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Reporting 1099 Income

Updated on September 22, 2014

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'.

1099 questions
1099 questions

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).

1099 income
1099 income

1099 Basics

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?

See results
1099 tax
1099 tax

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:

* Inventory

* eBay fees

* PayPal fees or shopping cart fees

* Shipping fees and supplies

* Postage

* Office supplies

* Advertising

* 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.

1099 Questions

What is your biggest question about 1099s?

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1099 requirements
1099 requirements

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.

1099 deadline
1099 deadline

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.

1099 form
1099 form

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...

What Questions Do You Have About 1099s? - Submit them here...

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    • profile image

      katherine 2 years ago

      This is a good read. Thank you for this informative post. I just want to share this site PDFFiller, Inc which I find very useful in case you need it. It helps me fill out my 1099 form easily and gives me the option to either save, print, fax, share, send to sign or even add picture. You can also upload word and powerpoint document and convert it to PDF File. I was able to get the form I need through http://goo.gl/UkBkoE.

    • seodress profile image

      seodress 4 years ago

      Informative and very helpful.

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 4 years ago

      @bechand: You can use 519100 - Internet Publishing, or if that doesn't fit your business, you can use 999999 - Unclassified.

    • bechand profile image

      bechand 4 years ago

      What Principal Business Code do you use for Squidoo Income on Schedule C?

    • Scarlettohairy profile image

      Peggy Hazelwood 4 years ago from Desert Southwest, U.S.A.

      This isn't really that hard once you grasp the concept that a 1099 is basically like a W-2 that an employer sends out (but different, of course!).

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 4 years ago

      @daniela12: Yes, it's your responsibility to file the income you earned from Squidoo on your tax return. Once you receive your 1099 from Squidoo you will file the income on Schedule C or C-EZ and attach to your income tax return. There is plenty of information on this and my Ebay Tax Tips lens to help you. If you still have questions you may need to hire a tax professional.

    • daniela12 profile image

      daniela12 4 years ago

      I am very confused with this whole 1099 form. I submit my info Squidoo asks for this year, but I don't know what to do afterwards. Am I on my own filing 1099?

    • profile image

      mouse1996 lm 5 years ago

      Great lens. I was curious about this and how it would affect me in my business adventure.

    • JoyfulReviewer profile image

      JoyfulReviewer 5 years ago

      Thanks for preparing this very helpful and informative information. Have bookmarked for future reference. ~~Blessed~~

    • profile image

      sumi-von-dassow 5 years ago

      Can a self-employed individual who is not a corporation receive a payment of more than $600 from an individual who does not report that income on a 1099? Is there a penalty for receiving a payment that is not reported by the payer on a 1099? The payee in this case expects to pay the appropriate taxes on the income, but wonders if it is legal to receive the payment or if he must register as a corporation in order to legally receive this payment?

    • profile image

      soaring-eagle 5 years ago

      if you are self employed and received 1099-MISC, are you qualified for tax credits like child tax and earned income credits even if you haven't had any taxes withheld and paid for the year?

    • queenofduvetcover profile image

      queenofduvetcover 5 years ago

      Very helpful, thank you. =)

    • profile image

      anonymous 5 years ago

      this is pretty much mandatory for all freelancers..

    • profile image

      anonymous 5 years ago

      Good read. Great for all freelancers out there.

    • SheGetsCreative profile image

      Angela F 5 years ago from Seattle, WA

      Getting ready to file - glad I stopped by first!

    • DanielGlynn profile image

      DanielGlynn 5 years ago

      Thanks for the info! I was wondering if I would be getting a 1099 this year and how I would file it. Very informative.

    • profile image

      anonymous 5 years ago

      Thank you for this lens. I'll be getting a 1099 this year, so this lens is helpful to me. All the best.

    • Tom Maybrier profile image

      Tom Maybrier 5 years ago

      Great lens! I know how confusing I found the 1099 system at first. I wish I'd read this lens!

    • cogentcoach lm profile image

      cogentcoach lm 5 years ago

      these new rules are an irritating...

    • mrwrkathm lm profile image

      mrwrkathm lm 5 years ago

      Good comprehensive lens. Maybe you can help me with my question. I have been wondering for a long time what will happen when I eventually have to face the tax situation; not there yet but in 2 or 3 years I will be.

      The query is this: I am a Squidooer, but I am an Australian, not in the U.S., so therefore I am a foreign resident but will be making my living from a U.S. website, i.e. Squidoo. What happens in this regard? The money goes to Paypal in Australia, and will then be transferred to my Aussie bank. The money is only income once it hits Paypal here, and would be used in Australia. So, would I be taxed by the U.S. because it is a U.S. website paying out; or would I only have to worry about Aussie tax because it comes in to Paypal here and is then Australian income? It is confusing, and I would appreciate knowing where I stand. I wish that Squidoo would prepare people for this sort of situation, and maybe you should do a separate lens on this as there are many Aussies making money on Squidoo, and other foreigners as well. I am sure they will all want to know.

      Thanks for this lens and for your answer.

    • profile image

      dvpwli 6 years ago

      I just thump up your lens due to great content and info

    • profile image

      alice_wtc 6 years ago

      What to do if an organization failed to report winnings/awards in 2010 because didn't know winnings are reportable?

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 6 years ago

      @KarenCookieJar: Thanks for the comment KarenCookieJar. You have to report ALL of your income, regardless of whether you receive a 1099 or not. So if you receive under $600 from Squidoo, and therefore don't get a 1099, you still have to report the income you earned. This is a common misconception, but bottom line, it doesn't matter if you receive a 1099 or not - if you earned it, you have to report it!

    • profile image

      KarenCookieJar 6 years ago

      Say you make $500 from Squidoo, $500 from Adsense, $500 from Zazzle etc in one year, since those are all under $600 each and they could be considered different types of businesses, do you have to report earnings at all? Or because the total for all three is over $600 do you have to report business earnings on your taxes?

    • profile image

      TonyGaylord 6 years ago

      Great lens for us squidoo members! Not at the point where im making enough to file taxes yet but going to need to here very shortly! Thanks

      My personal review site Income At Home Reviews

    • sushilkin lm profile image

      sushilkin lm 6 years ago

      Its very nice to read your lens. Thanks for sharing. Contribute your like for -PRAY FOR JAPAN

    • profile image

      Wordsmithery 6 years ago

      Oh man, I had a heck of a time with taxes this year! First-time freelancers need to do some research in advance.

      And don't forget to make those estimated tax payments!

    • dc64 lm profile image

      dc64 lm 6 years ago

      Good info for us Squidooers.

    • UKGhostwriter profile image

      UKGhostwriter 6 years ago

      Interesting lest!

    • aesta1 profile image

      Mary Norton 6 years ago from Ontario, Canada

      Am not familiar but I do use Quickbooks and find it easy and useful. Taxes, I leave it to the pro.

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 6 years ago

      @Tyla MacAllister: Thank you!

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 6 years ago

      @anonymous: Thank you!

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 6 years ago

      @youngsny: Youngsny - I wouldn't be surprised at all if they included the reissued payments in 2011 on a 1099 for 2011. There are a couple of ways to handle the "adjustments" but its too much to post on a forum/squidoo lens. You should consult with your tax professional; if you don't have one you can contact me through my website http://internetbiztaxtips.com/contact/

    • profile image

      youngsny 6 years ago

      I hope you an answer this question for me. I do some independent contract work for a company. I forgot to cash some of the checks the company wrote me in 2009 for the work I did for them that year. Because I earned less than $600, they did not issue me a 1099 form. Regardless, I paid all of the fees that I earned from the company in my tax return for 2009 as required by law. The dates on original checks were too "stale" so bank wouldnât accept them. They just reissued me the checks from 2009 that I forgot to cash. Now, the company is including fees from those re-issued checks in 2011âs wages/fees. And consequently if I am issued 1099s this year, they will include the fees/wages from re-issued checks. Does this sound right to you? Theyâre suggesting I need to consult a tax professional to make adjustments.

    • profile image

      anonymous 6 years ago

      Squid angel blessing. This is great. Very useful and timely information.

    • profile image

      Taxmandue 6 years ago

      @rob1951: Hey Rob. A 1099R is usually given to a taxpayer reporting some type of distribution from a retirement account. Given you are a state employee it is probably money you've received from a state pension. Most of the time the 1099 R will have income tax with held in box 4. If it does not, you might be hurting during tax time. Any good tax software should be able to guide you through the process. If you are unsure, the best thing to do is to contact a competent tax preparer.

    • Poolsupplies profile image

      Poolsupplies 6 years ago

      Fantastic job compiling this information and putting it here for us.

    • Tyla MacAllister profile image

      Tyla MacAllister 6 years ago

      This lens has been really helpful to me. I'm still fairly new to being totally self-employed and I can't afford to hire an accountant just yet so I need all the information I can get.

      *This lens has been blessed by a SquidAngel.*

    • profile image

      rob1951 6 years ago

      I'm a retired State emoloyee who got a foem 1099R instead of a W2,how do I file my Federal income tax?

    • katiecolette profile image

      katiecolette 6 years ago

      Excellent job on putting this lens together!

    • katiecolette profile image

      katiecolette 6 years ago

      Excellent job on putting this lens together!

    • Michey LM profile image

      Michey LM 6 years ago

      Great tips, and right timing, so it is a pain but being informed is better!

      Thanks

    • profile image

      kngscb 7 years ago

      I have "marketing fees" deducted from my check every week. When I receive my 1099, can I write these off?

    • Kiwisoutback profile image

      Kiwisoutback 8 years ago from Massachusetts

      Thanks for the tips. Good thing my wife is an accountant, or I'd be up the creek. She makes me have all my ducks in a row in terms of this stuff. Nice work!

    • profile image

      jchulew 8 years ago

      Great lens and very informative. One of the most important things is to make sure you are correctly classifying a worker as a 1099. I always delay my 1096 until each contractor has received and reviewed their 1099.

    • profile image

      kkalinoski 8 years ago

      I contract to a company who normally pays 30 days after the end of the month. For example, for the work I perform in November 1-30 of 2008, I would receive my compensation at the end of December in 2008. The company routinely accurately dates the check with the current date.

      In December, I turned in my hours at the end of the month. I just received the December compensation 1/26/09, but the check curiously was back dated to 12/31/08. The client is now intending to put that compensation I received in January 2009 back into my 2008 1099. As a small business company, I use a cash accounting basis and recognize revenue only when received.

      How can I dispute the 1099 amount that this company has issued to the IRS? The company told me if I don't like the amount, then I should cross it out and write in a new amount on the 1099 I provide to the IRS. I think the company owes me an amended 1099. What recourse do I have?

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 8 years ago

      cmlindenmuth - if your boyfriend under-reports his income, he will probably get a letter from the IRS showing the difference between the amount reported on his 1099 (assuming the person files a 1099) and the income reported on his tax return. He can amend his return and pay the additional tax due at that time. He should continue trying to get a copy of the 1099 in the meantime.

    • profile image

      cmlindenmuth 8 years ago

      I have a question that I hope someone can answer!

      My boyfriend worked as a subcontractor for one person all year. They just recently had a falling out. This person is will nto answer my boyfriends phone calls or emails for his 1099. My boyfriend kept poor records all of 2008. We're tring to get all the info. together, but I am afraid we're missing some income. What will happen if he does not report all of his income?

    • profile image

      rydigga 8 years ago

      Bookmarked for April 15th. Thanks for sharing!

    • SusanDeppner profile image

      Susan Deppner 9 years ago from Arkansas USA

      I've dealt with 1099s for the last eight years of being an independent contractor. Good thing I keep very good records because one of the people I contract with always has to check with me to see if she has the amount right on the 1099 she prepares for me. My tax guy (who happens to be my dear hubby) gets very frustrated, but it all works out in the end. And quarterly. And especially on April 15th. (Oh, how I support the FairTax!)