Streamline Your Finances with a 1099 Invoice Template for NPOs

1099 invoice template for NPOs

Hey guys, Toby Mathis here. And today we're going to talk about 1099s, what they are, who has to send them? What are the nasty penalties if you don't? But what are the good, the bad? And the ugly of 1099? So we're going to dove right on it. Number one, businesses send out 1099s. Individuals don't view this individual and, you know, you go through about your life, don't have to worry about this so much. If you are an investor or your business, then you absolutely have to worry about 1099 and they come in different flavors. You might have a 1099 NEC, which is not employee compensation. That's the vast majority of the 1099 for a business. But you might also have a 1099 I.R.A., which means you paid somebody's interest in four interests. It's an amount over $10. If it's non employee compensation, it's four amounts over $600. So just kind of throw those two things out at you. Let's back up though for a second. What is it, 1099. Why do we even have them? It lets the IRS know who should be responsible for paying taxes on income. In other words, if I receive $1,000 and I pay somebody else $700, the IRS needs to be able to see that and see who's ultimately responsible and make sure that they're reporting that income. So a 1099 is an informational return. So, for example, as a business, I may be receiving money as all the time from third parties. If I am receiving that, they May 1099 letting the IRS know because they might be a business too and they might be 1099 in me to report that income. So I see it. So for example, if you're a gig worker, you're probably getting 1099 if you're using using things like PayPal and getting payments online, there's a whole bunch of them. There's Venmo, PayPal or, you know, some of those or credit card processing. They're going to 1099 you if you use something like Zelle and know because I speak to banks they're not new. But if you're receiving payments on through like a PayPal, that's the beautiful part. PayPal is going to 1099, the party that you paid out, they're going to make sure that that that they're issuing that out. If you're using that PayPal on on a business account for transactions marked business they're going to be the ones issuing out the 1099 to make your life a little bit easier. But if you are going out there and you are paying, let's just pretend that you're just paying a bunch of contractors. We're just going to call the contractors to make it really simple. But you're paying other parties or I'm paying LLC. I'm paying sole proprietors. I'm paying anybody that's that. And I'm paying them more than $600 for non employee compensation, which they're coming out to one of my properties and they do $2,000 work. I'm probably going to have to turn 99. The only time I don't is if they are an escort or a C Corp or an LLC taxed as an escort or a C Corp. So here's our first major point. 1099 Make sure that you are getting something called a W-9. I'm going to flash it up on screen here so you can actually see it. A W-9 is actually very, very simple. You can see it. This is the totality of it. They're signing off. Here's my tax identification number. If it's a business, here's how I'm taxed. And if they go up here in their either category here or C or S Corp or an LLC and it says S or C down here, hopefully you can see my little cursor there. You don't have to. 1090 9 a.m. you to be paying those folks thousands of dollars. You don't have to check 99 them. But if they fall in the individual or sole proprietor partnership, trust or estate, or if they're a limited liability company and you see partnership or the other ones, if it's disregarded, which would be up above, but if you keep there, you're going to end up 1090 9 a.m. And if you're in doubt 1099 it out, just make sure you're reporting it. Because all that happens is you're saying, Hey, I may have received this money, but I'm not the one who who's ultimately responsible for the taxes on it. So let me go through this again. I'm going to I'm going to k through 12. It, I guess, is how you got businesses are required to issue 10/99 to any taxpayer other than a corporation or an LLC taxed as a corporation who has received at least $600 of non employment income during the tax year, which you don't have to give ten and United's to your employees because your W-2 income, you're already reporting it to them. For example, a taxpayer might receive a 1099 form if they received it, I would. I'm going to receive it from the party that paid me. If I received dividends or cash payments made to an investor, things like that. If I if I have property managers, probably going to receive a 1099, right? Because they're going to say, hey, even though they received the money from the tenants who they ended up paying it to, you're doing this even if you have a management entity that receiving all of your rents on behalf of us. So you had an LLC and you're collecting it through your own property management company. You're issuing out 1099 to all of those LLC. You want to make sure that we're reporting it in the right place because that's a different taxpayer. It's going to end up on a different tax return. So let's talk about the exceptions. When you not have to do 1099 in there. I just we already talked about the corporation as some C or an LLC taxed as an asterisk. So the rule of thumb is before you write somebody a check that's going to be more than 600 bucks, or if you're going to continuously be paying them in amount over the year, it's business. You want to be able to write this off, right? Make sure you get that W-9 because it forces them to tell you exactly how they are taxed. It keeps you out of trouble. So you do not have to file a 1099 if you are paying a C Corp or an escort or an LLC tax, does a C Corp or S corp, there's a couple of little situations where that's not the case. That's if it's medical or health care or even attorney services. And when I say attorney services, I mean like legal services. You're paying somebody by the hour or you paying a firm. It's those are those are the kind of the exceptions to that one rule. If you are paying for physical goods, not services, you do not have to issue a 1099. That was a huge issue because Congress originally said you had to and then they had enough uproar. People saying, are you kidding me? I'm not going to send a 1099 to Home Depot. You crazy's right. So it's only for services. It is not for goods. If you run across people that you're paying and they're an LLC and they say, Hey, don't worry, I'm an LLC, you don't have to give me a 1099, make sure you get that. W-9 I'm just going to say that because I've seen it blow back on folks. You have two types of penalties that could come up. Number one is if you are late, hey, I don't issue a 1099. You got to do this by January 31st. So what you do is you look at your books, you talk to your bookkeepers. Is there anybody that I paid more than $600 to? Do I have a W9? Are they in S or C Corp? Does it follow in one of those categories of health care law? I want to issue them a 1099. That's what you looking for if you do not and you say that you missed the deadline, it's January 31st, you're like, Oh, nuts, I should have done this and I forgot to. If you're within 30 days, it's a $50 penalty. If you do it within February 1st to August 1st, it's 130 or $110 penalty for four for 2022. If you just don't do it ever, you could be looking at an intentional disregard penalty of up to $570. If you do it, if you just forget to file and you have reasonable oops, you know, you just didn't know or you just forgot. It was just it was oversight. And you have reasonable cause, which is most people it's going to be $280 if they catch it and they say, you know, hey, if you went through an audit, very unlikely that you're ever going to go through that. But why tempt fate? Just issue the 1099. So they're fairly easy to do. They're just a little form. You send a man out by to that party that you paid the money to like, if in doubt, send it out. That doesn't hurt anybody. Just like if you were doing a gig work and you made two or 3000 bucks on the side, you would expect to get some sort of tax documents saying, here's how much they paid you. Right? And then that's what you're including on your tax return. So if you're a self-employed or out there, for example, or you're out there running in a partnership and you're doing some business on the side, you're not an escort, you would expect to see a 1099 if you are an escort, which you probably should be if you're doing a gig, work it depending on how much you're making. You want to make sure you're doing that. W-9 And giving them that W-9 so that they don't give you the 1099. You still report it. But even if you were the S corp and they gave you the 1099, you don't care because you're reporting it anyway. So rule of thumb here, remember, we're going to keep going through this, your business. You're paying somebody over 600 bucks, make sure that you're getting that W-9 and and you're giving them a 1099 before you write a check to anybody. If you expect that the amount that you're going to pay them over the years is going to be over 600 bucks. Make sure you're getting that W-9 before you write the check. It's sometimes tough to get them to to react and to respond to you if it's after the fact. Here's another little thing. If you have a corporation with an off year end, maybe it has a year end that September or maybe have a year end. That's March or June. 1099 are on a calendar calendar system. So it's doesn't matter. You are filing your 1099 by January 31st and for the for the year that ends December 31st. It doesn't matter what your fiscal year end of your company is. Everybody's doing 1099 at the same time. Now there are 1099 that do not have that $600 limit. And the two big ones are retirement distributions. So if you get a 1099 are from your family, an IRA. If you took out money early or if you were paying if you paid interest, you would turn 99. If you paid interest, you'd receive the 1099. If somebody was paying you interest you 1099 them. If it was over $10. Last thing is, realistically, if you get into a snafu with somebody and let's say you don't have a W-9 and you're like, I really ought to file that. 1099 I would say, you know, you're probably better off not because you could have withholding depending on how much it is. So here's what I have seen. I've seen people issue 1099 without the Social Security number on it, and then they treat it as though you were required to do withholding on an employee. And the IRS takes a position that you all if it was 28% withholding so you're better off not doing it. So if you paid somebody and you know that they're a contractor and you did get that W-9, that the intentional disregard is actually a lesser amount than the withholding. And if you just didn't do it, hopefully never, you never you never have to deal with it anyway. So always get that. 1099 Always make sure that anybody you're paying over 600 bucks, make sure that you file the 1099 any fee. Non employee compensation is January 31st. There is a 1099 miscellaneous for like prize money or some off items. It's kind of a catchall and that one's actually March 31st. So it's a little bit different. Remember that if you're paying a corporation via credit card or whatnot, the merchant company is going to be sending them the 1099. You don't have to. So that's another good reason to use credit cards. But if you're paying somebody checks, cash or whatever, make sure you're 1099 and but if you paid them via credit card, the credit card company is going to issue the 1099. Then also the same rule applies to Venmo and PayPal. They generally issue a 1099 card to the business accounts for for the transactions that are marked at business. So it's going to be reported to the IRS, which alleviates the responsibility of you having to do it. So again, it's almost like they're pushing us away from writing checks, right? Because you have a little more compliance with the check. It's almost like they want us to use the credit cards, the evil master cards and pieces of the world, the paper house and the venmo's. But that's one of the benefits, is that because you're using one of those platforms, it takes a little bit of the risk of you, right? That is it. 1099 So it's an informational reporting return that businesses file for non employee compensation paid to third parties. It's basically saying, hey, money was paid out here and it's taxed over there. It's letting the IRS know where to look. For the most part, you're looking at a January 31st deadline. So for the 1099, any see that's the deadline for everything else. I would still get it to the recipient by January 31st. You might have a later deadline before you are late, but make sure that you're actually getting it out. I would just say January 31st is your date. Get your 1090 nines out, make it simple, make it easy. And remember, the rule of thumb is before you write a check, get that W-9 to make sure that you know exactly whether you should be issuing that 1099 or not.