A GUIDE TO 1099 PREPARATION
1099 preparation can be pretty confusing.
Especially now since there are more rules – and more exceptions.
Here is a primer on the things that you need to know about 1099’s – and make sure you are doing your preparation right.
As always, this is not a substitute for getting professional tax advice. It’s simply a post to help you on your journey of financial education.
FOR STARTERS, THE 1099-MISC IS NO MORE
As of 2020, the 1099-MISC will no longer be used to report income from non-employee contractors.
The required form is now the 1099-NEC. All of the below still applies, just with a different form!
WHO IS ELIGIBLE
- Any subcontractor you have paid $600 or more to in a calendar year
Any service-based business that is NOT incorporated.
- If a business is an LLC or an LLP they may or not be eligible. Follow the rule “when in doubt, send it out’ to cover your….ahem….tail.
- Lawyers and accountants are eligible, as long as they aren’t incorporated. Don’t let them tell you otherwise.
WHO IS EXCLUDED
- Anyone you have paid with a credit card or a third party payment service like Paypal
- Any company you have purchased a physical product from – like office supplies or computers
HOW DO I FILE A 1099
- The first step is collection a W9 form from your vendors. The form can be downloaded here and should be collected BEFORE you make any payment to them
- Good Cents uses Gusto to file our forms. This is an affiliate link.
- You can buy forms at your local office supply store, complete the information, print and mail them yourself.
WHAT ELSE DO I NEED TO KNOW
- A 1099 can be “bounced back” from the IRS if it contains mistakes. The most common mistake is the incorrect spelling of a name, or an incorrect social security number.
- Make sure forms are issued to the *exact* name which appears on the person’s social security card. In other words, don’t issue a 1099 to “Joe” if Joseph is the name on file with the Social Security Administration. Double-check social security numbers and make sure mailing addresses are current too!
- Try to pay vendors only one way, don’t send Suzie a check, and then pay her by credit card, and then her next invoice by PayPal. It will make calculating the amount you need to input on the 1099 really hard if you co-mingle payment methods.
WHEN ARE THEY DUE
- 1099s must be postmarked no later than January 31st, or the next business day if the 31st falls on a Saturday
- Your 1099s must be submitted along with a 1096 form to the IRS by February 28th.
- The 1096 form is a summary form that lists the total amount of 1099s you are submitting, plus the total dollar amount of all of your 1099s combined.
- If you use a company to file your 1099s for you, make sure they will file your 1096 as well.