Certain kinds of business payments trigger the need for what are called “information returns.” Just what are they and what are your responsibilities? Check out the list of the kinds of transactions you have to report.
If you engaged in certain financial transactions during the calendar year as a small business or self-employed (individual), you are most likely required to file an information return to the IRS. Below are some of the transactions that you have to report.
- Services performed by independent contractors — those not employed by your business.
- Prizes and awards, as well as certain other payments — termed other income.
- Backup withholding or federal income tax withheld.
- Payments to physicians, physicians’ corporation or other suppliers of health and medical services.
- Substitute dividends or tax-exempt interest payments, and you are a broker.
- Crop insurance proceeds.
- Gross proceeds of $600 or more paid to an attorney.
- Interest on a business debt to someone (excluding interest on an obligation issued by an individual.
- Dividends and other distributions to a company shareholder.
- Distribution from a retirement or profit plan, or from an IRA or insurance contract.
- Payments to merchants or other entities in settlement of reportable payable transactions – any payment card or third-party network transaction.
Being in receipt of a payment may also require you to file an information return. Some examples include:
- Payment of mortgage interest (including points) or reimbursements of overpaid interest from individuals.
- Sale or exchange of real estate.
- You are a broker and you sold a covered security belonging to your customer.
- You are an issuer of a security taking a specified corporate action that affects the cost basis of the securities held by others.
- You released someone from paying a debt secured by property, or someone abandoned property that was subject to the debt or otherwise forgave their debt to you (1099-C).
- You made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than in a permanent retail establishment.
Keep in mind that information is for businesses. You will not have to file an information return if you are not engaged in a trade or business. You also will not have to file an information return if you are engaged in a trade or business and 1) the payment was made to another business that’s incorporated, but wasn’t for medical or legal services or 2) the sum of all payments made to the person or unincorporated business was less than $600 in one tax year.
This is just an introduction to a complicated topic, and the mechanics of filing such a return are filled with essential details. If you’re running a business, even a small one, be sure to discuss the details with a qualified professional.
Find out why small businesses and individuals in the Elkhart area trust Phillips & Company for tax services. Request a consultation online now or call us at 574-294-4685 to learn more.