In a few short months, 2023 will be here and with it comes tax season. For small business owners, sending out 1099s is a common tax season activity.
An Internal Revenue Service 1099 form reports money that was not received from an employer such as independent contractor income or stock dividends. Many business owners wonder who needs to receive a 1099 and have questions about the form. This is not unusual as the 1099 form is one of the most misunderstood IRS requirements. Here is “must-know” information to help entrepreneurs and small business owners understand and manage the process of issuing 1099s.
Who Receives a 1099 Form?
Several variations of the 1099 form exist for a variety of circumstances. The most common forms are the 1099-NEC and the 1099-MISC.
The 1099-NEC form is used for non-employee compensation. The form reports:
- Non-employee income over $600 paid to independent contractors and freelancers, self-employed people and 1099 employees
- Commissions
- Benefits
- Attorney fees (not services)
The 1099-MISC form is used for information related to miscellaneous income. This form includes the following information:
- $10 or more paid for:
- Royalties
- Broker payments instead of tax-exempt interest or dividends
- $600 or more paid for:
- Fishing boat proceeds
- Non-qualified deferred compensation
- Crop insurance proceeds
- Rents
- Prizes and awards
- Medical and healthcare payments
- Attorney services (not fees)
- Cash from a notional principal contract
- Purchasing fish for resale
While these are two of the most widely used forms, the IRS produces more than 20 more. Small business owners are encouraged to review all the forms at irs.gov prior to tax season. In addition, PA Business One-Stop Shop is an excellent resource for understanding Pennsylvania sales and use tax as well as other important topics for small business owners. Keep in mind that 1099s are mainly for check or cash transactions and are not needed if a transaction is paid through PayPal, Venmo or bank transfer.
Manage Deadlines
It is never too early to begin learning about the 1099 process and working it into your schedule for January. Business owners typically have until January 31 to mail their IRS 1099 forms to service providers and contractors. This information must also be shared with the IRS by February 28. This gives business owners several weeks to correct any errors in the 1099s sent out in January before sending them to the IRS. Regardless of whether you send both copies on the same date, or within the 30-day gap, don’t miss either deadline.
Your payroll or bookkeeping departments can save time for this process by obtaining W-9s from all vendors. A W-9 is a standard IRS form used to share a tax identification number (also known as an employer identification number or EIN), or your Social Security number, to another person, bank or other financial institution.
Save Time with an Accounting Platform
With little time and busy workloads, entrepreneurs and small business owns can benefit from using a business management platform such as QuickBooks®. In addition to providing an easy management platform for issuing 1099s, QuickBooks offers accounting, virtual bookkeeping, payroll, time tracking and e-commerce services. QuickBooks offers a product line specific for small businesses, which can save busy business owners and professionals time and eliminate the worry about potential mistakes.
Make 2023 the year sending out 1099s moves quickly off your “to do” list by managing deadlines, reviewing the many versions of the 1099 forms and exploring a business management platform.
Get Connected Today
Contact Gift CPAs for more information about issuing 1099s and other tax and accounting services.
We have years of experience working with small businesses to help with bookkeeping, taxes and other business needs. Make an appointment to meet virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata or Lancaster!
