Businesses that hire independent contractors should be familiar with the 1099-MISC which is sent out to contractors to use for their tax-filing purposes. 1099 forms are only sent to sole proprietorships and partnerships. You do not need to send a 1099 form to a corporation, EXCEPT medical corporations and law firms.
What is so important about 1099s?
They are “whistleblowers”. Their sole purpose is to let the IRS know how much you paid someone, and vice versa. Be sure to gather and review the 1099’s that you receive and make sure the amounts are not higher than you actually received.
As a business owner, one of the most important things you should know about 1099s is that you should not wait for them to arrive. 1099s are not relevant to your business income. When you are in business it is your responsibility to do your own bookkeeping; you shouldn’t wait for the 1099s to reach your mailbox before you start getting your books in order. You need to account for all the money you receive throughout the year.
1099-MISC (Miscellaneous Information, previously Miscellaneous Income)
File Form 1099-MISC for each person to whom you have paid during the year:
At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
At least $600 in:
Prizes and awards.
Other income payments.
Medical and health care payments.
Crop insurance proceeds.
Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
Payments to an attorney.
Any fishing boat proceeds.
In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
1099-NEC (Nonemployee Compensation)
Form NEC has made a comeback and is now to be used separately from the 1099-MISC to report non-employee compensation. The 1099-NEC will be the exclusive form business taxpayers will use to report payments to independent contractors starting from the tax year 2020.
1099-INT (Interest Income)
This is the IRS tax form used to report interest income. The form is issued by all payers of interest income to investors at year-end. It includes a breakdown of all types of interest income and related expenses.
1099-DIV (Dividends and Distribution)
This tax form is a record that a company or other entity paid you dividends. If you earned more than $10 in dividends from a company or other entity, you’ll receive a 1099-DIV. The 1099-DIV is a common type of IRS Form 1099, which is a record that an entity or person — not your employer — gave or paid you money.
1099-K (Payment Card and Third Party Network Transactions)
A payment settlement entity (PSE) must file Form 1099-K for payments made in settlement of reportable payment transactions for each calendar year. A PSE makes a payment in settlement of a reportable payment transaction, that is, any payment card or third party network transaction, if the PSE submits the instruction to transfer funds to the account of the participating payee to settle the reportable payment transaction.
Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions. Your business will receive this from our banks, PayPaland other money colletions sources if you had 200 transactions and had sales of 20, 000 or more.
For all updates and the latest information, check out the IRS website. If you’re already frustrated just thinking about the tax season, connect with us. We’re here to ease your tax burden.