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Since I get a lot of calls in January about 1099’s MISC, I decided that this would be a great topic for year end. For those who don’t know, a 1099 MISC is a tax form used to report miscellaneous income, including income earned as an independent contractor.
To begin the process, you must obtain a completed W9 from the individual who will be receiving the income. Ensure that the name is the individual’s name, not the business name. The business name has a separate line. However, the business would be correct for a partnership, limited liability company or corporation.
Who gets a 1099? Individuals, partnerships and most limited liability companies would be candidates if they meet the income criteria. S-Corporations and C-Corporations do not generally receive 1099s.
Due dates for the 1099-Misc are:
To the Recipient – File Copy B is due January 31. This due date is extended if you are reporting payments in boxes 8 or 14.
To the IRS – File Copy A is due February 28. If you file electronically, the due date is March 31. To file electronically you must have the appropriate software.
You can order 1099 forms from the IRS and they are FREE!
Box 1 – Rents $600.00 or More:
For real estate rentals paid for office space, machine rentals.
Box 2 – Royalties $10 or More:
For gross royalty payments made, which are usage-based payments made by the Licensee to the Licensor for use of intangible property (music, intellectual property, franchise payments).
Box 3 – Other Income $600 or More:
For award money or merchandise (report at fair market value), sweepstakes prizes or game show winnings received. This would not be used for reporting gambling winnings; a W2G is the form used to report those winnings.
Other Income would also include monies received for participating in medical research studies, punitive damages. There is actually a comprehensive list on the IRS web site..
DO NOT include in box three payments made for services received. This is considered non-employee compensation and would be reported in box 7.
Box 7 – Nonemployee Compensation $600 or more
For someone who is not your employee that you paid for services in the course of your business. This non-employee can be a sole proprietor, a partnership, a limited liability company (LLC) or an attorney. Examples of payments made that would be subject to non-employee compensation reporting would include:
Professional Services: This is your independent contractor: accountants, architects, consultants, computer guy/gal, cleaning person, coach, etc.
Travel reimbursements: Paid to an independent contractor (IC) and IC did not report the expenses under an accountable plan. An accountable plan is when an expense report is completed and receipts are presented for reimbursement.
Bartering of services between individuals in the course of their business: For example, I hired my client, ABC Flooring to install a new floor in my office. In exchange I will prepare his/her tax return. No money is exchanged, but this still holds as a reportable event.
Fringe Benefits to ICs: This may include a company car, health insurance, life insurance, free services, etc.
Legal Services: All attorney fees are reported regardless if the attorney is a corporation.
I only listed a few of the many reasons why you would report non-employee compensation on a 1099. Here is a complete list.
Box 14 – Gross Proceeds Paid to an Attorney
Report all gross proceeds made to an attorney during the course of your business even if the attorney is a corporation. Gross proceeds are different than fees in that gross proceeds are paid when a lawyer wins a settlement (the attorney’s cut).
As you can see, I did not cover every box on the 1099. For comprehensive instructions, visit the IRS web site.
