It's that time of year again. A new year means the need to prepare for 2022 taxes while you run your business. The goal here is to make sure you connect with your tax professional early and get the forms you need to file out as soon as possible. You may be a sender or a recipient of Forms 1099, so be sure you are planned for them and you meet the filing deadlines.
There are a number of Forms 1099 that the IRS has so make sure you are familiar with each. Never expect the IRS to make things simple for you.
Form 1099-NEC
The first one on your plate should be the 1099-NEC. NEC stands for Non-Employee Compensation. Think of contractors that you pay either by check, by PayPal, Venmo or whatever other payment method you choose. Even if you use barter, there will be a 1099 associated with it if it was in exchange for services performed for you. This form is due to the IRS and to the recipient by January 31st. Look into the filing requirements to determine if you need to file electronically. Also, make sure you have time to either hand deliver or mail the 1099s to the recipient.
The requirements here are that if you paid $600 or more to any independent contractor you must file Form 1099-NEC with the IRS. Make sure you go back through your accounting records as well as double check against the source of payments. For example, if you look in QuickBooks and you paid Joe Smith $750 and you pay all your vendors by check, go back to your bank account and double check that all the checks you paid add up to $750. Make any adjustments that are necessary to get to the true number.
Are you a recipient of Forms 1099 for services you perform for others? Reach out to them as a courtesy to see if they have it on their list to send you the forms you need. If they are a small business, they will be grateful that you reminded them to do this.
Assume you worked for a company as an independent contractor and they send you a 1099 for $7,500 and your records indicate you got $8,200 from them, don't just take their number, go back to them and let them know that your records differ from theirs and reconcile the numbers with them. If you knowingly underpay your taxes based on information you know is wrong, the IRS will levy penalties and interest on you, so don't accept someone else's information unless you are in agreement.
Once you have all of your 1099-NEC forms sent out and all the ones you expect in hand, then you look at whether you need to do the next one.
Form 1099-MISC
Now that form 1099-NEC is completed by January 31, it's onto Form 1099-MISC. With this one you have until the end of February if you file on paper and the end of March if electronic. Review the types of payments you made so you know what forms you need to send out and look at the types of payments you received so you can anticipate any 1099-MISC forms you may receive. If you expect to receive any, don't file your taxes before the deadline because you will need to file an amended return.
While the $600 threshold exists for many of the payments, there are a few here that don't fall into that category. For example, if you paid at least $10 in royalties or broker payments in lieu of dividends or paid tax-exempt interest the you must file. These are uncommon for many, but keep that in mind. Furthermore, if you made direct sales of $5,000 or more of consumer products to a buyer for resale that doesn't have a permanent retail establishment you will need to report that. An example is if you were a drop-shipper who sold to someone who sells online.
The other items are the $600 or more threshold that include payment of rent (most common for business owners), prizes and awards - like if you gave away a TV in a contest, other income payments and a number of other items. Look at the IRS website here for the full list
I would recommend you look at each form and make a checklist of items required to be reported and then you will know if you have a filing requirement.
Disclaimer: This article is for information purposes only and does not constitute tax, legal or financial advice. Speak with your tax preparer or financial advisor to make sure you are in compliance with IRS requirements.