What Is a 1099?
If you want to stay on the IRSâ€™s good side in the coming year, itâ€™s important to keep up to date on the latest small business tax requirements. Below is a brief primer about the 1099 form and what it means for your SMB this year:
Understanding the 1099 Form
Contrary to popular opinion, the 1099 form actually refers to a series of documents known as information returns. While employers report the earnings of traditional workers on W-2 forms, payments to contractors are recorded on 1099 forms. Basically, 1099s are what the IRS uses to keep track of funds workers receive throughout the yearâ€”and funds employers pay out to their service providers.
Itâ€™s important to note that 1099 forms come in different varieties. While employers are required to send a 1099 for each contractor earning $600 or more over the course of the tax year, individuals can also receive these documents for dividends and distributions on mutual funds, traditional IRA withdrawals, unemployment benefits, and even real estate transactions. If you receive a 1099 form, be sure to take the information into consideration when assessing your tax burden. Remember: the IRS receives a copy of every 1099 that you do and will expect you to plan your finances accordingly.
Challenge of Classifying Employees
As a small business owner, itâ€™s important that you classify workers accurately when reporting income to the IRS. Moreover, companies thatâ€”deliberately or mistakenlyâ€”classify full-time staff as contractors could face legal issues down the line.
Take, for instance, the startup known as HomeJoy, once considered the Uber of the home cleaning world. This formerly successful business was compelled to shut down in 2015 after workers filed lawsuits over their classification statuses. Because they were given training, the workers could claim they were being told how to do their jobsâ€”something thatâ€™s not allowed for independent contractors.
These suits made it difficult for HomeJoy to raise the funding needed to survive. As a small business owner, itâ€™s important to consider not just the hours a staff member workers but also on-the-job training for classification purposes.
Fast Facts About the 1099
- Â Employers must send forms to independent contractors and service providers by January 31.
- Employers must obtain TINs from all affected payees
- 1099s are required for any contractor earning $600 or more annually.
- Payments to corporations must be reported.
As a provider of services, you should contact the IRS if you havenâ€™t received a 1099 by February 15. To access a substitute form to file your return, call 800-829-1040. Additionally, you should be sure to report any and all errors to the payer ASAP so he or she can correct them with the IRS.
Contact Accurants for Your Tax Preparation Needs
Accurantsâ€™ online accounting platform is perfect for accountants and non-accountants alike. Not only can you track budgets and sales leads, but you can also reconcile Accurants with your bank and credit card transactions, making life a hundred times easier come tax time.
Sign up today to try Accurants free for 30 days or call about our expert tax preparation services. Our goal is to ensure you never miss a potential deduction