If nothing, this year has taught us that we should be prepared for different and sudden changes. It has hit a lot of aspects of our lives, including 1099 forms. This information is especially important for people who are either contractors or have hired someone who is.
If you are just getting started or your company is contracting outside help, then you are probably familiar with the IRS Form 1099. Maybe you do not know every single detail about it but you have probably at least heard of it.
To many, it sounds too complicated. Something that requires too much time, but actually it’s not really the case. If you have the right tools and processes in place, you can actually be done with it faster than you think.
If you are not sure where to begin and how to prepare it, we will give you a list of things that might be helpful to you. You need to take care of the basics before doing anything else, so let’s begin!
What Does This Form Represent?
Starting From Scratch
Before we start explaining the preparation, let’s first learn more about this form. So, if you hire someone, for instance, a gig worker, a freelancer, or anyone else and you pay them more than 600 US dollars then you are obligated to prepare and issue an IRS Form 1099-MISC.
Why does that matter? It has to be done, so they can file for an income tax return. Furthermore, this document is used by small businesses, independent contractors, or any other individual that isn’t an S or C-level corporation.
They use this document to report how much they’ve earned as well as determine how much they will owe. It’s important that you send out this form to anyone you’ve hired and paid more than 600 US dollars. Moreover, this also involves LLCs or any partnership you have contracted.
How To Prepare It?
Track Your Records
The first step you have to take during this process is to gather all the information you have about your independent contractors. You probably remember that you have filled out the Form W9 before you have hired anyone.
This form should contain the name, the address, and Social Security Number (SSN) or Employer Identification Number (EIN). It would be advisable to see if that person has changed any of this information before you continue with the process.
Acquire The Forms
It may seem logical that you should just find the paper forms on the internet and simply print them out, but unfortunately, that’s not how things work and the IRS would definitely not accept them. You need to get the official 1099 forms from the real source. Where to go?
1 – From your payroll software provider: For example, you can utilize an accounting program such as FreshBooks.
2 – From the IRS: Go to their official website if you want to obtain this form or you can just contact 1-800-TAX-FORM (1-800-829-3676).
3 – From an accounting corporation: Most local accounting companies have a plethora of these forms. Buy it from them.
4 – From an office supply store: Find the nearest office supply store and see if they have it. They usually do.
Calculate Your Deductions
To many, this seems like a never-ending process. Creating a list of 1099 deductions is a bit exhausting, but you simply must calculate them. Start by deducting any costs that are classified as “ordinary and necessary”.
This means that you need it to do your tasks and it is also an expected part of your job. Further, there are some expenses that you shouldn’t count as deductible, such as acquiring expensive business clothes.
Besides this cost, other common expenses involve things like gas to drive people, any brand-new software or computer, as well as electricity expenses if you are working from home.
Complete The Forms
One of the first steps you have to take is to determine the gross income for the last tax year. This shouldn’t be anything too complicated. Just add up the amount on each 1099 form you have.
The second thing that must be done is to utilize Schedule C to add up all your deductible business costs. That means that if your costs are less than 5,000 US dollars, plus you do not have any workers and you are not deducting for your office at home, then you can freely utilize Schedule C-EZ. This option is much more efficient and faster.
Make sure you have obtained form 1040. This one is important because you will have to write down all your expenses on it to uncover your net income. This form comes with the table that contains instructions as well as your net income. They should help you determine how much you owe in state taxes and income.
After you’re done with this, ensure to calculate your Social Security and Medicare contributions. The rate for 2017 is 12.4% of your income for Social Security and 2.9% for Medicare. Add these amounts on form 1040 and also add them together to determine your self-employment tax total.
Send The Forms To Vendors
Don’t forget to send a copy of the 1099-MISC forms to all your contractors. Do it as soon as you can to give them enough time to include it in their personal tax returns and report their yearly income. It’s important to respect the deadline, because if you don’t, the IRS may penalize you with fines.
Submit The 1099 Forms
There are two ways you can do it. First, you can do it by sending them via e-mail. This is the most common way. You should do it no later than January 31 of the year. Make sure to incorporate the 1096 form as well.
The second option is to do it online, through the IRS’s online submission service by utilizing the Filing a Return Electronically system (known as FIRE). This shouldn’t be too complicated for you to do.
Wrapping It Up
All these things that we named probably seem a bit too scary for you. But don’t worry, it only looks like this because we wanted to make sure that everything is listed and that nothing is forgotten. Of course, this requires a bit of your time and effort, but it’s doable, just like everything else.