Whether freelancer or small business owner, you are familiar with your revenue, cost, profit, and all other stuff. But what about the things related to tax? You have come across this 1099 form, but must be wondering how to fill it, when to file it, and many other doubts, which are still unanswered. Keep reading to learn more on the steps of preparing the 1099 form and other details!
Before you move on to the steps of preparing the form, you must have a clear concept about the 1099 form, who files, when it is to be filed, and other details. Here’s everything that you need to know!
What is a 1099 Form?
This is an information filling form that is to be reported about the non-salary income to the IRS (Internal Revenue Service) for federal tax purposes. There are nearly 20 variants of this form, but all are meant to report the different kinds of non-salary income earned in a tax year.
One such is 1099-NEC, which is quite popular and needs to be completed if you have paid an independent contractor more than $600 in a financial year. But you must be wondering what could be the other types of non-salary income? Income from winning a prize, tax dividend, interest income, sale of personal property, state tax refund, etc.
1099-NEC is used for independent contractors, whereas 1099-MISC is for miscellaneous income like rent, medical payments, cash payments, etc. Here in this article, we will discuss more on 1099-MISC.
Who files the 1099 form and when?
It is essential to file a 1099 form for all those who have non-salary income, but the question is who all are liable to file this form. If you are a small business owner and have paid more than $600 tax year to a vendor, freelancer, service provider, independent contractor, or non-incorporated business in a tax year, then you must file a 1099 form for them. LLC, partnerships, or sole proprietors are also included in these business entities. But there are some exceptions as well. Read to know more!
- If you paid a vendor less than $600 in a tax year, then you need not to file a 1099 form for them. But the independent contractor will have to report their income on their Schedule C form.
- If you’re renting a property from a property manager then the manager needs to file 1099-MISC forms, but you don’t need to.
- You need to file a 1099 form if you have hired a C or S corporation.
- Filing the 1099 form is not required if you hire a freelancer or vendor as an employee. As a W-2 form is needed for employees. Improper tax form filing will result in significant penalties for violating certain tax norms.
Tax file to be done within a given deadline every year. Personal tax returns along with 1099 forms should be filed within April 15th of every year. January 31st is the deadline for all small business owners to send out their 1099 forms to their contractors. Paper filing of the 1099 form with your IRS should be done before the last day of February. Whereas, March 31st is the last date for online filing. Penalties of $50-270 would be charged for each form, which may range up to $500,000 per year for missing the deadline. A penalty of $550 would be charged for each form if someone purposely ignores the filing requirements or deadlines.
What’s there in e-filing 1099? Enter the federal and state tax details, review and validate the data, submit the 1099-MISC form to the IRS website and download the e-receipt copy. But it may not be this simple! Check out the next section to know more.
How to prepare 1099?
There are quite a few details in the 1099-MISC form filing procedures. But the steps are not that complicated.
1. Gather the required information to prepare your documents(W-9S):
It becomes much easier to fill the 1099 form when you have all the required information handy. The contractors are supposed to provide the W-9form by the time you start filling the 1099 form. If the form contains inaccurate or inappropriate information or is not submitted then you can withhold 28% of the pay legally. While you prepare the documents for filing the 1099 form you need certain information regarding the vendor. This information is readily available in W-9 form, which you can refer to. It not only gives you the tax filing status of the vendor but also provides you with the vendor’s EIN (Employer Identification Number) or SSN (Social Security Number) along with name and address.
2. Obtain the official 1099 forms:
Where to get the 1099 form from? This is the question that comes to mind. Well, as these are legal documents that you can’t get straight from the internet. You need to get it from official sources, and those are:
- IRS website: You can easily get the 1099 form from the official IRS website by ordering it. Moreover, you can avail of various other information returns or forms from this website.
- You can get a 1099-MISC form from your nearest office supply store as well. Ordering online from the store’s website is another option that you can also opt for.
- Local accounting firms can provide you with this 1099 form from where you can purchase it. They also provide other necessary forms to their employees for tax filing purposes.
3. Fill in the form:
You have the form as well as the data, so now you can get on with it. Start filling it up with the required information. If you still have confusion as to what are the details that need to put in, check the list below:
- Your EIN or SSN
- Vendor’s name and EIN or SSN
- How much has been paid to the contractor
- Withhold amount (if any)
Note: If you are working on the 1099-MISC form then you need to fill out two copies for each contractor. Remember to send it on time to avoid penalties.
4. Send the form to the freelancer of vendors:
As mentioned in the previous point, there are two copies for each contractor. One is Copy A that needs to be sent to the IRS and the other is Copy B to be sent to the independent contractor, freelancer, or vendor. This has to be sent out before 1st February. This form allows them to file the income in their tax returns so that they can accurately state their yearly income.
5. Submit Copy A of the 1099 form:
Once you are done with the above process, you now need to submit your Copy A of the 1099 form. This goes to the IRS, and it can be sent in two ways.
- Snail Mail: This is the traditional method of paper filing and mailing your IRS forms. For sending through you must send it before the 31st of January every year and must attach 1096 forms which enable the tax department to track your 1099 form.
- Online: You can even report your tax return by filing the 1099 form online through the FIRE system (Filing a Return Electronically). But there are few steps in it:
- For online filing, you need to get the TCC (Transmitter Control Code) from IRS via form 4419, which needs to be submitted 30 days prior to the 1099 deadline.
- You need to create a FIRE account.
- Fill up the 1099 form in a proper format and submit it via the FIRE system.
Filing a 1099 form is a tedious job, but missing the deadline or inappropriate filing may bring the IRS to your doors. Save your time by filling it online and get it done instantly without worrying about deadlines. Protect your business from unexpected tax hassles and fill it up on time. Follow the above guide to get your work done in just no time.