I’ve gotten a lot of questions about 1099s. What is it? Do I need one? Why are people asking me for a 1099?
Since it seems to be a common source of confusion, I thought I’d put together a little informational packet with all the basic info that you might need to know. Most businesses will have to deal with 1099s at some point, so better to have the knowledge early than too late.
This is by no means a comprehensive list of all the 1099 info you will ever need to know. Instead, this is a quick guide to reference if you are new to 1099s or need a quick refresher on the topic.
What is a 1099?
There are a few different types of 1099s (ten-ninety-nine), but today we will be focusing specifically on the 1099-MISC form.
The 1099-MISC form (to be referred to as just 1099 from now on) is a tax form for those that are self-employed or independent contractors. It is essentially just the self-employed version of the W2 that an employee would receive from their employer at tax time.
A 1099 in its most basic element is simply a tax form. A tax form that shows how much an independent contractor has made from a specific person or business for that tax year.
Who gets a 1099?
As a business owner, you owe a 1099 form to anyone you have paid $600 or more for business services. Buying a product does not qualify.
You will owe a form to any independent contractors that work with your business. A spa that utilize ICs for massages, rather than employees, will need to provide each with a 1099 that shows how much the business paid the IC for the year.
Super simplified definitions:
Employee: a worker the business pays. The business can dictate how/when the work is accomplished.
Independent contractor: someone the business pays for work, but cannot dictate how or when the work is accomplished
Additionally, you may owe a 1099 to another business that you pay for services. For example, say your business has an office space and you pay a contractor for some renovations. If you paid more than $600, then you most likely owe that business a 1099.
What do I do with my 1099s?
If you are self-employed or an independent contractor, then it is likely that you will receive multiple 1099s from all the people or businesses that paid you more than $600 within the year.
When you receive a 1099, it means that the person who paid you does not consider you an employee and didn’t withhold income, social security, or medicare taxes. You are liable for these yourself.
You will take the total for all the 1099s you receive and input that income into your Schedule C tax form. You will be able to take deductions from this revenue for business expenses that are ordinary or necessary. This includes things like marketing, bookkeeping, lawyer fees, or most other expenses that are necessary for running your business.
Keep in mind that you may need to be making estimated quarterly tax payments. Talk to your tax preparation professional to determine when and how you should be paying your taxes.
How do I provide a 1099?
The 1099 is a relatively easy form to produce. I say relatively because rarely anything to do with your taxes is simple, but the 1099 is about as close as it gets.
They must be provided to your ICs and filed with the IRS by January 31st. Missing this date can result in a penalty for each 1099. So make sure you’re on time!
In order to fill out the 1099 form, you will first need a W9 from the person or company. It is always best practice to get the W9 before the first payment so you know it is in your records and you won’t have to chase it down come January.
Once you have the W9s and payment information, then you can request the forms from the IRS via phone or website submittal. You CANNOT use a downloaded form from the website so don’t even try.
Fill out the form! Easy peasy.
Send out to ICs and keep a copy for your own records
Submit the totals to the IRS, on form 1096 if using snail mail or file electronically. Note that the due dates are different depending on how you file so be sure to check for your specific method.
And that’s it! That’s the low-down on the 1099 and how you might expect it to impact your life.
Creating your 1099 forms is not a very difficult process, but it can be time consuming if you do a lot of business with ICs. It is best to start as soon as possible, even as soon as the fall before.
If this all seems more complicated than you’d like to deal with, many CPAs and bookkeepers will offer this service for an additional fee. Some financial or bookkeeping software also offer the option to create within that system.
Feeling overwhelmed by your bookkeeping? Maybe it’s time to hire a professional. Contact me for a free, no-obligation consultation.