If you make or receive payments in your business, you may have to report them to the IRS on information returns. The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. You must give a copy of each information return you are required to file to the recipient or payer. In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions.
Form 1099-MISC. Use this form to report certain payments you make in your trade or business. These payments include the following items.
- Rent payments of $600 or more, other than rents paid to real estate agents.
- Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows.
- Payments to certain crew members by operators of fishing boats.
You can also use 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment.
Form 1099-NEC. Use this form to report certain payments you make in your trade or business. These payments are for Non-Employee Compensation.
- Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accounts, or directors.
Form W-2. You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes, and advance earned income payments.
Form 8300. You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. Cash includes U.S. and foreign coin and currency. It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. See Publication 1544 for more information.
Penalties
The law provides penalties for not filing returns or paying taxes as required. Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. If you do not file your tax return by the due date, the penalty is based on the tax not paid by the due date. If you do not pay your taxes by the date due, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. (The penalty not filing on time is a lot larger than the penalty for not paying on time, so be sure to file even if you can't afford to pay it all on time.)
If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. Depositing the taxes late can also subject you to a penalty.
A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information.
Waiver of penalty. These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. (To be considered de minimis, the number of returns cannot exceed the greater of 10 or - of 1% of the total number of returns you are required to file for the year.)
Failure to supply taxpayer identification number. If you do not include your SSN or EIN or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. The $50 penalty also applies if you do not give your number to another person when it is required on a return, statement, or other document.