Understanding the 1099

Often times, people will get 1099-MISC forms in the mail…and then feel unsure about what those forms mean or what they’re supposed to do with them. If this happens to you, don’t worry. Appropriately handling your 1099-MISC form is not difficult.  

When you get one of these forms, the first thing that you should know is that you’ll need to report the related income on your tax return. You will also be required to pay income tax and self-employment tax on these funds.

And, if you’re wondering why you’re getting one of these forms in the first place, it’s simply because you did work for someone as an independent contractor. Since you’re not a full-time employee of this person or organization, you get a different form than the standard W-2 that regular employees get.

1099-MISC Forms for Businesses

If you own a business and are receiving the form as a business owner, how you will need to report the income is a bit different and will vary depending on the type of business you own. For sole proprietors or single-member LLCs, you can report the income on Schedule C- Profit or Loss from Business.

Partnerships, multiple-member LLCs, and corporations, on the other hand, will include 1099 income as part of their business income tax returns.

If your situation or business doesn’t fit neatly into one of the above categories, then it may be smart to speak with an experienced accountant about your situation.

At the end of the day, it is imperative to correctly report income earned from contract work, whether you’re an individual, a self-employed person, or a business. Make sure you do it the right way and thus avoid penalties and fees by seeking help from a professional.