Outsourced Accounting / The 1099 Story: Which Version Should You Be Using?

The 1099 Story: Which Version Should You Be Using?

As each calendar year draws to a close, many businesses have to think about their tax filing responsibilities. It can be confusing to figure out which forms to send out, especially as the IRS made some changes to its venerable Form 1099-MISC, Miscellaneous Information, a few years ago and assigned some of its former responsibilities to the relatively new Form 1099-NEC, Nonemployee Compensation.

Do you have freelancers? Many businesses use freelancers, i.e., independent contractors, instead of or in addition to regular employees. Companies need to send these workers 1099-NECs if they paid them at least $600 during the year. A copy of Form 1099-NEC must be provided to the independent contractor by Jan. 31 of the year following payment. You also must send a copy of this form to the IRS by the same date.

What about other payments? Although Form 1099-MISC is no longer applicable for freelancers, it still has plenty of uses:

  • Rent payments.
  • Prizes and awards.
  • Other income payments.
  • Medical and health care payments.
  • Crop insurance proceeds.
  • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
  • Generally, the cash paid from a notional principal contract to an individual, a partnership or an estate.
  • Payments to an attorney.
  • Any fishing boat proceeds.

All these sources of income require Form 1099-MISC for payments of at least $600. However, for royalties or broker payments in lieu of dividends or tax-exempt interest, the threshold is $10. In addition, Form 1099-MISC is used to report direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

And don’t forget Form W-9

It’s important for independent contractors to send Form W-9 to any client they’ve worked for during the year. It basically confirms the contractor’s name and Taxpayer Identification Number, and companies need this information to properly fill out Form 1099-NEC when tax season rolls around.

This is just a summary of the 1099 situation for both companies and payees. There are other rules and provisions. No matter your status, make sure you work closely with a tax professional so you meet all your responsibilities.

How Can BlueStone Services Help?

Don’t worry if the thought of tax season already has you sweating. Our expert accounting team can help lighten your load by gathering, organizing and verifying all the necessary financial data to make sure that everything is accurate when it comes time to file those 1099 forms! Let us handle this complicated task now so you don’t need to stress out later – take advantage right away and free up more time for what really matters in managing your business. Contact us today to get started. 

Keep informed
Receive tips on how you can use outsourcing to save time and improve your business processes.

Related Articles

02/07/2024

Choosing a Business Structure: C Corps, LLCs, PCs and S Corp

How to structure your business is one of the first, and most important, considerations a business must make. Following are details about four

Read More  
02/07/2024

New Independent Contractor Rules: Do They Affect Your Employees?

The Department of Labor’s final rule for employee or independent contractor classification under the Fair Labor Standards Act rescinds the 2021

Read More  
01/08/2024

Payroll Tax Rates and Contribution Limits for 2024

Understanding payroll tax rates and contribution limits is crucial for both employees and employers as it directly impacts financial planning,

Read More  
BlueStone-logo