What Is A 1099 Form?
Thinking of becoming a freelancer? Do you know what is a 1099 misc? Working as a freelancer or independent contractor offers a host of benefits. Think of flexible working, the ability to set your own hours, and the freedom to choose your customers. As a freelancer, you need to know what is a 1099 misc as you will likely receive one of these forms in recognition of work done.
In 2014 alone, the IRS received around 91 million 1099 forms, compared to 82 million in 2010. Can you imagine that number today? The form 1099 misc acts as an alternative to the W-2 forms received by company employees. So, what is a 1099 misc form? Read on to learn more.
Also read: Who Gets A Form 1099-MISC?
What Is A 1099 Misc Form?
Understanding what is a 1099 misc form is the first step to financial freedom as a freelancer. A 1099 form records money given (or paid) to you by a company or a person. That's anyone that's not your employer. They're common among self-employed contractors. Banks might send you a 1099 misc if they've paid interest on your savings.
Did you get a tax refund last year from your state? You might get a 1099 misc for that too. Watch out not only is it important to understand what is a 1099 misc but it's crucial to understand your obligation to it too. It's the payer's responsibility to generate the form. It includes your social security number or your taxpayer identification number. The payer must send you and the 1099 misc IRS copies of the form.
That means the IRS knows about any money you've received. They'll also know if you don't include it on your tax return. Depending on the circumstances, you might not owe taxes on the income. However, you should still declare it to stay in the clear.
Also read: Filing For Both W2 & 1099
Are There Different Types Of 1099?
Now that you understand briefly what is a 1099 misc, let's talk about the various types. Yes. They all perform the same task of letting the IRS know what you've earned. Although they cover different sources for that income. Here are some of the more common 1099 misc form varieties.
Also read: Who Is Classified As 1099 Employee?
Did your mortgage lender cancel some of your mortgages? The IRS considers canceled debt to be income.
Did you sell any securities? Or use a bartering exchange?
Any debt forgiven by a lender becomes taxable income.
Hold shares in a corporation? If it is acquired and you get cash or stock, that's taxable income too.
Also read: Report Freelance Salary Without 1099 Form
This covers any dividends you receive.
Did you receive unemployment relief or any tax refunds from your state? This form covers those.
This form covers any interest over $10 earned from a financial institution.
This covers benefits from long-term care insurance.
Did you get over $10 in patronage dividends from a co-op?
This form covers money built into a 529 account towards college tuition. If you solely use the money for education then they're not subject to tax.
Did you close any real estate sales? If you sell your house, the proceeds aren't always taxable. But it's still income to be reported.
Did you take any distributions from health accounts? They're often not taxable, they're usually just for record-keeping. If you're paid less than $600 in a financial year by a company, they don't need to send a 1099 form but you still need to declare the income.
Understanding what is a 1099 misc form comes with its responsibilities. Does all of this sound a bit confusing? Don't worry you're not alone! The first step is to simply keep records of all of the income you earn. That way, preparing your tax return will be straightforward and hassle-free. Got more questions about your 1099 misc form? Be sure to check this out and have all your questions answered! Remember to also produce your own paystub as your income document!