There are many different versions of the 1099 form for businesses that hire freelancers; that’s why this article will focus on figuring out form 1099.
The IRS 1099 forms are sent by the IRS to independent contractors to use for the purpose of filing their taxes. These forms are meant only for partnerships and sole proprietorships. This means that contractors aren’t required to send 1099 forms to corporations, with the exception of law firms and medical corporations.
What’s important to note about 1099s is that you shouldn’t be waiting for them to arrive to get your books together. That’s because the 1099 form isn’t really relevant to the income earned by your business. The fact is that when you are a business owner, it is your job to keep accurate financial records and you shouldn’t rely on the 1099 forms to come in to do so. Make it a priority to track all income received throughout each year, whether it arrives in the form of cash, wire transfer, check, electronic payment or event through a trade.
1099 forms are of great importance because they let the IRS know how much your company paid someone, and vice versa. The main reason to get your 1099s and review them is to ensure the totals are correct. Here are the main 1099 forms you would be likely to receive:
1099-MISC
The 1099-MISC IRS form is the most common 1099 because it is a summary of all compensation for non-employees. This is the form used by freelancers to calculate and file their taxes.
If your business hires independent contractors, you will need to issue 1099-MISC forms to every contractor you’ve hired that year. If you are unsure of who needs a 1099-MISC form please consult with your accountant.
It’s also possible that your company might receive a 1099-MISC form from another person or business if you have provided services or rented out materials or office space. This form isn’t supposed to include payments you’ve received for products you’ve sold. However, if your invoice included services and products (e.g. construction labor and parts), the 1099 form will include the total amount. You can read the form by noting that the amounts in boxes 5-10 and 14 are usually for income received via self-employment. Whereas the totals in boxes 1, 2 and 3 are not always from income received via self-employment. The totals in each box will depend on the circumstances and the source of the income. It is required for you to report all income received via self-employment every year when you file your taxes.
Final Note: 1099-MISC can also be used to report royalties, prizes and income received via “direct marketing.”
1099-INT
The next form we will discuss as we work on figuring out form 1099 is the 1099-INT. This form provides a summary of all your interest income from the current tax year. For instance, if your business acted as a lender for another business or person there’s a good chance you will receive some sort of interest income on that loan.
This income will be reported on Schedule B of your tax return. Even when the 1099-INT is issued to an S-corporation or another partnership, the income will be listed on the Scheduled K-1 and still end up within your own Schedule B.
1099-DIV
The 1099-DIV form is a summary of distributions, capital gains and dividends for the year. This type of income can be received from excess cash your company used to invest in stocks, or it could be money received from a different business owned by your company.
This income will be included on Schedule B of your return. Even in instances where the 1099-DIV form was issued to an S-corporation or a partnership, it will still need to be listed on both your own Schedule B and your Schedule K-1.
1099-B
The 1099-B form is a summary of all money received from stock transactions, plus it also offers a summary of transactions involving bartering. The 1099-B differs from the 1099-DIV, which covers gains and distributions because it offers a summary of stock income only. The IRS is notified of the gross sale amount whenever you sell stocks. They aren’t always told about the total cost of that stock, so make sure you report the sale of any stock on your return (it can usually be found on Form 8949) along with your cost, even if it shows a loss. The IRS won’t know that you suffered a loss unless you tell them.
1099-K
Your company will received a 1099-K form if you had more than $20,000 in sales or completed more than 200 transactions using PayPal, banks, Airbnb and other sources. The main point of this form is to report all sales made by credit card, most often for online, software and retail products. This form is also for people who have been selling products on online marketplaces such as Amazon, Etsy, eBay, etc. even if it isn’t a recognized business. You will also receive a 1099-K form if you acted as a driver for Lyft, Uber or another similar service.
Important Note: If you received payment for your services via PayPal or credit card you will not receive a 1099-MISC. You will instead by issued a 1099-K form.
As we wrap up figuring out form 1099, it is important to note that we didn’t go over all the 1099 forms available from the IRS. The forms mentioned in this article are the ones you usually receive. If you get one that isn’t on this list you can check out the IRS’s website or consult with your accountant for more information.