Tax time is here again. Whether you’re one of the surprising majority of Americans who enjoy doing their taxes or one of those who dread the process, there’s no avoiding them. It is time to pay what you owe.
If you own a small business or are self-employed, filing your taxes might be a little more complicated than it is for other people across the country. Most likely, you’ll need to file what is known as a 1099 form.
This is a simple form that is provided by the IRS. What do you need to know about filling it out and who needs to? Read on and we’ll walk you through what you need to know.
What is a 1099 Form?
The IRS has many different forms available on their website that can be used to report income. the 1099 form is one that is used to report what is referred to as non-salary income.
This reporting is done for federal and sometimes state tax purposes. There are many variations of the 1099 form, though the most popular is the 1099-NEC, which is used when someone pays an independent contractor of some kind.
Of course, there are different ways that an individual might make non-salary income over the course of a year. A person might profit from the sale of stocks, they might earn interest, win while gambling, sell property, and so on.
There are different types of 1099 forms that are used for all these varied and various income scenarios. They are an alternative, in a sense, to W2s that full-time employees fill out at the beginning of their time at a position.
If you are a small business owner or a self-employed individual who is filing taxes, you will most likely be working with 1099 forms. It is important to get familiar with them.
Who Has To Fill Out a 1099 Form?
If you are a business owner, it is your responsibility to ensure that any independent contractor with who you do business receives a 1099-NEC form from you. The only exceptions are contractors who have done less than $600 worth of work for you over the course of the year.
Let’s say you wanted to build a custom sculpture for your restaurant, something of a centerpiece for space. You enlist a local artist and pay them $2000 to create and deliver the sculpture.
When the end of the year rolls around, you will need to supply this artist with a 1099-NEC form that shows that you paid them $2,000 for their services. They will then use this form as they report their income for their own taxes.
In most cases, taxes are not taken out of the payments made to independent contractors. Salaried employees often have their employers take out taxes prior to their paychecks getting delivered to them.
Independent contractors, on the other hand, pay it all at once during tax season. This is why the 1099 form can be so vital.
It’s important a business ensures they get their 1099 forms out to all contractors they’ve done business with. They do not, however, need to file a 1099 form for full-time employees.
If you yourself are self-employed, you are still required to report all income, even if it is less than $600 from a specific client.
The only change here is that a busy business isn’t required to issue a 1099 for a contractor they did such little financial business with.
Filling Out a 1099 Form
If you’ve never filled out and issued a 1099 form before, what kind of information should you expect to need? There isn’t too much information you’ll need, but you can’t issue a form until you have it.
You will need the contractor’s name, address, and taxpayer identification number. In many cases, this will be their social security number. In addition, you’ll need to know the exact amount that you paid them for their services.
Many business owners collect this information by having their contractors fill out a W9 prior to starting their work. Having a W9 on hand for each of the contractors you do business with over the course of the year is considered good practice.
If you’ve failed to obtain the information you need to properly issue a 1099 form, you’ll have no choice but to reach out to the contractor and ask for it.
Once you have the information in hand you can fill out the 1099-NEC form and submit it directly to the IRS. In most cases, a copy must be submitted to the IRS by the end of January.
You can learn how to file 1099 misc online to make it easier to get through the process. The IRS allows these forms to be submitted online to make it easier and more convenient for small business owners.
You’ll also need to make sure a copy of the form makes it to the contractor in question. In most cases, you will need to have it mailed. In some situations, if the contractor consents to it prior, you can have the form e-mailed as opposed to mail.
Small Bussiness Advice for Tax Season
If you’re looking to make it through tax season this year, they’ll be a good amount of paperwork you’ll need to get on top of. As a small business owner, it’s essential you understand the above information about 1099 forms.
Properly filling out and issuing 1099 forms is key to operating a successful business. The details above can ensure you do so properly.
Need more advice and information for your business? Keep scrolling our blog for more.