One question that you will see on Schedule C "Profit or Loss from Business" and Schedule E "Rental" are:
Did you make payments where you were required to file 1099's?
If "yes," did you file the 1099's?
Have you ever wondered what that actually means? Usually, 1099-MISC would be issued for these cases. Common words associated with this form are contract laborers, commission, etc. Let's discuss what that is.
What is a 1099-MISC? This is a form used to report certain payments made to a recipient in any given tax year.
Who do I need to issue a 1099-MISC to? Should I receive a 1099-M?
Any recipient that was paid the following would receive a 1099-MISC:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in rents, services (including parts and materials), prizes and awards and 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 or, generally, the cash paid from a notional principal contract to an individual, partnership or estate;
- Any fishing boat proceeds;
- Gross proceeds paid to an attorney.
Are there exceptions?
There are always exceptions. Some payments do not need to be reported on a 1099-MISC. I will list a few:
- Payments to a corporation (Note the "gross proceeds paid to attorney" from above. Corporation or not, they still need a 1099-MISC issued if they were paid more than $600.)
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
- Payments of rent to real estate agents. But the real estate agent must use For 1099-MISC to report the rent paid to the property owner.
- Wages paid to employees (use W-2's).Payments made electronically may be recorded via 1099-K forms issued by the payment processor.
There are other exceptions but these are most common.
A few other items I would like to point out:
- Be sure to get W-9's filled out at the start of work. This form is a formal document requesting all needed information from the contract laborer. This will help to avoid not being able to get the information that you need to fill out the 1099 at year-end.
- If you are not sure if a recipient would need a 1099, it is better to have the W-9 on file that to not.
- Income is income. There could be instances where someone did not follow the rules and you were not issued a 1099-MISC or perhaps you were not paid over $600 from any given person. However, if this was truly income, you are required to report it as such.