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1099 Tax Form Deductions

Form 1099 summarizes certain payments you made to individuals or businesses during the year. There are many different 1099s, however, the one thing they all have in common is that they are all informational returns. You may receive a Form 1099-MISC if you provided services to a business, a Form 1099-INT if you earned interest income, a Form 1099-K if you received payments through a third party network such as paypal or Airbnb, or a 1099-G if received payments from the Government, like your tax refund. While it may seem confusing, generally the most relevant 1099 for sole proprietors and entrepreneurs is Form 1099-MISC, which reports each person who you have paid over $10 in royalties or $600 in rents or services (amongst other things) to. You can think of the 1099-MISC as a W2 for contractors; if you are a business it is important you issue these, if you provide services for others it is important you receive these.

UBER DRIVER / RIDESHARE

Speedy Wheeler is a driver for Uber and considered to be a self employed contractor, not an employee. At the end of January Speedy he received his 1099 from Uber, summarizing his fare income for the year, and used it to prepare his Schedule C.

LANDLORD / AIRBNB HOST

Last May Homer House, an Airbnb Host, paid a contractor $2,500 to repaint his rental property. Homer provided a 1099-MISC to his painter in January, a copy to the IRS along with his 1096 at the end of February, and in April, when he prepared his Schedule E, he checked the Line A and B boxes "Yes".

ENTREPRENEUR

Alice is a sole proprietor architect who paid a law firm $1,500 last year to draft a standard customer contract. When Alice asked her lawyer for her firm's TIN so she could complete a 1099-MISC, her lawyer responded that payments to attorneys are not reportable and that since her law firm is organized as a corporation it is excluded from 1099 reporting requirements. Alice, an avid 99deductions reader, knew better. Alice sent her lawyer the excerpt from the IRS 1099-MISC instructions stating that payments made to attorneys, even those organized as corporations, are reportable. Alice had her lawyers TIN by the end of the day and she successfully prepared and filed her 1099s on time.

DESIGNER

Ali is a solo website designer who often contracts with other developers to help him complete large projects. Last year, Ali paid all of the developers he contracted with using paypal. Since PayPal is a third party payment network, Ali would not have to issue 1099s to these contractors.

AUTHOR / SPEAKER

Maddie makes her living as a motivational speaker. Maddie paid a contracted editor $21,000 last year to review her speeches. On January 31st she issued a 1099 to her contractor for $210,000, on February15th the contractor informed her of the mistake. Luckily for Maddie, since she was waiting until February 28th (due date for paper filings) to submit copies of the 1099s she issued to the IRS, correcting the error and reissuing the 1099 was a breeze!

1099 INSTRUCTIONS

Generally, you are required to issue a 1099-MISC to each person or business you paid over $600 to for rents, services provided by a non-employee, payments to an attorney, prizes and awards, medical and health care payments, crop insurance proceeds, cash payments for fish and fishing boat proceeds. You can refer to IRS 1099-MISC instructions for a complete list of requirements.
There are a few exceptions to the general reporting requirements. In most cases you will not need to issue a 1099-MISC for payments you made to a corporation, payments you made to anyone using a credit or debit card, payments you made through a third party payment network (paypal), wages you paid to your employees or for merchandise purchases. You can refer to IRS 1099-MISC instructions for a full list of exceptions.
If you are an Uber driver, Airbnb host, real estate agent, professional services provider, or any other form of contractor, you will likely receive a 1099 from whoever you provided over $600 of services to. Hold on to the 1099s you receive and use them to help you report your gross income when you prepare your tax return.
If you are required to prepare 1099s you typically must issue them to your service providers by January 31st. You have until February 28th to file the IRS copy along with your 1096 (summary of 1099s issued). If you are filing electronically you have until March 31st to submit to the IRS.
To prepare a 1099, you will need the name, address, tax identification number (TIN) and amount paid to your contractor during the reporting year. Sometimes this information can be hard to come by if you have already paid a contractor for services. Best practice is to require that your contractors provide you with a completed W-9 (request for taxpayer identification number) before you pay any outstanding bills.

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IRS PUBLICATION

Schedule C Instructions

IRS PUBLICATION

Schedule E Instructions

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