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:

• Rent
• 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
• Address
• 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:

• Income
• Expenses
• 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.