Small business owners must keep track of the different annual tax filings submitted each season. 1099-MISC, 1099-NEC, and more all require different information, however, they all work together to complete your business’ annual tax file.
Let’s discuss the 1099-MISC, and if businesses should file materials under this form.
What is a 1099-MISC?
A 1099-MISC is a tax form distributed to 1099 independent contractors, not W-2 employees. The form represents the miscellaneous income (non-salaried forms of payment) that the Internal Revenue Service (IRS) requires each worker to file. This reporting system is only used for trades or businesses that gained a profit, not for personal payments.
So, should materials be included in my 1099-Misc? No, materials are not included in a 1099-MISC. Instead, they are included in a Schedule C.
What Do You Have to Include in a 1099-MISC?
Types of miscellaneous compensation/income that must be reported include, but are not limited to, gains of at least $600 through nonemployee compensation such as:
- Prizes and awards
- Medical and health care payments
- Crop insurance proceeds
- Fish (or other aquatic life) you sold for resale
- Cash from a notional principal contract to an individual, partnership, or estate
- Payments from clients if you are an attorney
- Proceeds from a fishing boat
- Other income payments
You must also file form 1099-MISC if you received $10 or more in royalties, or for each person from whom you have withheld any federal income tax under the back up withholding rules—regardless of payment amount.
1099-MISC forms are distributed to those who are not subject to self-employment taxes.
Additionally, include the following in your form:
- Payer’s name
- Telephone number
- Taxpayer Identification Number (TIN) number
- Account number
- Recipient information
See the example of an IRS 1099-MISC below.
What is a Schedule C?
A Schedule C (Form 1040) is used for businesses to report income or losses. Requirements for a business to qualify as such are:
- The business activity is for income or profit
- The business activity is done continuously and regularly
Businesses file materials under a Schedule C instead of a 1099-MISC. On this form, businesses can include:
- Cost of goods sold
- Vehicle information (if claiming car expenses)
- Other business expenses
How Do I File?
Businesses can submit a 1099-MISC and Schedule C electronically or by paper. When submitting the forms:
- Gather the right information
- Submit copy A of the forms to IRS
- Submit copy B to your independent contractor
- Keep a copy for your records
- Check your state regulations for further 1099 form submission requirements
What Happens If I File Incorrectly?
If your business files the wrong information on a tax form, you can correct the mistake by filing an amended return: Form 1040-X. Failure to correct the mistake can lead to fines and penalties.
IRS will most likely catch a mistake on a business return. Knowingly leaving a mistake can trigger an audit, and cost your business while you defend against a government agency audit. Protect your assets by correctly filing your taxes and by staying updated on the latest tax updates.
For more information on a 1099-MISC, read our article comparing 1099-MISC to 1099-NEC.
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got1099 is a business reporting company providing business analysis reports to companies re: their 1099 independent contractors We do not provide legal advice. Consult with your attorney relating to any legal issues.