Paying out 1099s-misc on 1065: Where to report?

[mvp2885]

Where do I include 1099s that partner gave to contractors on form 1065? 

[qbteachmt · Accepted solution]

Let me help you by breaking this part out and restating it in perspective:

"So if a LLC pays 3 1099s to contractors"

When you Hire to do something for your business and this someone is not working for their business entity as a Corporate structure (in most cases)...

"(legal, bathroom fixture, and electrical work),"

and they are providing a service or other cost to you that falls under 1099-Misc reporting, but the Fixtures would not be reported unless they are included in the charges as part of the service provided, even though all of this is your Expense or your Improvement expenditure...

"the business can't take a deduction?"

You can deduct reasonable and ordinary expenses, such as legal fees. You can track basis for improvements.

You are subject to Fines if you didn't comply with the requirement, if your activity falls under the Informational reporting requirements, meant to give clarity to the IRS that you paid people that should themselves be filing income tax returns, and the copy you send to the providers warns them they have also been reported to the IRS.

When I teach, I use the word "discoverable." As in, do Not try to deduct something that doesn't meet the requirements for being deductible, and then expect to include it where it can be found. Or, follow the regulations.

In this topic, you stated this: "Where do I include 1099s that partner gave to contractors"

Gave To Them, and also Filed with the IRS using 1096 cover sheet = of course you can include it in the financials.

"If a business can take a deduction, where on the 1065 would you report that?"

No differently than any other payment for that same type of cost.

Example:

You paid a plumber to repair something and it involved a new faucet. The payment to an Incorporated Plumber or an independent Plumber are tracked the exact same = for what they did and what you benefited.

The Informational reporting requirement means you would not send a 1099-Misc to a Corporation for that plumbing service. You would send it to the independent Plumber. The informational requirement doesn't change Financial tracking of it.

You paid for plumbing, and you got plumbing.

[mvp2885]

Thank you for the detailed explanation. I do understand individuals incorporated do not get 1099s. From my previous example, if that was a landscaping company and they hired an unincorporated person who happens to have specialized equipment to do a certain job for one of their clients, and they give them a 1099, Line 20 "other deductions" would be the appropriate place to report that deduction? I am using proseries. Thank you again for the detailed explanation.

[Just-Lisa-Now-]

Yes, you could put that in other deductions
Landscaping  $XXXX

[George4Tacks]

In the category for which the expense occurred. Attorney = legal expense, etc. 

[mvp2885]

Line 20, Other deductions? Where you can add expenses? On schedule B, it asked if the company was required to issue 1099s, I said yes, then it asks if they filed them, well they didn't (they had a different tax preparer), so I click no. So I'm just wondering regardless of what I answer on Schedule B, I report them on Line 20 of 1065?

[George4Tacks]

I would definitely confirm Yes or No as to the actual filing of the 1099's. Penalties can be significant. You did say "1099s that partner GAVE..."
Line 20 tells me you really don't know any specifics of the 1099's, so throw into "other".

[mvp2885]

Thanks!

[qbteachmt]

You don't "report" the 1099-Misc amounts separately; that is part of the financial data for whatever was the expense or reason those costs were incurred. It might be Expense for services or expenditure for assets improved by that service. It might be legal fees or engineering, for instance. Yes = subject To the use of the form based on the requirements for using that form. "Filed" or not means, did they get issued to the people and sent to the Feds with a 1096, or not? There is no Additional Deduction. The financial info is what it is, and is not affected by the fact that it also required issuing a 1099-Misc because of the nature of that spending.

[mvp2885]

So if a LLC pays 3 1099s to contractors (legal, bathroom fixture, and electrical work), the business can't take a deduction? I'm not sure if I am understanding that correctly. If a business can take a deduction, where on the 1065 would you report that?

[dd4vols]

the LLC needs to get competent tax help, it appears!

[qbteachmt]

For this: "and they give them a 1099, Line 20 "other deductions" would be the appropriate place to report that deduction?"

Not necessarily. You are still confusing Who I hired with Where to report it. They are two different requirements that you will need to evaluate.

Tracking = What you hired someone to do is reported for what it is: They do repairs or maintenance or improved your asset.

Reporting via 1099-Misc = Whether the name (not a corporate entity) falls under the reporting requirements; and, whether the reason (a cost of a service and not for products, but not from a medical provider, and whatever else is in the 1099-Misc regulations) falls in the reporting requirements for a name that also is reportable. This part is not your Business Expense or Asset Improvement or Banking. It is Reporting.

Let me try one more thing: For everyone you Pay, you put a gold star on their forehead = the Reason you paid them is flagged and tracked. But, some of these people are Subject to 1099-Misc reporting. That is not "how I paid" but "that I hired this type of entity for that type of thing." It is Informational. Not Financial. Not everyone with a gold star also gets a 1099-Misc.

If you hire a landscaper or janitor, and that is tracked as Other Expense, than all of that is Other no matter who you hired; it doesn't matter that there also is a 1099-Misc or not.

The 1099-Misc doesn't change what you paid for.

[qbteachmt]

I though of another example, while helping a client yesterday. I described here "Improving an asset," which increases Basis. This is not an "Other" deduction.

Example:

You hire two plumbers to work on your new office building. Only one of them is subject to 1099-Misc reporting. This is called Informational, because it doesn't affect how you track that spending or how you report that expenditure for tax purposes. It simply is a means of Informing the IRS and the plumber regarding the amount you paid them, which the IRS requires this Information be reported on that 1099-Misc form. It makes it known to the IRS that the independent plumber should be filing an income tax return, as that person was earning income from taking on work like your project.

[mvp2885]

Thanks again for the detailed explanations! 🙂