As someone else’s employee, you were probably used to getting a W-2 at the end of the calendar year which reflected your gross earnings and taxes withheld on your behalf. You needed this in order to file your tax return to prove your income and tax payments already made.
A 1099-MISCis essentially the same thing, only it’s provided to Independent Contractors to prove the income they received from you. As a business owner, you are required to give 1099-MISC’s to any independent contractors that worked for you in a calendar year and that you paid at least $600 or more (this does not include any payments made via a credit card…credit card companies issue their own form 1099 to your vendors where a credit card was used for payment). You will be asked by your tax practitioner if you issued 1099’s to your vendors. This is a question with a required answer on your corporate tax returns.
Now, not every single vendor needs a 1099-MISC form. So, how do you know which vendors to send these forms to? First, I would highly recommend reading these instructions provided with the form from the IRS. This delineates pretty clearly who needs a 1099. The general rule of thumb: If they are NOT incorporated (a sole proprietor) and you paid them more than $600, you need to issue them a 1099-MISC. Finally, these are due to your vendors by January 31st of each calendar year.
Most any tax practitioner or bookkeeper can help you complete these forms if you do not feel comfortable tackling the task (this is a service we offer). You are able to order special IRS red forms here. The form is updated each year and the instructions can change annually as well; it’s important to stay on top of these guidelines. If you file a paper form, you will also be required to file form 1096. This form is a summary of ALL of the 1099’s you filed for any given tax year.
If you would rather file electronically, there are several great online resources for doing so. A simple Google search will lead you to several different options that vary in cost and service offerings. The best thing about electronic filing? You don’t need special red forms and you don’t need to file the 1096!
Happy Tax Season!