Most of you who run small businesses know about 1099s. 1099s (specifically 1099-MISC) are issued for a variety of reasons, the best known being to report payments of over $600 to independent contractors for services, which is how I ended up spending a lot of time on the phone with the IRS -- the instructions are not clear for payments like software subscriptions that seem, to me, to fall somewhere between goods and services.
After repeated conversations with the IRS, it appears that whether or not software is customized for you determines whether it is a good or reportable service. (for example, Quickbooks is a good, a third party application that was written or modified *for you* to allow you to import transactions into Quickbooks is a service). In the same conversation, the IRS maintained that hosting and internet access are reportable services.
Here's more information on specific 1099-MISC reporting requirements. Need help? Mention this post to have up to 5 1099-MISCs prepared for only $25.
Disclaimer: These are the rules as I understand them. The IRS will probably agree, but since I don’t control them, I make no claim that they will in all cases.
You can view the IRS’s instructions at www.irs.gov/pub/irs-pdf/i1099msc.pdf. Please note that payments not reportable on form 1099-MISC may be reportable on other 1099 forms(for example, cancelled debt is reported on form 1099-C, or interest to investors reported on 1099-INT).
Also:
- Reporting is required only for payments made in the course of your trade or business (non-profit organizations a generally considered a business for this purpose).
- You generally don’t have to report payments to a corporation (unless they are business-related payments for medical or legal services, fish proceeds, or payments in lieu of dividends) or a tax-exempt organizations (including government entities).
- Payments for merchandise, telegrams, telephone, freight, storage and anything that meets the IRS’s definition of a “similar items” are also excluded.
- If you are based in California and have a 1099-MISC reporting requirement, you were probably also required to submit a DE-542 within 20 days of paying over $600 or entering into a contract to pay over $600. See http://www.edd.ca.gov/pdf_pub_ctr/de542.pdf
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