger businesses).
  • $30 per return if you correctly file more than 30 days after the due date but by Aug. 1, for a maximum penalty of $50,000 per year ($150,000 for larger businesses).
  • $50 per return if you file after Aug. 1 or you don’t file required information returns, for a maximum penalty of $100,000 per year ($250,000 for larger businesses).

Here are some of the most common types of Form 1099 payments and the forms you may need to file:

  • File Form 1099-MISC if you used the services of someone and paid that person more than $600 during the year.
  • File Form 1099-INT if you paid more than $600 interest on an installment note that you issued to buy a business or a business asset.
  • File Form 8300 within 15 days of the transaction if you received more than $10,000 cash in one transaction. Also, send a copy of the form to the other party by Jan. 31.

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