Running your own business can be incredibly rewarding—from building an enterprise that resonates with your core values to doing what you love every day. But business ownership comes with its own set of hassles, too, not the least of which is a more complicated tax process.
As we start 2023 we must start thinking about filing 1099 forms. 1099-NEC is the version of Form 1099 you use to tell the Internal Revenue Service whenever you’ve paid an independent contractor or other self-employed person. The IRS uses this information to independently verify your income, and therefore your federal income tax levels. You can think of the 1099 form as the equivalent of a W-2 form for independent workers; both forms are information returns. Whether you hire people to perform services that help your business run smoothly, or you receive payment for services as an independent contractor, 1099-MISC is the form you’ll need.
There is a $600 threshold below which the payer doesn’t have to complete a 1099 reporting form. Say you hire a service to keep your business property neatly mowed and landscaped, and they charge $50 each time. If you use them 10 times, you don’t need to give them a 1099. But if you add in a spring cleanup, your payment may exceed the $600 threshold, at which point you’ll have to issue a 1099. As this example implies, $600 is the cumulative figure for a given tax year. Please remember that the $600 threshold is for the payer only. Independent contractors who earn less than $600 from a single client or agency still have to pay applicable state and federal taxes on that income even though they may not receive a 1099 form. Are you even more confused? Are you asking yourself Do I have to complete a 1099 form on personal services of more than $600 as well? Well good news: it does not apply to personal service expenses.
Just like everything in the IRS, there are deadlines. The IRS requires you to report 1099 income to both the independent contractor and the IRS itself:
- January 31: the deadline to send 1099 reporting information to independent contractors whom you paid more than $600.
- March 2 (paper filing) or March 31 (e-filing): the deadline to send 1099 reporting information to the IRS.
When it comes to filing you have a couple of options:
- Do it yourself. You are free to fill out the necessary paperwork and mail it by the appropriate deadlines to the independent contractors and the IRS. Most online tax preparation services, like QuickBooks and TurboTax, have software that can help make the process easier.
- Hire a CPA or tax preparer like Lance CPA Group. If you are already using an accountant to file your state and federal income taxes, it makes sense to use the same person to issue your 1099 forms and report them to the IRS.
If you have questions or need help with 1099 let our tax team know: email@example.com