Most of us are familiar with the typical income reporting tax returns that we are required to submit to the IRS. But, there are also ‘informational’ returns that may be required. One such informational return is the 1099-misc. Wisegeek.com describes the 1099 as “forms [that] are used for a number of reasons, though, typically, they are given to independent contractors – also known as ‘freelancers’ – as a record of the income they received from a particular business.”
WHO do you need to complete a 1099 for?
Short answer is: you must submit a 1099 for anyone who you have paid $600 or more for rents or services. But, there are other, less likely, reasons a 1099 is required. So be sure to read the IRS instructions, see page 1, section called ‘specific instructions’.
WHERE and WHEN do you send the form?
The form has five parts that must be sent different places at different times:
-Copy A to be submitted, via mail, to the IRS by February 28
-Copy 1 to be submitted to the state if necessary
-Copy B to be submitted to the recipient by January 31
-Copy 2 to be filed with the recipient’s state income tax return
-Copy C for the Payer to keep
HOW do you get the blank forms?
Many tax forms can be downloaded and printed direct from the IRS website. The 1099 however can NOT be. But, you can order them direct from the IRS via mail for free. I ordered mine a couple of weeks ago and still haven’t received them…so I had to find an alternative place to get them. Outright is recommending FileTaxes.com this year for all of your 1099 needs.
WHAT can you do to make reporting your 1099s easier?
One thing you must do is have your 1099 vendors submit a W-9 form (I talked about this in more detail last week). This provides you with the vendor details you need. When you pay a new 1099 qualifying vendor for the first time, send them a W-9 with their payment. By collecting the W-9s as you go, you aren’t hard pressed for time come January when the 1099s are due.
Another thing that helps simplify the 1099 process is to use an accounting process and/or software that tracks your expenditures by vendor. For example, in Outright you can mark a vendor as a ‘contractor.’ You can then produce a report that shows your 1099 vendors and how much you’ve paid them.
WHY does the 1099 matter?
The IRS uses 1099 reports to match income reported. They want to verify that what you say you paid the vendor is what the vendor says they earned. This is one of the many checks and balances they use to help assure that all income is reported. Not to mention, there are stiff penalties for failing to get your 1099′s out on time. So don’t delay!