1099 Form 2021

What You Need To Know Before Filing Your 1099 Tax Forms

As a freelancer, gig worker, or small business owner, your most common tax form will probably be the 1099. Even if you use an accountant, it’s still good to have a basic understanding of what this form is about. Let’s explore what a 1099 is, why it’s important, who needs it, and when to file it.

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What Is the 1099?

The 1099 is actually a series of forms used to report non-employee income to the IRS. So, for example, if you hire a graphic designer to create your business’ logo, chances are you’ll need to report it on a 1099. In contrast, all part- and full-time employees’ earnings are reported on W2 forms.

For those receiving any 1099s, make sure to save them for your next tax return. If you use a tax program, such as TurboTax, you’ll be prompted when to enter this info. If you use an accountant, just hand off these forms to them.

Pro tip: If you complete paid contract work but do not receive a 1099 due to being under the income limit or the employer not sending one to you as is required by law, you still need to report those earnings on your tax return.

 

Why Are the 1099 Forms So Important?

All income is taxable. Plus, as a freelancer, you can deduct all money paid out to others, thus lowering your tax liability. And of course, you’ll need to report any 1099s you receive because the IRS matches them with every tax return. So, if you fail to report one, it’s kind of a big deal.

 

8 Tips to Know Before Filing Your 1099 Tax Forms

Feeling overwhelmed? We’ve got 8 tips that’ll help point you in the right direction and set you up for success.

  1. Who Needs a 1099?

    Filling out a 1099 is fairly straightforward. However, deciphering the IRS’s requirements can make your brain explode. But don’t worry, we’ve simplified the IRS’s general guidelines for you.

    The 1099 Criteria:

    • Non-employee: The individual, partnership, estate, or corporation is not an official employee.
    • Services: The person or corporation provided a product, service, or skill for your business.
    • Total amount: The total yearly payments equaled at least $600 per person or company.

    If all of the above applies, then the 1099 is needed! However, make sure you know the difference between a contractor versus an employee.
    The bottom line: If you hire someone full-time and they receive all the benefits of a regular employee, use a W2. However, if you’re contracting someone to do occasional work or to complete a one-off project, use the 1099.

    Now, if you’re stressing over keeping track of these details, we get it — bookkeeping is a pain. You can make recordkeeping simple by using efficient business management tools for invoicing, payments, and expense tracking.

  2. Know the 1099 Varieties

    Filling out a 1099 is fairly straightforward. However, deciphering the IRS’s requirements can make your brain explode. But don’t worry, we’ve simplified the IRS’s general guidelines for you.

    The 1099-MISC

    Until 2020 all miscellaneous income was filed under the 1099-MISC. However, the IRS is now requiring self-employed income to be reported on 1099-NEC in order to clearly separate filing deadlines. You can still use the 1099-MISC if you pay someone at least $600 in one year and it falls under the following categories:

    • Rent
    • Prizes and awards
    • Medical and health care payments
    • Royalties of at least $10
    • Direct sales of $5,000 or more

    The 1099-NEC

    You’ll need the 1099-NEC for all other non-employee compensation. Here are some examples of when to use it:

    • Professional services: Attorneys, contractors, accountants, graphic designers, photographers, other freelancers, and so on.
    • Supplies: Anyone who provides you or your business with materials, parts, or products.
    • Sharing fees: If you offer referral fees, subcontract a job to another person, or work together on a paid project.

    It best to have every contractor fill out a W9 form in advance. That way you’ll be prepared when tax season rolls around, ready to fire off those 1099s.
    You can download a W9 form and order 1099 forms for free from the IRS.

  3. When to Use a 1099-K

    You’re required to issue a 1099-K if you pay a single contractor more than $20,000 in one year using an electronic payment system, such as PayPal, Square, or conducting business on Fiverr. Even though this doesn’t happen often, especially for small businesses, it’s best to be prepared for it.

    Just make sure you don’t issue both a 1099-K and a 1099-NEC/1099-MISC for the same person. There’s no need to double-report their income. The only exception is if there are additional payments that weren’t included in the 1099-K.

    Again, this is where having a rock-solid system comes in handy. Delegating your bookkeeping tasks to AND.CO allows you more time to focus on your work without being bogged down with admin tasks. Plus, you can ensure that every payment and expense is accounted for.

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  4. When to File

    The good news is the deadlines of when to file your 1099s remain the same every year.

    • January 31: All taxpayers need to receive their forms. Make sure to mail them early!
    • March 1: When you need to submit all 1099s to the IRS.
    • March 31: The extended date to submit all 1099s to the IRS if you’re filing electronically.

    After you’ve filed all required 1099s, make sure to keep the paperwork in a secure place — you’ll need this information on hand in case the IRS decides to pay you a visit.

  5. How to Enter Your Info

    You don’t need a business tax ID number to file 1099s. As long as the requirements are met, anyone can issue a 1099.

    First, enter your information under “Payer.” If you don’t have a registered business name, just use your full name.

    Next, you’ll need a tax identification number (TIN). You can use your social security number (SSN) or your employee identification number (EIN) — which is a unique nine-digit number used specifically for your business (get your EIN here).

    You’ll also need the contractor’s details: name, address, SSN. If you had them fill out a W9, you’re all set!

    Lastly, you’ll enter their total earnings for the year in Box 1: Non-employee compensation. Send one copy to the contractor and one copy to the IRS (and keep a copy for yourself). Done!

  6. What Happens if You Forget to File

    That’s why we’re here — to make sure you do file. However, we’re all human, and sometimes important tasks slip through the cracks.

    According to TurboTax, the penalties aren’t fun. You’re looking at a $50-$270 fine per forgotten form, depending on how late the form is finally submitted. If you intentionally don’t file a form, it’s $550 minimum or 10% of the income that should’ve been reported, with no maximum fine. Ouch.

    Obviously, you don’t want to mess with the IRS. Plus, if you have a large team of freelancers, they’re counting on you to issue those 1099s in order to file their own tax returns on time. Set reminders, hire help, do whatever it takes. Above all else, don’t leave this task to the last minute!

  7. Get the Deductions You’re Eligible For

    Paying for contractors or professional services is a common deduction for self-employed folks. And guess what? You can still deduct contractors’ fees even if you don’t issue a 1099.

    For example, let’s say Joe did some editorial work for your business and you paid him $450 for the year. Even though you don’t need to issue a 1099 for Joe, you can still deduct that $450 as a valid business expense. Score!

    Other common self-employed deductions may include:

    • Home office
    • Internet
    • Travel
    • Vehicle use
    • Supplies
    • Education related to your business
    • Advertising

    Talk to an accountant about which business expenses you can claim. Also, try using AND.CO’s expense tracking feature where you simply forward or snap receipts and the expense is categorized automatically. Talk about easy!

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    Pro tip: To avoid a hefty tax bill at the end of the year, make sure to use the self-employment tax calculator and quarterly tax calculator.

  8. Stay Organized

    Hopefully, your head isn’t spinning from all this information. We know, it’s a lot to digest.

    Let’s review the main points:

    • Have every contractor file a W9 form before starting work.
    • Keep a record of every payment, either by using your own system or a convenient service such as AND.CO’s freelancer tools.
    • Order 1099 forms from the IRS (do it now for next year’s taxes).
    • Mail all forms in mid-January (heck, aim for early January just to be safe).
    • Submit all forms to the IRS by March’s deadline.

    Remember, the filing part isn’t the hardest part, it’s the keeping track of those expenses throughout the year. Let AND.CO be your affordable and comprehensive partner that takes care of the paperwork while you delve deeper into your business’s overall goals.

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    When it comes time to file, all your info will be right where you need it — ready to go.

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