Every January, millions of entrepreneurs start the process to gather documents to get ready for tax season.
One of those forms is a 1099 form. Whether you were a freelancer or a business who hired contractors, you need to be aware of what a 1099 is and if you need them or not. With the growth of the gig economy, it’s more important than ever to stay on top of your taxes and file them correctly.
Read on to find out what this form is and when to issue a 1099.
In This Post:
What Is a 1099?
A 1099 is an Informational Return. It tells the IRS if payments were made, to whom, how much, and the payee’s personal information (address, social security number, etc.).
There are several types of 1099 forms. If you received money from interest, an IRA, income, or stock sales, you’ll get a 1099 form. A 1099-INT is for bank interest. A 1099-R is for proceeds
The one you need to be concerned with is a 1099-MISC. That’s the one that’s used to show payments made for prizes, payments made to service providers and contractors.
Similar to a W-2 form for employees, a 1099-MISC is given to the person you paid. They then use that to file their taxes to the IRS. You submit a copy of that to the IRS on your business tax returns, too.
The IRS will then match that up according to the social security number listed. If you submitted a 1099-MISC and that contractor failed to report it on their tax returns, they’re likely to get audited.
When to Issue a 1099
There is a lot of confusion around 1099 forms and whether or not they need to be generated. Here are some general questions you should ask yourself.
- Did you pay a contractor over $600 during the year?
- Did you pay for services for your business or trade, such as marketing consulting?
- Did you pay an individual, estate, business, or partnership?
- Was the person/entity not an employee?
If you answered yes, then you need to issue a 1099-MISC for those payments. You can generate a 1099 employee form by using a template to enter the payee’s personal information, the amount they were paid, and any taxes withheld.
What Happens If You Don’t Issue a 1099?
Like with most tax deadlines, the IRS has strict requirements for filing a 1099-MISC on time. On your ta returns, you have to truthfully answer if your business made payments that would necessitate a 1099 form.
The penalties can be severe for small businesses, with fines ranging between $50 – $270 per 1099. The longer you put off correcting your errors, the more it will cost you.
Get Your 1099s Done
Taxes are complicated for entrepreneurs. If you don’t get it right, you could wind up paying a lot in penalties and interest.
That includes filing your 1099 forms. You want to make sure that you know when to issue a 1099 and create them on time.
Do you want more tips for entrepreneurs? Check out this site often for more helpful articles.