Reporting 1099 Income
Introducing Form 1099 MISC: What is a 1099?
If you are self employed or an independent contractor, then instead of a W-2, you will receive a Form 1099 MISC for services that you perform.
1099s are much more complicated than W-2s, so this lens is dedicated to answering the following questions...
What are the 1099 rules?
What do I do if I receive a 1099?
How do I report my 1099 income?
Got more questions about 1099s? Please submit them in the guestbook area below, and I'll be sure to add them to this lens!
Form 1099-K Heading to a Mailbox Near You
The first 1099-K forms will be hitting mailboxes all over the United States soon. Will you receive one? Do you know what to do if you do receive one of these new 1099s?
Several years ago a bill was passed that would require credit card and third party payment processors (such as Squidoo, Amazon, PayPal and eBay) to report certain transactions to the IRS. Although the bill is several years old, 2011 is the first year it is in effect.
To learn more about who will receive a 1099-K please visit 'Online Business Owners Prepare for the 1099-K'.
Q&A: Do LLCs get 1099s?
A common question I get is whether businesses that are LLCs should receive a Form 1099 or not. The answer is... it depends.
When you form an LLC you have the option of choosing to be taxed as a corporation, a partnership, or a sole proprietor. The default is to be taxed as a sole proprietorship, so if you're not sure which option you chose, you're probably a sole proprietor.
When you provide services to a client, they should request that you complete a W-9, which is the Request for Taxpayer Identification Number form. On that form, you must provide your name, address and tax ID number. In addition, you need to check a box that identifies your federal tax classification.
While there is an option to choose LLC, you should only check this box if you elected to be taxed as a corporation, S corporation or partnership. If you are an LLC but elected to be treated as a sole proprietor for tax purposes then you should check the Sole Proprietor box, not the LLC box.
Your client will review your W-9 to determine if you should receive a 1099 or not. If you checked the sole proprietor (or partnership) box, then you will receive a 1099. If you checked the Corporation, S Corporation or LLC box, then you should not receive a 1099.
Final note... regardless of whether you receive a 1099 or not, it is your responsibility to report all of your income on your tax return.
Are You Ready for the New 1099 Rules?
Starting in 2011, credit card merchants - including eBay, PayPal and Amazon among others - will have to start sending out 1099 forms to sellers who meet certain criteria. If you earn money online, whether it's selling items on eBay, selling your own product, or selling affiliate products, you may get a 1099 next year.
This bill has been years in the making; the original bill proposed that credit card processors be required to file 1099s for each seller that had at least $10,000 in gross sales and 200 transactions. The numbers in the final bill are a bit different - you must have at least $20,000 in gross sales and 200 transactions before credit card merchants are required to send you a 1099, so less people will be affected than originally thought.
Tax Day 2013
Well April 15 falls on a Monday this year (2013), so there is no extra day to file, even for those in D.C. who got an extra day to file last year thanks to Emacipation Day.
As always, if you need extra time you can request a six-month extension, however, remember that the extension only extends the time to file, it does not extend the time to pay your taxes. If you think you will owe you should send in a payment with your extension request to avoid penalties.
In 2012, Tax Day was on April 17. Generally if April 15 falls on a weekend, you are given an extra day to file. However, in 2012 April 15 fell on a Sunday and April 16 was Emancipation Day (a holiday observed in the District of Columbia), thus the April 17 deadline.
The IRS encourages people to file their returns electronically to ensure their returns are accurate and to get their refunds faster. You can start filing your free and e-filed tax returns on January 30, 2013.
1099 Deadline Approaching Quickly...
If you pay people to perform services for you - such as web design, virtual assistants, graphic design, bookkeeping, etc. - you may need to provide that person a Form 1099. The deadline for filing IRS Form 1099 and providing copies to both the IRS and the independent contractor is January 31. If you are an independent contractor, you can expect to receive your 1099 forms around the beginning of February.
Completing Form 1099 isn't difficult, but there are a few tools that can help. Some bookkeeping software programs allow you to prepare 1099s directly in the program (such as QuickBooks Pro 2010 by Intuit), there is also 1099 software, or tax filing websites to make this task easier. My favorite resource for preparing IRS Forms 1099 is a website called FileTaxes.com. You can file 1099 and other payroll tax forms for a small fee ($3.99 per form for Form 1099-MISC).
While most people are aware they must report wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don't realize that they must also report other income, such as:
* cash earned from side jobs,
* barter exchanges of goods or services,
* awards, prizes, contest winnings,
* cash discounts or rebates, and
* gambling winnings
You must report all income from any source and any country unless it is explicitly exempt under the U.S. tax code.
Most of the income above is reported to you on a Form 1099. The 1099 due date is January 31st of each year, so you should receive your form by early February.
It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income.
All income earned through the taxpayer's business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.
Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.
Do You Prepare Your Own Taxes?
I'm curious to find out how many people prepare their own taxes vs. paying a professional to prepare them. Please help me out by responding to this poll!
Do you prepare your own taxes or hire a professional?
Reporting 1099 Income
If you work as an independent contractor, then instead of a W-2, you will receive a 1099 reporting your earnings.
However the company is not required to file this report unless you receive $600 or more in income.
Reporting 1099 MISC income is not as easy as reporting W-2 income as you have to complete additional forms (Schedule C - Profit or Loss from Business and Schedule SE - Self Employment Tax).
The good news is that as an independent contractor, you get tax deductions for self employed people, which reduce your business income, assuming the expenses are necessary to run your business.
Report your income from your 1099 and any associated expenses on either Schedule C-EZ or Schedule C - Profit or Loss from Business. This schedule is then attached to your Form 1040.
1099 Tax Deductions
If you receive a Form 1099 for services you provided, your first question is generally "how do I report this 1099 income?"
Then, when you realize that you have to pay self employment taxes on top of regular taxes on that 1099 income, your next question should be "what 1099 tax deductions can I take?"
Here is a list of common 1099 deductions for independent contractors:
* eBay fees
* PayPal fees or shopping cart fees
* Shipping fees and supplies
* Office supplies
* Mileage - use your car for business purposes
* Phone - cell phone or second line
* Bank charges - business checking account
* Accounting and legal fees
* Computer and software
* Internet, website and faxing services
* Contract labor - VA, coaches, web designer
* Furniture and office equipment
* Membership fees and dues
* Continuing education
* Home office expenses
These are just a few tax deductions for independent contractors. As always, please contact your tax professional to determine what deductions you are entitled to.
What is your biggest question about 1099s?
Are You a Small Business? The IRS Wants to Know...
With all the income opportunities on the Internet, more and more people are blogging, setting up websites, and selling stuff on eBay. It's no surprise then that one of the most frequently asked tax questions is "does the IRS consider me a small business owner"?
According to the IRS, you are self employed if you carry on a trade or business as a sole proprietor, or if you are an independent contractor. Even if your business is part time, or you have a full time job in addition to your business, you are still self employed.
So basically, you are a small business owner if:
- you did work for someone else and you will be receiving a Form 1099-MISC
- you had a side job in addition to your normal job, such as selling Tupperware, Pampered Chef, Candelite, or something similar (and they didn't withhold taxes)
- you sold items on eBay for a profit
- you did computer work (blogging, web design, free-lance writing, etc.) and you got paid for it
In most cases, if you have any of the income above, you are considered a sole proprietor (unless you incorporated your business or have a partnership). As a sole proprietor, you must report your income from your small business on Schedule C, which is then attached to your personal income tax return.
Also, as a sole proprietor you are subject to the self employment tax. Don't forget to deduct your business expenses to minimize your taxes from your online business.
Issuing 1099 Forms
If you're a small business owner, in addition to receiving 1099 forms, you may need to issue 1099 forms. Following is a brief discussion of your 1099 requirements as a small business owner.
Up until now, I've focused on providing information to self employed people who receive 1099 forms. Recently, I've been getting a lot of questions from self employed people asking if/when they need to ISSUE 1099 forms.
Basically, here are the 1099 rules. If you pay someone for rent, services, affiliates, or other fees, you may need to issue that person a Form 1099-MISC.
You first need to determine if the person in question is an independent contractor or an employee. While this topic is a whole new discussion (will cover in a later lens), it's important to mention here because if you give someone a Form 1099 who you should really treat as an employee, then you could be held liable.
Once you've determined that the person is an independent contractor, you need to get their name, address and social security number. You do this by having them complete a Form W-9.
If you paid someone $600 or more for services provided during the year, you need to issue them a Form 1099-MISC. One exception is if the person who provided the services has a business that is incorporated.
1099s must be provided to independent contractors by January 31; you must file copies with the IRS by February 28.
You can get 1099 forms by calling the IRS at 1-800-TAX-FORM (1-800-829-3676), or by clicking here. Or, you can file Form 1099 online using FileTaxes.com for a small fee per form (this is the service that I use).
Note: You can use Turbo Tax Home & Business and Tax Act Home & Business to prepare W-2 and 1099 forms also.
Where to Find Free 1099 Tax Forms
So you need to send someone a Form 1099... but where do you go to find free 1099 tax forms?
You can view Form 1099-MISC online at the IRS website.
However, this is an information copy only. It's not scan-able, therefore the IRS won't accept it (they may even fine you for using it).
However, you can order official IRS forms by calling 1-800-TAX-FORM (1-800-829-3676).
Another resource that I love for filing 1099 forms is www.FileTaxes.com. While it's not free, you can complete and file various 1099 and other tax forms at FileTaxes.com for a very reasonable fee.
FileTaxes.com will even mail your 1099s for you (exception: they won't mail the state copies, but they mail copies to the IRS and to the recipient of the form, this is a very nice feature!).
This is a huge time-saver, and is definitely worth the small fee in my opinion.
Finally, you can always go to the office supply store to buy tax forms, but they usually come in packages of 10-50 forms and can cost up to $25.
IRS Circular 230
Disclaimer: Any tax advice contained in this message is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. It is strongly recommended that you get additional help from a (paid) tax professional who is familiar with your unique circumstances. In other words, don't take take advice from a Squidoo lens, or forum, or blog...