Did you work with contractors or vendors in the past year? Or did you shell out some business-related payments, like rent or legal fees? With the turn of the year, you might need to add an important item to your to-do list: organizing 1099-MISC forms. You’ll need to file this statement and send copies to parties you’ve paid by January 31.
What is a 1099-MISC form?
A 1099-MISC form records a wide range of miscellaneous payments that your business made over a year. As such, it’s an important document for your bookkeeping purposes. It’s also important because it helps other taxpayers—the entities you’ve done business with—track and fulfill what they owe the IRS.
Payments for the following are often detailed on 1099s:
- Contractor or vendor services
- Prizes and awards
- Broker payments
- Legal fees
- Healthcare expenses
A 1099 can include more kinds of miscellaneous payments, so it’s best to determine what you must report through this document with your CPA firm soon.
You do not need to file a 1099 if the amount you spent is below the minimum reporting threshold of $600.00.
Who are considered independent contractors?
Many small businesses work with independent contractors for a variety of reasons; if you haven’t engaged freelance services yet, you might find reason to do so in the future, and it’s best to understand the related obligations.
An independent contractor is anyone you hire and pay to accomplish an essential service, and yet is not your employee. In contrast to employees, contractors typically work under these conditions:
- They have control over how and where they do their jobs (e.g., outside your Nashville office and regular office hours).
- They are paid according to a project’s value, instead of receiving a salary or hourly wage.
- They send invoices, payable according to pre-discussed installments, instead of receiving compensation within a pay period.
- They do not receive any kind of benefits (e.g. healthcare or social security).
A 1099-MISC details the income they received without tax withheld from the entities they worked for, making the form a vital document in calculating their final taxes.
How can I prepare for giving out 1099s?
Failing to issue the correct payee statements (and classifying workers properly as either contractors or employees) will result in substantial fines.
At the start of each year, map out a financial plan with your CPA firm so you can get an idea of the payments and contracts you might be giving out. From there, you can prepare the paperwork that will document these transactions. Keeping logs of a contractor’s tax and mailing information (called W-9s), for example, can help you more efficiently issue 1099s. It’s another bookkeeping task you can trust the office of Evan Hutcheson, CPA to do for you.
About Form 1099-MISC, Miscellaneous Income, IRS.gov
Am I Required to File a from 1099 or Other Information Return?, IRS.gov
1099 Rules That Can Make or Break You This Year, Entrepreneur.com