Do You Need to Issue a 1099 for Leased Business Equipment?
In addition to collecting tax returns and enforcing the income tax laws, the Internal Revenue Service also collects information returns, which are used to report an array of transactions and payments that you make in the course of your business. One of the most common information returns used is the 1099-MISC. The 1099-MISC reports all kinds of payments, one of which covers the payments you make to rent or lease equipment that’s used in your business.
Filing a 1099-MISC to report your lease payments to an equipment owner is only necessary when you use the equipment in your business. For example, suppose you lease a bulldozer to build a pool in the backyard of your home. Despite the fact that bulldozers are typically leased for business purposes, you won’t need to file a 1099-MISC. Moreover, it doesn’t matter whether the equipment owner is a business or private individual. The only relevant factor is whether you use the equipment for your own business.
Sometimes leasing inexpensive equipment or even expensive equipment for a short duration won’t obligate you to file a 1099-MISC with the IRS. This is because you only need to file a 1099-MISC when the total annual payments you make to a single equipment owner equal $600 or more. Keep in mind that the $600 threshold applies to the total amount of lease payments you make to one vendor– not each separate payment you make during the year.
To illustrate how this works, suppose you operate a construction business and lease a bulldozer from one company at the rate of $500 per week and an electrical saw from another company at $100 per week. If you lease both pieces of equipment for three weeks, you only need to issue a 1099-MISC to the company from which you lease the bulldozer, since the total of your lease payments is $1,500, despite each lease payment being under $600. Had you decided to keep the electrical saw for an additional three weeks, a second 1099-MISC would be necessary.
After a quick scan of the 1099-MISC form, you’ll notice that it’s rather short and won’t be too time-consuming to fill out. However, you will need to request a W-9 form from each equipment owner so that you can collect the necessary identifying information that will be reported on the 1099-MISC, such as the owner’s name or the name of the business entity they operate and the appropriate employer identification or Social Security number. Once you receive the W-9, you’ll simply extract the relevant information from it to fill out the 1099-MISC and report the total lease payments in box 1. The last thing to remember is that you must have the 1099-MISC prepared by January 31, because the IRS requires that you furnish a copy of it to the equipment owner by that date. You will also need to send the IRS a copy, but you have until the last day of February, or until April 1 if you’re set up for electronic filing.