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Freelancers and small business owners are familiar with the 1099 form. It’s one of the many ways you can report your income to the Internal Revenue Service (IRS), so that you can file your taxes appropriately.
Despite their prevalence, not everyone knows about the 1099 form, much less how to fill it out. In this article, we’ll talk about what is a 1099 and when to file it.
What is a 1099 Form?
The 1099 Form, or “Information Filing Form” as referred to by the IRS, is a document used by taxpayers to report any additional income outside their regular salary. Therefore, the income reported on the 1099 is often called income from non-employment-related sources.
What kinds of income should you report on your 1099? Example sources include:
- business profits
- dividends from investments
- commissions from side gigs
- revenue from selling your house.
Basically, any money earned that’s not from your regular employment should be reported on your 1099.
Now, you might be wondering why you need to report all of your income to the IRS. After all, you can withhold some of your income to pay lower taxes, and the IRS will be none the wiser. This is a big mistake!
Apart from being an upstanding citizen paying the right taxes, the IRS can also perform an audit if they suspect any discrepancies. Any hint of foul play could lead to hefty penalties and late fees.
Who Needs to File a 1099 Tax Form?
Despite 1099 forms being used to report the income of individual taxpayers, they are not completed by the taxpayers themselves. Instead, your 1099 form should be filled out by your income source and sent to you.
For example, if you’re a freelancer, your clients will send you a 1099-MISC form to correctly record the fees you were paid. Banks and financial institutions will send you a 1099-DIV form if you receive any dividends from stocks or mutual funds.
You usually won’t receive a 1099 form from your employer if you are a regular employee on payroll unless your boss treats you as an independent contractor or freelancer.
On the flip side, if you’re a small business owner or individual who hired an independent contractor, then you need to file a 1099-MISC form on their behalf. It applies to commissions, fees, rent money, or other types of taxable compensation exceeding $600 for the entire year.
Common Types of 1099 Forms
As mentioned, there are many types of 1099 forms. Each reflects the many income sources you can receive. Some of the more common ones include:
● Miscellaneous Income (1099-MISC)
1099-MISC is for independent contractors, freelancers, and self-employed individuals who get paid $600 or more for the entire tax year. It is by far the most common type of 1099 form.
● Dividend Income (1099-DIV)
The 1099-DIV form reports dividend income earned from stocks and mutual fund investments. However, this form should not report any profits gained from selling stock.
● Interest Income (1099-INT)
Interest income refers to money derived from financial accounts that gross interest, such as your savings or checking account. The banks will usually send you the 1099-INT form to reflect your earnings.
● Retirement Income (1099-R)
The 1099-R form is used if you withdraw money from your retirement accounts, such as an IRA, pension plan, and annuity. You’ll often get a 1099-R indicating the total withdrawals you made for the year and the corresponding federal tax withheld.
● Government Payments (1099-G)
Form 1099-G is used to claim unemployment benefits or refunds on your state income tax throughout the year.
Tips for Filling a 1099 Tax Return
For the most part, 1099 forms are relatively straightforward to file. However, here are some tips you can keep in mind to make the process much easier:
- Gather all the necessary information from each contractor or income source before you can complete the 1099 such as: tax identification number, legal business name, and the total amount you paid during the entire tax year. The easiest way to do this is to file a W-9 form for each contractor you hire.
- If you have taxable income but did not receive a 1099 form for it, you’re still responsible for reporting it. You should file the appropriate income and tax return on your Form 1040.
- Check with your state office to find out if you need to file 1099 forms with them as well, and not just with the IRS.
Dealing with Debt?
Now that you know what’s a 1099 form, you should be able to pay the appropriate taxes and manage your income more effectively. However, if you are dealing with debt, especially tax debt, it can make handling financial matters more difficult. If you do not know where to start, talk with our debt experts at CreditAssociates. We can put a personalized plan together for you and walk you through what a path to financial freedom could look like. Fill out our online form today and we’ll be in touch.