How to Generate a Form 1099-MISC
If you own or manage a business that recently hired an independent contractor, you need to know how to generate a 1099-MISC. Additionally, if you are the independent party, keep in mind this is the form you will need once tax season rolls around. A 1099-MISC has its own unique process of filing a traditional employee's W2, which might take some getting used to.
To understand the basics of this process, you have to understand what a 1099-MISC is, who qualifies for this filing system, and how to file it.
What Is a 1099-MISC?
A Form 1099-MISC reports business payments made to a contractor to the IRS. It helps the government track how much money independent businesses are making. Some companies use them, as well, as a way to track their spending. The form 1099-MISC is then used by a contractor to calculate the amount of income taxes owed. Since he or she does not operate on an automatic withholding system, the pay stub is the most accurate method of tracking money earned over a year's time. It consolidates all projects and commissions into one place for the IRS to track.
Who Is Considered a Contractor?
A 1099-MISC applies to any contractor who provides a business service, not a personal service. Common forms of this kind of work include freelance creative jobs, like writing, photography, or web design. Private consultants or one-off contracts like an accountant filing your taxes may apply as well. It can also include roofing and lawn services, so long as they are used for the purpose of a company, not an individual.
Basically, if a lawn service mows your lawn, it is considered a personal service and does not require a form 1099-MISC. However, if they landscape your business and you pay more than $600, it is considered a business transaction and requires filing. A good rule of thumb is to prepare this form for any sole proprietor or LLP. Small businesses like an S-Corporation, C-Corporation, or LLC do not need a 1099-MISC. There is a grey area when it comes to some attorneys and medical providers. Even if your attorney is considered a corporation, they need this form. Same goes for medical services that are for-profit.
How to File a Form 1099-MISC
- Once the service is completed and paid for, the customer fills out a 1099-MISC.
- This is a multi-sheet form; the contractor keeps one copy and sends another to the IRS.
- You will need to know the details of your provider. Most importantly, their legal name and business name, federal tax classification, exemption codes and address.
- If you paid on credit or using a third-party like PayPal, file a 1099-K.
- Most forms are self-explanatory, but to be sure you are filing correctly, use the IRS box-by-box instructions.
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