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Do I Need to Issue a 1099 for Leased Business Equipment?

Although the IRS’s main objective is to process tax returns and collect taxes – the is also charged with collecting various types of information returns that report a wide range of taxable and nontaxable payments that are made in the normal course of business. One of the more commonly filed information returns s Form 1099-MISC. The 1099-MISC reports many types of transactions, including rent payments you make to lease equipment you use in your business.

Business Purpose Requirement

You must use the 1099-MISC form to report all lease payments made to equipment owners – but only if the equipment is used in your business. For example, suppose you rent or lease a power washer to clean the aluminum siding on your home. Despite that most power washer rentals are made by businesses, filing a 1099-MISC isn’t necessary. Moreover, leasing the equipment from a business rather than an individual doesn’t affect your 1099-MISC filing obligations. All that matters is whether you use the power washer for business or personal purposes. In other words, there must be a business purpose before any 1099 must be filed.

$600 or More

More often than not, a lease for inexpensive business equipment and even short leases for expensive equipment won’t usually require you to file Form 1099-MISC with the IRS. The reason is that1099-MISCsare only filed when total annual lease payments you make to each equipment owner is $600 or more. Bear in mind that this $600 minimum applies to total lease payments you made — not the amount of each individual payment.

Simple 1099-MISC Example

To understand how this works, assume you run a construction business and enter into two 3-week leases to rent a trailer from one company for $550 per week and a nail gun from another company for $100 per week. In this case, your total annual lease payments for the trailer equal $1,650 and will require the filing of Form 1099-MISC. The nail gun lease, however, doesn’t require the same 1099 filing since the total lease payments fall under the $600-threshold.

Requesting W-9 Forms

After a quick review of ta 1099-MISC form, you’ll likely notice that it’s a very short form – meaning there isn’t much too fill out. However, before you even prepare a 1099-MISC, you’ll need to ask each equipment owner to fill out a W-9 form so you can collect all of the necessary identifying information that is required by the IRS to be reported on Form1099-MISC. This information includes the business owner’s name or if there is a separate business entity, its legal name. Also essential are the correct employer identification numbers (EIN) or Social Security numbers. Once the W-9 is received, you’ll use the relevant information it provides to prepare the 1099. In box 1 of Form 1099-MISC is where you’ll report total lease payments. An important thing to remember is that each 1099-MISC you prepare to report business lease payments must completed and furnished to each lessor no later than January 31. You will need to send an additional copy to the IRS by the last day of February, or by April 1 instead if you have electronic tax filing capabilities.

IRS Reference:
1099-MISC Form